Skinflint's City Diary
This column in the Spectator has not been alone in urging that there should be a curbed Government-induced inflation and that a cut in spending is urgently needed. This should not only be direct retrenchment, but also an attempt to finance expenditure from real savings and real earnings and not just by printing banknotes. This is an over-used phrase 'a cut in the money supply' which some do not properly understand. Our monetary set-up is a base of currency and coin on which is built a superstructure of bank credit having a minimum ratio of one to the other of 8 per cent. Obviously as long as the size of the base stays constant • no expansion of the superstructure can occur. However anything that is added to the base mushrooms the superstructure 12 to 1. Naturally this is an irresistible temptation to the authorities who do it through the Bank of England. The bank have various means of creating credit through IOUs called Treasury Bills or Ways and Means Advances. These do not replace cash but support the creation of cash in the account of the Paymaster General. From this, credit payments are made to government contractors, civil servants, etc by transferring some to their accounts in the commercial banks. The inevitable 'bills' which arrive for payment are the cheques from these commercial banks who had to pay the civil servants etc in cash. If there is not enough cash in the Bank of England till, the security is transferred to the' Issue Department of the Bank which, acting within its statutory rights. prints the appropriate amount. So, in such a simple way, is the amount of money in circulation increased. The, spot to look for proof of this is the growing pile of government securities held by the Issue Department of the Bank of England. In 1914.this was a
mere £11 million and by 1957 it had ed
reach £2,350 million and now I hear from their helpful information officers that the figure is £4,675 million, which ry
includes Treasury Bills and Ways and revealed.
Simple though for some reason the proportion of each is not Simple enough stuff you may say, but as clear as crystal to the extent that the government finance themselves with a flood of Treasury Bills which have indirectly swollen bank deposits and increased the supply of money. There is a certain way to arrest inflation and that is for the Treasury to instruct the Bank of England that from now on it must not increase the Fiduciary Issue note circulation above the peak figure for the previous year.
It looks as if the time has come to
a g close forward positions in old ande gold shares and that for the moment the course of the price of gold will be in one direction — right on. There are indications that there has been a comity between dealers in Zurich and elsewhere. The South African govern
be be
, ment has been selling all its current production at the present fre..market price. More important to tht. price of of gold is the likelihoodoidewor nations relying more on revaluaticr.' to correct their deficits than further devaluation while export prices are already very competitive. The gold market is very dangerous indeed. If you have made money, close off your position and keep well away and do not expect a revaluation of gold by the United States. In the unlikely event of a revaluation the free price would fall raenaylrseday as expectations would not be
Tax charities
It is a relief to observe that Mr Joel Barnet Chief Secretary to the Treasury has said that the Government propose to tax development gains, particularly in the property market, made by pension funds and certain other trusts at 37.5 per cent. As it has often been demonstrated in this column the exemption from capital gains tax gives the pension funds an unfair advantage. Probably their continued exemption from corporation tax is an even more inequitable situation. With Corporation Tax on commerical property companies at 52.5 per cent it means that a pension fund or charity is able to pay half as much again as a commercial business for a given yield. Charities is naturally a very evocative subject and reform in their regulation and in particular their tax status has to be approached through a process of education and revelation of the size and scale of their activities. They have grown from before the days of direct taxation and when fiscal measures were not directed at economic control and redistribution as much as to the production of income for the state. There are over 100,000 charities and they are being formed at an increasing rate without hindrance providing charity in the legal sense is the objective. Abuses abound and it is noteworthy that prior to 1601 an early statute of Elizabeth was not enacted for the purpose of giving a definition of a 'charity' but was directed to providing for the reformation of abuses in the application of property devoted to charitable uses. At present there is a gross misdirection of national resources through the tax free nature of charitable income. There is no justification either for the proliferation of charities at the whim of settlers, or for their continued exemption from contributing by tax on their investment income. The House to House Collection Regulations of 1947 might easily be redrafted to ensure that this income and this alone is tax free.
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