20 
LAND 6? WATER 
October 10, 1918 
The Sinews of War: By Hartley Withers 
IF the second half of the financial year is as good as 
the first, which ended on Septcmter 30th, the Chancellor 
of the Exchequer will find that the deficit to be covered 
is very much smaller than he expected. He budgeted 
in April last for a revenue of £842 millions, a total 
expenditure of £2,972 miUions, and a consequent deficit to 
be made good by borrowiag of £2,130 millions. In the first 
half-year the revenue came to £342 millions, which looks at 
first sight bad because it is not nearly half the year's anticipa- 
tion — £842 millions. But it is really very good, since the 
first half is the lean half in tax payments, and the increase 
over last year's revenue in the corresponding period is over 
£80 milhons. The expected increase in the whole year was 
only £135 millions, so that if the present rate of increase is 
maintained, and an improvement of £160 milhons is secured, 
the year's revenue will be well over the £842 millions ex- 
pected. It has been a regular feature of our War Budgets 
that the revenue has come in far ahead of the estimates ; 
this has been to a great extent due to the inflation and high 
prices which have been a blot on our war finance, and have 
swollen profits and consequently income-tax and excess 
profits duty ; so it is not altogether an unmixed blessing. 
Hitherto expenditure has more than followed suit, having 
outstripped estimates even more vigorously than revenue ; 
but in this past half-year the tide seems to have turned, the 
total spending chargeable to revenue being £1,356 millions — 
a good deal less than half the year's total estimate of £2,972 
miUions. This big saving is rather mysterious in ^dew of the 
increases in wages that must be adding so heavily to the cost 
of so many things that the Government has to buy. It is 
possible that our loans to Allies have been reduced below the 
estimate, owing to the modification of the roundabout 
system by which America used to lend money to us so that 
we might lend it to Allies. There is also the less pleasant 
possibility that the money passing out of the Exchequer 
has been less than was expected because of the slowness 
with which ships and other material required by the Govern- 
ment have been turned out. Perhaps these matters will be 
explained when Parliament meets. In the meantime, it is 
pleasant to note that revenue rolls in well, and that the 
so far constant tendency of expenditure to outstrip estimates 
has been checked — at least, for the time being. When we 
look at the details of the revenue we find that a usual war- 
time feature is repeated — that is to say, the tremendous 
yield of the excess profits duty, which in the past half-year 
brought in £134 millions — an increase of £46 millions, though 
no addition was made in the last Budget to the rate of the 
tax. This much-abused impost brought in well over a third 
of the total revenue of the half-year ; we shall miss it badly 
(except those who have to pay it) when the war is over, for 
it has always been regarded as a war-tax pure and simple, 
and if it were kept on in peace time it would have a most 
discouraging effect on industry and enterprise just at the 
moment when they will be most in need of confidence and 
encouragement. Income-tax, which makes its best effort in 
the second half of the year, contributed £11 millions to the 
increase shown, customs and excise £2oJ millions between 
them, and "miscellaneous" £7^ millions. This last item is 
a notable war profiteer. In peace time it used to produce a 
million or two out of silver coinage and other oddments ; 
during the past half-year its yield was no less than £36 
millions ; but it nowadays includes items such as contribu- 
tions from India and perhaps (though it is impossible to 
tell from the statements published) profit on the big 
trading and producing business done in these times by the 
State. 
