It has been the practice for many years for the Chancellor of the Exchequer, in introducing his Budget, first to make to the Committee a careful and detailed statement and examination of the expenditure and revenue of the past year. I propose in these days, when there are so many more important material matters to be discussed, to refer a little later only to some of the more salient features of the year. All the details will be found, as usual, in the White Paper.But I think it will be of greater service first to take a wider survey of our financial and economic policy in relation to the war and to indicate some of the major problems with which we have to continue to deal. Later I shall make certain proposals which, I believe, will not only enable us to surmount our immediate difficulties but also, I hope, ensure that we continue to maintain our national finances on sound lines and that we are able, when the time comes, to pursue post-war measures of reconstruction and social advance which we all desire to see achieved. The financial front since the beginning of the war has stood firm and strong. A very important section of that front is what I would call its international section. At the outset of the war we took immediate steps to mobilise our resources of international purchasing power. United States and other foreign securities held by British residents were registered and thereafter gradually requisitioned. Foreign exchange dealings were controlled, and an effective system of exchange control was gradually evolved. At the same time steps were taken to maintain and stimulate our exports in face of the difficulties arising from war conditions, while non-essential imports were drastically cut down. The object of these various measures was to husband our reserves of international purchasing power and to ensure that they were only used for essential war purposes, and they have certainly been successful. In this vital section we have gone far beyond anything that we attempted in the last war, and events have shown how necessary it was to take these measures. The greater mechanisation of modern warfare made it necessary for us to import war materials and supplies on a large scale from overseas, a scale which was greatly increased by the events of last summer, culminating in the collapse of France. This has meant a very heavy drain upon our resources of gold and dollars, but our system of exchange control and the mobilisation of dollar securities have enabled us to meet that drain, and we now have the assurance, by reason of the great contribution that America is making through the Lease and Lend Act, that no difficulty in financing purchases from the United States will hamper the full development of our fighting strength. These measures of exchange control in the international sphere have been accompanied on the home section of the financial front by the control of capital issues in the domestic market so designed as to secure that funds available for investment should be directed in general into the various Government issues. This control, administered by the Treasury, acting on the advice of the Capital Issues Committee, which has worked efficiently and unsparingly under the chairmanship of Lord Kennet, has been of great value in securing the best possible conditions for the success of Government loans. These measures have combined to make it possible for us to borrow at what, by the standards of any previous war, is a very low rate of interest. In 1916 we were paying 5 per cent. as a general minimum, and by July of that year even Treasury bills reached 6 per cent. What is the position to-day? Since our short-term borrowing is costing 1⅛per cent. or less, the average rate payable is below 2 per cent. All this means that the gross cost to the taxpayer of borrowing a given sum has been about a third of what it was in the last war. We have no intention of borrowing on worse terms as the war proceeds; we shall hope to improve upon them. By all these means it is evident that the aggravation of our post-war financial problems by the burden of war debt, though it is bound to be grievous, will be correspondingly less. We should also avoid the evils incurred after 1918 of starting the period of post-war expansion and recovery with a rate of interest which in the long run was so embarrassing and even crushing to the borrower. For instance, our housing problem after the last war was intensified by the burdensome cost of interest when even local authorities had to pay 6 per cent. Some are only now escaping from it, and it is a testimony to our sound finance that I have recently been able to give our authorities with repayable loans the opportunity to convert on very favourable terms. In rebuilding our cities after the war the maintenance of a low rate of interest will do much to ease the financial problem. There is one other matter to which I would refer. It is one that is particularly apparent to everyone who remembers the conditions of the last war. One of the most unfortunate features of that war was the exorbitant level of profit that prevailed in many industries. It gave rise to the term "profiteer," and it was an ugly paradox that many individuals then succeeded in making large fortunes from conditions which meant death and injury and suffering to millions of their fellow countrymen. There is nothing like such conditions to-day. In this war we have taken many steps to eliminate war fortunes, with the approval of every section of the community. I have given an indication of some of the satisfactory features of the present financial situation, but it is plain that we have many difficulties and problems inherent in the most expensive war in history. Many of them cannot be solved by purely financial means. There can be no single approach to the problems of a total war economy. We must attack them, as we are doing, on many other fronts; for example, by rationing, by price control, by raw materials control, by the Prices of Goods Act, by the direction of labour, by the requisitioning of factories and warehouses, by the Limitation of Supplies Orders and by the concentration of industry. The financial front has its vital part to play, too. It would be a great mistake to suppose that the only object of paying taxes during the war is to hold in check the increase of debt with an eye to easier Budgets in future years. Behind that purely financial purpose lie wider economic purposes that are directly relevant to the conduct of the war. We have to concentrate upon the war effort as large a part as possible of our productive resources and, at the same time, satisfy the essential needs of the civilian population and maintain an adequate export trade. We have to avoid a vicious spiral of rising costs and prices affecting most gravely the least fortunate members of the community which, if it went far enough, would undermine our stability and seriously impair our strength for war. The huge sums which the Government is expending at home on the conduct of the war have generated a corresponding amount of purchasing power in the hands of the public to which we cannot be indifferent. If it were all to be used to purchase whatever goods are obtainable in the shops, it would overcome and sweep away all the obstacles set up and the precautions taken against a rise in prices, just as a torrent will sweep away a dam if it develops sufficient force. The danger which we have to control, and which we intend to control, is that of being flooded out by the torrent of an excess of purchasing power fed by the springs of war-time Government expenditure. To avert that menace, it is vital for us to possess a stout and well-constructed dam. That is the object of our system of food and industrial controls, of our systems of price control, rationing and the like. But we also have to abate the force of the torrent. That is the function of finance. Because we cannot expect to defray the whole of our war-time expenditure by current taxation, we must not for a moment imagine that it does not matter whether that part we defray is large or small or that the actual raising of taxation itself has for its sole object the raising of a certain sum of money. The solution of the problem to which I have referred would be impossible unless it was eased by the withholding of a substantial part of the surplus purchasing power through the instrument of taxation.
The Chancellor of the Exchequer
(Sir Kingsley Wood)