THE FINANCIAL OUTLOOK.
THE revenue returns for the year 1914-15 are, so far as they go, most satisfactory. They show that, in spite of the war, the yield of the revenue has far exceeded Mr. Lloyd George's anticipation in November last. He then expected that, as a result of the war, the revenue from the existing taxes would heavily decline, so that the yield from those sources would be only £195,796,000. The new taxes imposed were, according to the final estimates made in December, when the Budget had passed the House of Commons, expected to bring the total revenue for the year up to £209,206,000. The actual yield is £226,694,000, or roughly seventeen and a half millions in excess of the estimates made as recently as December last.
We are justified in drawing the conclusion that the economic vitality of the country has been more than maintained, in spite of the strain imposed by the greatest war in which we have over been engaged. This is a tremendous proof of the general soundness of our
industrial and commercial system, and incidentally it may be added, even at the risk of repeating an oft-told tale, that these facts entirely disprove the foolish pre-war prophecies identified with the name of Mr. Norman Angell. But any satisfaction that we may feel in contemplating the revenue figures of the financial year which has just come to an end is diminished by the reflection that oven these huge totals represent an inadequate contribution to the expenditure which the country has bad to incur. The total expenditure in the year just ended was £560,474,000. Out of this about $205,000,000, as nearly as can be ascertained from the published figures, is accounted for by the peace expenditure of the Government, including the interest up to date on the war debt already incurred. This leaves the war expenditure at roughly ..£355,000,000 for the eight months of war that have now elapsed. Com- paring these figures with the figure for revenue, it will be seen that the revenue has exceeded the peace expenditure by something over twenty-one millions. That is the whole contribution made out of revenue to the war expenditure, leaving • sum of about £334,000,000 to be borrowed. When it is remembered that in the Crimean War about half of the total war expenditure was met out of revenue, it will be seen that we have travelled a long way from the Gladstonien tradition of finance. The important problem now to be considered is to what extent we are to continue this practice of borrowing in the future, and, further, what provision we are to make for meeting the annual cost of the loans raised, and also the annual cost of the obligations con- tracted towards widows and orphans and wounded men.
The two problems am distinct. Everybody agrees that we must raise sufficient revenue in the future to meet what may be called the permanent annual burdens which have been or will be placed upon the country. Obviously we cannot, when peace is restored, continue to meet our annual obligations by fresh borrowings. How far the provision made last November for increased taxation will suffice for this purpose is not yet clear. Mr. Lloyd George then gave provisional estimates of the anticipated yield of these new tales, and, according to the figures then given, there should in the year now current be enough to meet all annual expenditure, including the new annual burdens created by the war, with a margin left over for meeting current war expeuditure. It is, however, useless to quote these figures because all the calculations then made seem likely to be upset by, on the one hand, the unexpectedly large yield of the revenue in the last few months, and, on the other land, by the rapid extension of the area of the war and the scale of our expeuditure. We are spending money and making commitment, with a lavishness never before dreamed of in our financial history. Not only are we maintaining im- mensely larger armies than ever before in the field, but we have committed ourselves to unprecedentedly liberal allow- ances to all those who suffer personal losses as the result of the war. This remark is in no sense intended as a criticism of the liberality adopted. We are looking at the problem for the moment solely from the cold point of view of the figures themselves, and it may be that when these colossal commitments are added up it will be found that they more than exceed the revenue available for meeting even the heavy new taxes imposed last November. In any case, it may fairly be stated that there will not be a very big margin of revenue to serve as a contribution to current war expenditure. The question whether that margin should be enlarged is one of policy on which opinions differ. A section of the community, and especially the section composed of rather substantial taxpayers, takes the view that as pos- terity will enjoy the advantages of the war, posterity ought to pay for it. It is strongly to be hoped that the Government will reject this view. It cannot truly be said that the whole advantage of any war accrues to posterity. Obviously cases may, and often do, arise where posterity only obtains the disadvantage ; but in any event a war is the act of the particular generation of people who bring it about, and they themselves ought to bear part, at any rate, of the cost of their undertaking. On the whole this is the view that is more likely to commend itself to the present Cabinet than the laxer view of those people who wish to throw the whole cost on to posterity.
