The Press Friday, August 14, 1931. British Debt and Taxation.

Press, Volume LXVII, Issue 20315, 14 August 1931, Page 10

The Press Friday, August 14, 1931. British Debt and Taxation.

Though there was official authority tor vory little in yesterday's cable message about the financial situation in Great Britain, (here is no reason to question the report oC The Times, that the Prime ! Minister and the Chancellor of the I Exchequer arc " absolutely determined " ' to balance the Budget in 1932. What is uncertain is their choice of method, j or their ability to make it agreeable ■ to (he Labour Party. Even Mr Snowden's linn statements about the impossibility of increasing the tax burden on industry are not equivalent to firm pledges of economy, as he showed after making- his famous " common sacrilicc " speech in February. The Party thought that he did mean econi omy, that lii.i " drastic and unpleasant J '' measures '' meant cuts in insurance i benefits, social services, and so on; but within a week he had explained to his alarmed supporters that he had implied no such thing as reduced benefits, or retrenchment, or lower wages, but only i the possibility of stiffcr taxation, Since then, of course, the report of the Economy Committee (agreeing in its most important particular with the interim report of the Unemployment ! Insurance Commission) has clarified the issue and gravely emphasised the necessity of facing it.- It is true, as Mr Mac Donald says, that the report involves "contentious legislation"; it is not true ftt all that he doubts the willingness of the Conservatives and Liberals to share the responsibility and support him, if he brings it in. lie doubts his own Party. ' The problem of direct find large economy, to balance the Budget without increased taxation or if possible under reduced taxation, is actually a problem of Party control and unity; and the consequences of failure may be very serious. Mr Snowden some time ago gave the figures of British taxation per caput as £ls 13s 10d. The tax revenue for 1930 was £701,000,000. But the full significance of these figures, staggering aa they are, is not written on the face of them. The JHconomist some time ago i published tables showing the ratio oC | tax revenue to national income: I ' In X' millions. Koliniated I'atio ot T.lt. •Nation*! Tax toM.l. Income. itevenue. percent. 19IU .. 2,SCO ICS 7.1 19J7 .. 4,850 60, i .15.0 ! 19-33 .. 4-,250 665 16,1 102) .. 4,400 077 15.4 1930 .. 4.C00 701 17.6 j ; The burden on income was therefore j more than twice as heavy last year as | in 3913. Prom another table, illusi trating the amounts and proportions of direct and indirect taxation, we may take the conclusion, that while indirect taxation increased by 213 per cent, between 1913-14 and 1930-31, direct taxation increased by 462 per cent. When the taxpayer carries n weight so severely increased, as measured in money, and still more severely increased, as measured in com--1 modity values, the dangers of budgetary deficits and of obstinately high expenditure are obvious. The latter can be attacked by reducing the amount spent from year to year on State services and social benefits, and it is unnecessary to say more than that the possible extent of such economy is now almost as clear ay its necessity; but there remains the tough problem of the National Debt. How taxation is swollen by the debt, which is now eleven or twelve times the pre-war figure, appears in the fact that interest accounted fo.* 43 per cent, of ordinary expenditure in 1930, and, with the Sinking Fund charges, consumed the full revenue from income tax and surtax and nearly half the estate duties. Apart from repudiation and inflation, the first impossible and the second dangerous and scarcely less unjust, there is only one way of reducing this crushing load. Mr Snowden has watched and worked for the opportunity to convert, but except for an illtimed and expensive effort in 1929 he has been able to do nothing-. He cheapened the price of money, but •without promoting the confidenco or the trade revival or the upward swing in the stock market which would have signalled the moment for large-scale conversion. Just now, of course, the moment is further off rather than nearer. Money rates have hardened, confidence is low, and stocks are depressed; but Mr Snowden's need for relief is urgent, so urgent that his courRge and his judgment may bring him to startling decisions. It is difficult to believe that he will defy the unfavourable circumstances and, as the Daily Herald hints, " appeal," to bondholders to convert " on the ground of " national emergency"; it is not so difficult to believe that he may defy or terrorise the Labour Party, accept the responsibility of retrenchment, and by doing so create the conditions in which conversion could be carried out. According to the Herald, conversion would save between £20,000,000 and £30,000,000 a year. It depends, of course, on the terms and the extent of the operation; but if the- Chancellor confined himself to the most important and burdensome part of the debt, £2,095,000,000 of 5 per cent. War Loan, he Avould save the Exchequer nearly £21,000,000 by converting into 4 per cent. This block is the great obstruction, It represents nearly a third of the internal debt, according to Mr E. H. D..venport and Mr Tom Cobley in the New Statesman and Nation, and nearly 29 per cent, of the total debt. It is so large that the Government dare not take the normal risk of offering to convert at 4 per cent, or to pay out in cash, unless in the most favourable , market conditions; and the size and the conditions of the issue make it the : tyrant cf the money market. Since it J is noAV redeemable at three months , notice, and must be redeemed by 3947, ] it has not gone to a very higrh premium, 1 and the price of all Government stocks J Las been restrained accordingly. By ] converse, the high annual return of , War l/ow, little under 5 per cent., has s retarded the downward inovouu-nt of j interest rate 3, acting as " a sort of false .

and, in the opinion of Sir Basil Blackett, adding " at least 1 per cent. 'Mo tlie cost of all new borrowing in " London.'' If Mr Snowden gels fairly I rid of this incubus lie will have earned something like financial canonisation. I j j I j j \ i I