Incomplete Analysis 
As to details of expenditure, as usual they are not to be 
found. Out of the total of £1,356 millions, £1,234 millions 
are put down in one lump as Supply Services, and most of 
the rest consists of debt charge — £117^ millions against 
£80 millions in the half-year to September 30th, 1917. On 
Supply Services there was actually a decrease, against the 
corresponding period, of £9 millions. But besides the ex- 
penditure "chargeable against revenue," as the official return 
humorously calls it, though it exceeds the revenue by £1,013 
milhons, some £60 millions more had to be found to meet 
redemption of unfounded debt and the depreciation fund, 
by which the Government brings a certain amount of 1917 
War Loan in the market every month in which it is below the 
issue price of 95. During the past half-year just under 
£16 millions were required for this purpose. So that the 
total sum to be found by borrowing during the half-year 
came to £1,073 millions. It was found thus : 
By National War Bonds' . . . . £493 millions 
,, War Savings Certificates . . 45 „ 
„ "Other Debt" 251 
,, Treasury Bills and Ways and 
Means . . . . . . ' . . 279 
,, Draft on Exchequer Balances . . 5 
£1.073 
»# 
In other words, very httle more than half of the huge sum 
that had to be found by borrowing during the half-year 
was raised by the test kind of borrowing — that is, by money 
produced by the savings of the home investor, through sales 
of National War Bonds and War Savings Certificates. These 
two items between them raised. £538 millions, leaving £535 
milhons to be got in otherwise. "Other Debt," as the above 
table shows, provided £251 millions, and it is under this 
informing title that our State book-keepers ire believed to 
wrap the total of the sums torrowed abroad. It is obvious 
that a debt to foreigners implies a heavier burden than a 
debt to our own citizens, since it means, after the war, that 
so much of our annual output has to be shipped abroad to 
meet interest payments and debt redemption, instead of 
being available for consumption or investment by debt- 
holders at home, and so is a direct reduction of the national 
wealth. And so it is not pleasant to find so large a propor- 
tion of the half-year's deficit met by this method of borrowing 
abroad. 
It is true that the sum so raised is considerably 
smaller than in the corresponding period of 1917, when the 
net addition to "Other Debt" was £332 milhons. But, on 
the other hand, our loans to Allies and Dominions have, we 
may fairly hope, shown a still greater decrease. In his Vote- 
of-Credit speech at the beginning of August, the Chancellor 
gave the figure of our loans to Alhes and Dominions for 
April 1st to August ist, 1918 — four months — as £84^ millions, 
at the rate of, roughly, £250 milhons a year, as against £552 
milhons in the financial year 1917-18. If we are only lending 
at the rate of £250 millions a year to AUies and Dominions 
it is not well that we should be borrowing abroad at the rate 
of £251 millions in a half-3'ear. 
Creating Fresh Credits 
Another feature that we would hke to see improved on is the 
addition of £279 millions to Treasury Bills and Ways and 
Means advances. The amount outstanding of this form of 
debt was, on September 30th, £1,443 millions, against £16^ 
millions when the war began. It is not a satisfactory way of 
raising money for the war, partly because Treasury Bills and 
Ways and Means Advances are largely subscribed to by 
banks, and so do not take money out of any of our pockets 
but, by creating fresh credits, increase the amount of 
money — in its widest sense, of buying-power in general — 
that is circulating or available for circulation, and so force up 
prices, increase the cost of the war, and produce friction and 
discontent. Moreover, these forms of borrowing are for 
short dates, and this means that when the war is over, and 
the holders of them want all their cash and crecht for indus- 
trial enterprise or for financing it, the Government's financial 
position will not be made any the more comfortable by the 
huge amount of this floating debt, falling due day by day. 
The Government, of course, will have no difficulty about 
renewing it, but if the forecasts of some of the prophets 
about the price of money in the first few months after the 
war are only half-true, the rates that it may have to pay 
will not be at all comfortable for the taxpayers' pocket. 
And the moral of this sermon, on the evils of borrowing 
abroad and raising the wind by Treasury Bills and Ways and 
Means advances, is evident. These bad ways of raising 
money had to be used because investors during the half-year 
did not buy enough National War Bonds. They were asked 
to buy th&m to the tune of £25 millions a week, or £650 milhons 
in the half-year ; instead of which they only took £493 
miUions' worth, at the rate of less than £19 millions a week. 
Now, the Chancellor has made another appeal at a great 
meeting at the Guildhall, and every one of us has to do his 
utmost to support the heroism of the men at the front by 
"feeding the guns with War Bonds." It is little enough to 
do, when we think of what they are doing for us. 
