Background to Domistic Finance

Financial Statement – in the House of Commons on 25th April 1944.

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I should like now to sketch the background of our domestic financial policy. I could not do so, however, without first paying my tribute to the soundness, courage and wisdom with which my predecessor, Sir Kingsley Wood, laid the foundations of that policy. He seemed to have the gift of knowing just how to introduce new and drastic measures in a manner so disarming that Parliament and the country were willing to assume at his hands the heaviest burdens of taxation ever laid on a free country almost as readily as if they were indulgences. Never in the history of this or any other country has a Chancellor of the Exchequer, or a Minister of Finance, carried such prodigious fiscal measures into force with so little opposition and even with general acclaim. High qualities of heart and mind made this possible, and the country owes him a very great debt.

The foundations of the policy which Sir Kingsley laid down can be briefly outlined. In the first place, we cover by taxation as much of current expenditure as we can. We do this for two purposes —to keep the future burden of debt within limits and to absorb current purchasing power which might otherwise press upon the prices of goods and services of which, the supply is restricted and which cannot easily he rationed. In the second place, we maintain such controls over the loan market that Government borrowings can be undertaken at a low and steady range of interest rates. The year's results indicate that once again this has proved compatible with an ever-increasingly successful savings campaign. Thus, Table II of the White Paper shows that personal incomes in 1943 were about £,600,000,000 above 1942 and that of this amount considerably more than half—L:385,000,000, in fact—was paid away in additional taxes and that more than one-third, namely, £221,000,000, was saved. The result is, as the Committee will see, that there has been no increase in what the public spent on consumption in terms of money, after allowing for indirect taxes and subsidies, in spite of a rise in prices, similarly reckoned, of about 2 per cent. Thus, in spite of a large increase in incomes the amount spent on consumption, in real terms, was actually reduced. This is a most remarkable achievement on the part of the faithful public, an achievement which deserves to be made known to the whole world as a distinguished performance. The extraordinary readiness of the public to save, in spite of the tremendous volume of taxation, can be emphasised by another comparison. In 1938, before the war, 76 per cent. of personal income was spent on consumption. By 1942 the percentage had fallen to 58. One might have thought that that was the best of which human nature was capable. Nevertheless, in 1943 the percentage of personal income spent on consumption had fallen to 53. These percentages are estimated on a true basis, that is to say, eliminating the effect not only of duties but of subsidies. This great achievement in voluntary personal saving—the aggregate in terms of money last year was more than eight times what it was before the war—is the clue to the soundness with which it has been possible to conduct our public finances in time of war.