When we come to consider by what means additional revenue can be raised we are met with very grave diffi- culties. Already the Income Tar has been doubled, so far
WI the year now current is concerned, and even Mr. Lloyd George is not likely to propose much increase in this direction. As to the frequently made suggestion of raising revenue by means of Customs duties, it must never be forgotten that both theory and experience prove- the impossibility of obtaining any large amount of revenue, except by heavy taxes upon articles of popular consump- tion. The often-proposed taxes on articles of upper-class luxury may be morally justifiable, but financially they are unprolific. At most a few millions could be obtained from this source, and the interference with trade and the administrative difficulties involved would largely counter- balance the financial advantage to be gained. On the other hand, the main articles of popular consumption are in most cases already very heavily taxed, and in these cases any increase in the tax might result in a diminution of revenue. This consideration does not possibly apply either to tea or sugar. The probability is that both these great staple articles of popular consumption could bear some increase of taxation and yield an appreciable increase of revenue. Out of the two together possibly $6,000,000 a year could be obtained, but in view of the rise in prices probably the extra tax would be considerably discounted. It is even more doubtful whether tobacco can be made to yield much more than it does now. The question of taxing popular amusements has often been discussed, and it is possible that some revenue could be obtained by taxing theatre tickets (as is done in many countries) and tickets for cinema shows and race meetings. But none of these things would yield a very big revenue, and oue can excuse a Chancellor of the Exchequer who hesitates to impose a; new tax which is certain to lead to popular resentment unless he is sure of obtaining a fairly large revenue to compensate him. Therefore it is probable that the Government will find themselves driven back by a process of exhaustion to the scheme which Mr. Lloyd George half indicated in his Budget speech of November last. He then made it perfectly clear that ho was himself in favour of extending the Income Tax downwards so as to include wage-earners, and he almost went so far as to imply that he personally would have been willing to introduce this revolutionary change at once, but that the Cabinet as a whole were in favour of proceeding cautiously. If this is the correct view of the situation within the Cabinet, it may fairly be assumed that the experience of the past six months has greatly strengthened the hands of the forward party. The country as a whole is certainly more fully seised of the seriousness of the war than it was six months ago, and is therefore more fully prepared for drastic financial measures. In addition, the wage-earning classes have on the whole profited extraordinarily by the war. In nearly all ranks wages have been raised, in some cases immensely, and though it is true that the cost of living has gone up, on balance the wage-earning classes are undoubtedly better off than they were, and that, of course, is one of the main reasons for the recently developed trouble with the drink problem. Taking these two facts together, it is possible that a step that was particularly difficult last November might be quite politically feasible at the present time. The administrative difficulties are un- doubtedly still great, and might have been described as almost insuperable before the National Insurance scheme came into operation. That scheme has accustomed the wage-earning classes to see their weekly wages regularly docked by their employers for the benefit of the insurance fund. Men and women who have accepted this system can be induced without any very great additional pressure to accept a further deduction by their employer from their wages for the purpose of contributing to the national revenue.
Admittedly this is a big step to take, but it is certainly a step worth taking. It has a political as well as &financial value. It may, of course, be argued that during the emergency of war we ought not to be worrying our minds about political or Constitutional issues ; but it is fair to answer that when war renders possible a great Constitutional reform which in time of peace would be extraordinarily difficult we are justified in using the fact of war to secure this reform if simultaneously the reform itself provides the means for carrying on the war. The latter point needs little proof. The wage-earning classes represent the enormous majority of the population. The wages of many of them are undoubtedly still extremely low,
but many have long passed the point which the poorer pro- fessional classes would regard as a comfortable income. Yet the Inland Revenue Department is stated to be by no means as strict as it might be in the matter of levying Income Tax upon weekly wage-earners even when the wages earned are well above the Income Tax limit. That laxity, if it exists, ought not to be tolerated, but it is probably difficult to effect a reform of this anomaly except in connexion with a general measure for extending the Income Tax to weekly wage-earners. Our own view is that the best way of approaching the whole problem is to deal with it on the broadest possible lines, and to make the Income Tax absolutely universal, so that every person in receipt of any income, however small, would be liable to pay an annual tax upon it. Needless to say, the tax would be a definite percentage of the income taxed and not levied at a "fat rate." Here lies the possibility of a very large increase in the national revenue, and, what perhaps is equally important, the certainty of bringing home to the majority of the electors of the kingdom the feeling of responsibility which arises when men become direct tax payers.
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