§ My first task, then, is to establish the amount of the deficit, and to see how it has been brought about. I can summarise the result in round figures as follows:
|The actual expenditure, including the Fixed Debt Charge and the payment of the War Debt instalment to the United States Government, was||777,000,000|
|The actual revenue was||745,000,000|
|leaving a Budget deficit of||32,000,000|
|or, to give the exact figures||32,278,989|
§ That is the Budget deficit for the year, the figure which will appear in the official published account. Under the Finance Act of 1930 it would fall to be made good in the year 1933, but I propose to follow the example of my Noble friend Lord Snowden, who himself in the following year considered that it was unnecessary, in the circumstances then existing, to maintain so austere and so exacting a standard of financial purity; consequently the deficit will be met by borrowing. I would like at this point to call the attention of the Committee to the fact that this deficit includes the payment to the United States of £28,900,000. Without that the deficit would only have been £3,300,000. Moreover, it includes £17,250,000 for Sinking Fund. If we set off against that a sum of £2,656,000 borrowed on account of the interest on Savings Certificates, to which I shall make allusion later, we have a net redemption of Debt of £14,600,000; and, if we exclude the American Debt, we had during this past year a surplus of current revenue over current expenditure of approximately £11,250,000. I think it is all the more desirable to call attention to these figures, because sometimes comparisons are made with Budgets in other countries in which no account is taken of the redemption of Debt.
§ Now let us consider how this has been brought about. Instead of a total 33 revenue of £766,800,000 I received only £744,791,000, a shortage of just over £22,000,000. Customs and Excise, instead of resulting in a revenue of £300,000,000, resulted only in £288,135,000, leaving a deficit of nearly £12,000,000. I should point out that the deficit is really larger than those figures seem to indicate, because the original Budget estimate did not include the duties which were levied upon imports from the Irish Free State under the Special Duties Act which became operative in July, nor did it include the changes effected by the Ottawa Agreements, which became operative in November. From the Irish Free State Duties, including a small amount under the Import Duties Act to which some of the imports were liable, I received £2,500,000, and from the Ottawa Duties £1,750,000. I should say that probably more than half of the latter figure would have come in under the original Import Duties, if these had not been altered at Ottawa. Altogether, if it had not been for those two additional items, the deficit on Customs and Excise would have been something over £15,000,000.
§ These decreases in revenue were not universal. There were substantial surpluses of revenue from oil, spirits and tea. On the other hand, there were two serious disappointments. The revenue from beer was £6,000,000 below my estimate, and at £73,750,000 has given me the lowest yield that has been received for 13 years.
Then I had estimated that I should receive from the New Tariff Duties £32,000,000—£27,000,000 from the Revenue Tariff and a further £5,000,000 from the Additional Duties. At the time when I made that estimate, the Revenue Tariff had only been in operation for a month and the Additional Duties had not come into force at all. Therefore, in my Budget speech I informed the Committee that any estimate which was made must be of a highly conjectural character. In the end, the actual revenue which I received was just under £22,000,000 and allowing, as one should, another £1,000,000 for the duties which were afterwards merged into the Ottawa Duties, we may say that the actual shortfall was £9,000,000 upon this item. That I put down partly to a fall in prices, but 34 mainly to the fact that we were much more successful than I had anticipated in checking foreign imports. Therefore, while I was naturally disappointed at not receiving the revenue which I had anticipated, yet I take a certain consolation from the fact that the adverse balance of trade was checked, and no doubt that has had its reactions upon the internal sources of revenue.
The deficiency of Customs and Excise was materially added to by the shortfall of Inland Revenue, from which I got £411,519,000, or a drop of £15,500,000 on my estimate. I expected to get an increase of £6,000,000 in the Stamp Duties and £11,000,000 in the Death Duties. Actually I got only £2,000,000 extra out of Stamp Duties, but on the other hand my estimate of the Death Duties, which was thought at the time to be too optimistic, proved to be justified for in fact I got £1,000,000 more than I expected. Surtax I estimated at £66,000,000, which was £11,000,000 less than we received in 1931, but my estimate proved too high by £5,000,000. From Income Tax I expected £260,000,000; I got only £252,000,000. The great decline in Surtax reflects a big decline in personal incomes. It is not due to any slackness of assessment, nor to any falling back in payment of those who were liable, but, to show the Committee to what an extent decline has taken place, I may mention that no less than 12,000 persons, who had been liable to Surtax in 1931, were found in 1932 to have dropped below the level at which liability to Surtax would fall upon them.
