FINANCE AND INVESTMENT
IN any other circumstances than the present Sir John Simon's first war Budget would justly be described as brutal. True, it makes certain allowances for those caught by the dislocation inseparable from the transition to war conditions, but its underlying principle is tax to the utmost limit and avoid inflation. The City has been squaring its shoulders to take a heavy load of additional taxation, but I cannot help feeling that the load itself is even heavier than had been expected. A 7s. 6d. income-tax, plus higher surtax and estate duties, accompanied by a pretty widespread increase in indirect taxa- tion, are a significant beginning in the financing of a three- year war ! I feel, all the same, that the City and the general body of investors will not complain. As I have stressed in these notes, the Chancellor's problem is to appropriate a much larger proportion of the nation's income to Government uses and there is no sounder way of achieving this end than by using the weapon of taxation.
On a rough and ready basis, out of an expenditure of about £2,000,000,000 for the current financial year, just under ,000,000,000 is to be raised by revenue, leaving about £950,000,000 to be met by borrowing. Nobody knows, of course, what the actual expenditure will be, but as a start £1,000,000,000 of revenue is not bad going. Nor do we know yet what sort of loans the Treasury has in mind. Apparently, the loans will take varying forms designed to suit differing investment requirements, and one may hope that despite the huge borrowing programme envisaged—next year's borrowing will have to be well over £1,000,000,000— the Treasury will not be jockeyed out of its cheap money policy. In the meantime, it is obvious that something will need to be done in the not too distant future to thaw the gilt- edged market. A reduction in Bank Rate would, of course, be the ideal start followed by a little judicious support from Whitehall. It should not be too difficult a problem to finance even the enormous borrowing now in sight at an average rate of 4 per cent. With taxation at its present level, 4 per cent. gross is, in my view, as little as the ordinary investor should be asked to accept.
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