Deficit Financing at Last
By NICHOLAS DAVENPORT So history is not going to be made by Mr. Maudling. Here was a grand opportunity for a Chancellor to appear be- fore the House and declare that the Budget game was over. The thing had become a farce and had to stop. (I can imagine the lusty cheers which would have greeted such a bald and realistic assessment.) Ever since the famous White Paper on employment policy of 1944, which translated the Keynesian theories into government practice, the Budget had been used as an economic weapon to influence the general level of demand and em- ployment. But so ignorant and misinformed about business trends had the successive Chan- cellors been, and so badly advised about the timing of their measures, that the economic ex- ploitation of the Budget had degenerated into a sort of national gambling game called 'Stop and Go.' Far from eliminating the pre-war trade cycles, it had set up a new business cycle of two years up and two years down, so that no intelligent planning could be undertaken by the business community and no consistent growth was possible for the national economy.
If Mr. Maudling had been sincere in his dis- like of 'Stop and Go'—hadn't he said that he would not take any action which would have to be reversed at a later stage?—he would have told the House on Wednesday that this was the last Budget speech of a Conservative Govern- ment (cheers from Labour) and that in future his Financial Secretary would present the cash account of the Exchequer, which would be a simple account of (a) all the expenditure of the civil and defence departments of the Govern- ment, for which estimates for the year had been submitted to and passed by Parliament, together with the Consolidated Fund Services (interest on national debt, judges' salaries, etc.), and (b) all receipts from existing taxation which do not have to be applied specifically to service the national debt. (Cheers from all sides.) As for expenditure which is now designated as 'below the line,' that is, expenditure which Parliament has allowed to be financed by borrowing (mostly loans to nationalised industries, public authori- ties, overseas governments, etc.), he as Chan- cellor would submit a capital expenditure account covering a period of three to five years which would contain a fixed minimum and a flexible addition which could be pressed forward or held back to suit the economic needs of the nation. (Cheers from the ex-economist don, Mr. Harold Wilson.) As for the reform or revision of existing taxation, he would present a Bill to the House when the occasion for it arose. (Cheers from all honourable tax-paying Mem- bers.) As for using the cash account Budget as a means of economic control, Mr. Maudling should have sat down to this resounding perora- tion: 'If I am to be the doctor charged by Par- liament to look after the economic health of the nation, I repeat that I refuse to be put into the ridiculous position where I can only prescribe the pep pills or the sedatives needed for the year on the first Tuesday or Wednesday in April.'
I am sure that Mr. Maudling would have preferred to make such a forthright speech instead of following the conventional pattern of the Treasury chief. He had, of course, to make what excuses he could for Mr. Lloyd's hopelesslY inaccurate forecasts, but the prevailing fact of economic life in this island had already made his Budget, which is the dangerously persistent under-employment of men and machines in the factories. He could only reduce taxation in the hope that this will help to stimulate and re-expand the economy. The important step be has taken is to put an end to the savagely de- flationary budgeting of his predecessors. The out-turn of the Exchequer account he presented to the House for the financial year just ended showed once again that both direct and indirect taxation have been much too high and have been needlessly exacting forced savings from the public at a time of under-employment. in industry. What is more, it has lately beenmaking, the under-employment far worse in the capital goods industries, because the total of private savings has been increasing at a faster rate than, the total of investment. To go on exacting force°, savings through a huge surplus 'above the line' in these circumstances was the height of ec°- nomic folly (see table below). The only time when it is economically jUSU fiable to exact such huge surpluses 'above the line' is when over-employment is rife. And that has not been seen since 1955. Certainly there were financial excesses in 1960, but not over" employment. The idea that there should be 3 sufficient surplus 'above the line' to meet the public capital expenditure 'below the line' is lust puerile when total private savings have been advancing so rapidly that they have been running ahead of private capital spending. Mr. Maudling is to be congratulated on being realistic and dropping the old Treasury conven tion of a handsome Budget surplus 'above the ._ line.' For the first time for many years there l to be no surplus 'above the line' at all. There
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would have been a surplus of £179 million f the existing rates of taxation had been maintameu: but he wisely decided that a stimulus to the economy was required if he were to realise 01_ target of a 4 per cent growth rate. The stimultlbst he allowed was only £250 million and Id°L1, whether this will be sufficient to get the econoln_i expanding at the rate required. However, he e,a`,:, assure the foreigners that expansion is beIrLb undertaken in Britain without inflation. The sight n. of an overall deficit of £687 million is not there fore one that need frighten anyone at home ' abroad. After all this is deficit financing on a an very modest scale—not on the massive Americer scale (which is currently $6.000 million). Furth lc: we must be grateful to Mr. Maudling for ploding the Lloydian myth that you have to ir,cs strict the home trade in order to boost exPort
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He has made an honest attempt to v. , economy expanding again by deficit fineingan without inflation and my only fear is that the attempt was not bold enough.
Revenues from taxes, etc. ... Expenditures 'above the line' 'Above the line' surplus 1954/55 4,738 4,305
'Above the line' Surpluses from 1954/55 to 1962/63 in £ tnillion
1955/56 1956/57 1957/58 1958/59 1959/60 1960/61 1961/62
4,893 5,158 5,343 5,480 5,630 5,934 6,645 4,496 4,868 4,920 5,103 5,244 5,787 6,235
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1962X
,67441 '9 353
433 397 290 423 377 386 147 410
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