Borrowing for Armaments

Press, Volume LXXIII, Issue 22017, 15 February 1937, Page 8

Borrowing for Armaments

.Mr.. Neville Chamberlain's announcement to the House of Commons of the Government's decision to"meet "the major part of the new " expenditure " oh armaments by borrowing is one of extreme importance. The choice between financing the rearmament programme out of revenue and financing it by capital borrowing must have been difficult; and it is to be understood that the Government is still leaving itself a certain freedom. Thus, borrowing is not to cqver the normal or recurrent expenditure, and it is not proposed to cover all, but only the " major part" of the abnormal expenditure, so. Again, the Government is providing that budget surpluses may be applied to this purpose, and to the extent that they are applied, the Treasury's borrowing limit will be reduced. It follows that the Chancellor of the. Exchequer may still, by budgeting for surpluses to this end, reduce the expenditure of borrowed capital as and when he thinks fit; and if he uses his discretion to do so, he will mollify the purists who have insisted that revenue is the only proper, borrowing the thoroughly improper,, source from which to rearm the nation. The purist theory is quite simple. The need is a present one, and present prosperity should be drawn upon to meet it. If the expenditure were reproductive, the future could fairly be brought under tribute; but it is not. Further, borrowing now, while taxable resources are full, may accelerate the inflationary, boom and crash sequence and so, help to create the very conditions in which a further load of debt will be most oppressive. On the other hand, the argument is that expenditure to save the nation and to protect its future is on no very different footing from expenditure to enrich its future; and the future may rightly be called on to share such a cost. Further, present prosperity is not so firmly established as to be in no danger of a setback from a stiff increase in taxation. The opposed arguments in the end are to be tested only by figures. For example, fairly reliable recent estimates show that the 1935-36 effective (i.e., excluding pensions) expenditure of £117,400,000 will rise in 1936-37 to £ 163,700,000 and in 1937-38 to £195,000,000, which corresponds to a net defence estimate of £ 220,000,000—a figure the " Economist " considers " not unreasonable " as an estimate. The question before the Chancellor of the Exchequer there was whether he could—without a jarring check on other expenditure—work up to an increase of taxation by something like £ 100,000,000. The loan limit of £400,000,000, spread over five years, checks fairly well with this calculation; and it must be conceded that Mr Chamberlain would have required extraordinary courage to face the taxpayers with proposals of such an order. But it would be a mistake to think that Mr Chamberlain's choice will of itself avert industrial dislocation in particular and economic disorder generally. Both are possible and even prpbable consequences of the rearmament programme, however financed. The Government will probably be obliged to initiate extensive action; preventive and remedial, if business and industrial; disturbance is riot to develop seri-

ously. Mr Chamberlain has chosen the easier of two courses, but one not without its own difficulties and one which does not free him, or the Government, from other hard necessities.