Noted Economist Warns That Britain Must Reduce Public Expenditure, Or Face Crisis

Wanganui Chronicle, 1 February 1950, Page 5

Noted Economist Warns That Britain Must Reduce Public Expenditure, Or Face Crisis

LONDON, Jan. 31 (Rec. 6 pm).—Britain must take immediate steps to reduce her public expenditure or she will inevitably encounter another economic crisis such as that which forced devaluation upon her in 1949. says Sir Hubert Henderson, Professor of Political Economy at Oxford, and wartime economic adviser to'the British Treasury, in an article in the January issue of Lloyds Bank

Review. Sir Hubert said the complete removal of inflation?/y pressure from Britain’s economy was essential before the country could solve its external problems.

An inevitable first step, if inflation was to be removed, was drastic economy in public spending. “There is no real public awareness of the seriousness of the problem," says Sir Hubert Henderson. “The prevailing mood on questions of Government expenditure remains astonishingly complacent. On these questions there is deep psychological resistance to the very idea of economy, as something which is supposed to be both socially reactionary and intellectually outmoded.

“Increasing expenditure is inherently inflationary,’’ he goes on. “It is an illusion to suppose that its inflationary influence is cancelled if it is matched by a commensurate increase in taxation, for taxation may be largely, or even mainly, defrayed by reduced savings or by capital consumption. Such forms of increased taxation, as the capital levy of 1948 or the higher death duties of 1949, must be met almost wholly in this way. If. therefore, a Budget surplus, raised largely by such means, weakens restraint upon Government expenditure, its ultimate effect may well

be to strengthen the inflationary pressure it is designed to relieve.

It is upon social services in general, the health service in particular, that expenditure has increased most rapidly in recent years, and is most likely to continue to increase. This is a field in which revisions of policy are most needed. But it is precisely in this field that the idea of economy is most repugnant.”

Sir Hubert concludes by saying that since the end of the war attention has been concentrated mainly on Britain’s external difficulties, but her internal financial policy was linked with her balance of external payments. The importance of that connection has been officially recognised by the economies of last October, though whether those economies would prove adequate for their purpose remained doubtful in the extreme.

He remarks that one of the most promising fields for public economy is in reducing the £450,000,000 at present being paid out in the shape of food subsidies. He agrees that as a short term matter reduction of these subsidies is difficult, because they are bound up with the policy of keeping down the direct cost of living in order to prevent wage increases. On a long term view, however, the maintenance of the greater part of these subsidies cannot possibly be justified. —Special N.Z.P.A. Correspondent.