Effect Of Huge Surplus On Mr Butler’s Budget

Press, Volume XCI, Issue 27637, 19 April 1955, Page 3

Effect Of Huge Surplus On Mr Butler’s Budget

[By SIR OSCAR HOBSON)

LONDON, April 12. Mr R. A. Butler, Chancellor of the

Exchequer, will face a very unusual situation when he presents his fourth Budget to the House of Commons. He will show a surplus of revenue over expenditure which he may well find embarrassingly large.

• Thanks partly to the beneficial effects of booming trade on revenue and partly to the underspending of expenditure voted last month there will be a surplus of no less than £433,000,000. This compares with an estimated surplus of only £10,000,000, the big margin being due to income exceeding the original estimate by £205,000,000 and expenditure falling short by £218,000,000The realised surplus goes of course automatically to the reduction of the National Debt. But so far as it was due to the buoyancy of the revenue and notably of nearly all forms of taxation it must be expected, provided industry remains active, that revenue will again increase in the present year. The Chancellor will tell us in his Budget Speech what his estimates are. The main estimates for the current year’s expenditure have already been published. These promise a considerable increase—around £220,000,000 on the last year’s actual disbursements. Yet even so there is every prospect of another large surplus, though doubtless not so large a one as that which has just been realised. At a guess it looks like approachng £300,000,000. But why should the Chancellor find any surplus embarrassing? The reason is that he will be expected to devote it to reduction of taxation, yet he may deem it imprudent in our present economic situation to gratify such expectations. A Changing Year The situation can be briefly described as follows. Last year, 1954, was a record year for industry and employment. It was a year of general prosperity and high spending with the standard of living and the standard of nutrition of the people higher than ever before. But in the latter part of the year systems of excessive consumer spending began to develop with a consequent rise in imports and a deterioration in the country’s balance of overseas payments. The official economic survey for 1955, which appeared at the end of March, showed indeed that the big over-all surpluses of 19521953 and the first half of 1954 had given place to a deficit in the second half of the year. After allowing for American “Defence Aid” the deficit was only small, but the position cannot have improved in the first quarter of 1955 for overseas trade returns reveal a substantial further expansion of imports unaccompanied by a corresponding increase of exports. Moreover, the incomes and spending power of the people are still rising. In the first three months of the year many millions of workers have been granted pay increases. These in aggregate represent an annual sum almost as large as the advances granted

during the whole of 1954. This money will still further expand demand and the danger will be that this may both divert to the home market goods which could be exported and lead io yet more goods being imported. If then Mr Butler were to do what Chancellors’ of the Exchequer normally do when they can foresee a surplus, namely pass it on to the taxpayer in tax alleviations, he would it would seem still further inflate demand and still further increase inflationary pressure which has been pushing our Balance of Payments into deficit. Yet Britain remains one of the most highly taxed of the world’s countries. Are we then, just when opportunity for some slight alleviation presents itself, to adjure all lightening of our load and gird ourselves up to continue carrying it? Many people will ask that question—are indeed already asking it when they are confronted with the case for another “tough budget.” Income Tax Relief Mr Butler, therefore, has some difficult decisions to take. If he feels thoroughgoing austerity to be an impracticable policy for political reasons he may grant concessions which are specially aimed at increasing incentive and perhaps do not come into immediate effect.' There is certainly very strong popular support for an extension of income tax relief for earned income. In his first Budget three years ago Mr Butler increased this from onefifth to two-ninths, subject to a maximum allowance of tax on £450 (i.e. earned incomes of £2025 the received maximum benefit) and he then said that he would have liked to raise it to one-quarter. It is not impossible that he may this year carry out this ambition perhaps with some extension of the upper limit of income enjoying relief. There is a possibility, too, that he may make other adjustments of income tax incidence in the light of the report of the Royal Commission on Taxation which was recently submitted to him. Should he make any considerable concessions to income tax payers he would presumably have to make some reduction in indirect taxation as well, for it has become almost an unwritten law that two ugly sisters”—which is what a Chancellor of the last century called direct and indirect taxation—must receive similar treatment.

Among indirect taxes candidates which would rank high for preferential consideration would be purchase tax, notably in view of the cotton trades present difficulties, on textiles and clothing and oil duty which is tax on transport and an addition, therefore, to all industrial costs. Sir Winston Churchill, when he was Chancellor of the Exchequer, 30 years ago, shortly before one of his Budgets uttered a warning “blessed a £% they that ex P ec t nothing for they shall not be disappointed.” It would certainly seem wise this time too not to pitch expectations very high.— (United Kingdom Information Service.)