The deficiency of £8,000,000 in Income Tax might perhaps be thought to throw some doubt upon the reliability of the estimates which I have made. I may point out that there are three factors which enter into the collection of Income Tax. There is the collection of the current year's charge, there is the collection of arrears, and then, on the other side, are repayments which from time to time have to be made. As a matter of fact, the method which we are now able to employ in estimating the current year's charge, which of course is much the largest item, admits of very great accuracy, and during this last year the error in that particular item turned out to be less than I per cent. The deficiency is almost entirely due to a 35 drop in the arrears which were collected, which fell below the estimate by £7,000,000. That, in turn, must be largely ascribed to the patriotic action of the taxpayers in the year before, who not only paid their taxes with an extraordinary punctuality, but so greatly facilitated the assessments that there was very little left to assess or collect in the year following. Once again, therefore, even though I have to record some disappointment in not realising the amount of revenue which I expected, I can take consolation in the thought that that deficiency was due, not to unwillingness on the part of the taxpayer to meet his obligation, but rather to a greater readiness to do his duty by the country in a crisis than even I had anticipated.
The other items in the revenue are less important, but they were more satisfactory. The net Exchequer receipts from the Post Office fell short by £800,000, but on the other hand Sundry Loans and Miscellaneous Revenue gave me an increase of £6,250,000, while Motor Vehicle Duties and Crown Lands revenue fulfilled my expectations.
Let us see what happened with the other side of the account. The Committee will remember that, to the original estimate for Supply Services of £447,204,000, we had to add Supplementary Estimates of £21,614,000. The great bulk of that extra expenditure, no less than £18,000,000, must be laid at the door of unemployment. It proved that we had been too optimistic in hoping that the level of unemployment would continue to fall. The remainder, namely, about £3,500,000, was due mostly to the default of the Irish Free State. In the end, however, we did not require the whole of the supplementary sums voted. There was a saving of £4,500,000 on unemployment, and another saving of £1,500,000 on the Road Fund, and further economies extending over a large number of Departments brought up the total saving to £10,500,000 on the enlarged estimate. That left us with a total net expenditure of £458,250,000 on Supply Services.
With regard to the Fixed Debt Charge, the Finance Act, 1932, restricted the Fixed Debt Charge to £308,500,000. That included the statutory requirement for Sinking Fund of £32,500,000, and the re- 36 mainder, £276,000,000, was what was estimated to be necessary for the interest and management of the National Debt. But these calculations were upset completely in the course of the year by two developments of major importance, one on the credit side and the other on the debit side. In the first place, the rise in gilt-edged securities following the War Loan Conversion reduced by nearly one-half the statutory Sinking Fund requirement, and the cost of interest was also materially reduced by operations supplementary to the main Conversion Loan. By the beginning of December we were in a position to forecast that the savings under these two heads would be over £26,000,000, which would be available for the redemption of debt. But, on the 15th December, we found ourselves obliged to make provision for a payment of 95,000,000 dollars to the United States Government, equivalent to nearly £29,000,000 sterling, for which no provision had been made in the Budget. As I explained in the Debate in the House on the 14th December, it was decided that this expenditure should be met out of Budget revenue, that is to say, that it should be provided out of the Fixed Debt Charge; and the result. of that was that the whole of the savings to which I have alluded were absorbed, and, in addition, it became necessary to borrow the sum of £2,656,000 on account of interest on National Savings Certificates under the authority of Section 29 of the Finance Act, 1928.
The final apportionment of the Fixed Debt Charge, apart from the American Debt is: Interest and Management, £262,250,000, and Sinking Fund, £17,254,000, making a total of £279,500,000; and, adding to that the £29,000,000 paid to the United States, we have the statutory figure for the Fixed Debt Charge of £308,500,000. I can summarise my account of the Budget deficit as follows: We have:
37 From that we can deduct:
A net shortage of revenue of £22,000,000 An increased expenditure of £11,000,000 A payment to the United States of £29,000,000 Adding up to £62,000,000
or, making allowance for the estimated Budget surplus of £800,000, a Budget deficit of £32,200,000.
Savings in interest on Debt and in reduction of the Sinking Fund to £17,250,000, making together, in round figures £29,000,000 Leaving a net deficit of £33,000,000
As I have been speaking of the American Debt, I might here say a word about the general position of Reparations and War Debts. As the Committee are aware, under the Lausanne Agreement we suspended the payment of certain Reparations and War Debts which were due to us. What those were will be found in a new table in the Financial Statement. For the present they remain in suspense, but sooner or later, no doubt, a final settlement will be made which will determine their disposition as well as that of our own debt to the United States of America.