§ I now turn to a review of our finances during 1942–43 and of the prospects for the year that has just begun. A year ago I estimated that our total Budget expenditure during 1942–43 would be £5,286,000,000, including £4,500,000,000 for Votes of Credit. Overseas dis-investment and the Canadian Government's contribution were expected together to amount to £786,000,000, leaving £4,500,000,000 as the total requiring domestic finance. Revenue, excluding the Canadian Government's contribution, was expected to produce £2,400,000,000, so that the amount left to be borrowed from domestic sources was £2,100,000,000, and I explained how this sum could be raised on sound lines. In the event we have had to borrow at home rather more than I anticipated.
§ The total Vote of Credit expenditure was £4,840,000,000, or £340,000,000 more than my estimate, and, including an increase on the Civil Votes due primarily to supplementary pensions, our total expenditure, at £5,637,000,000, was £351,000,000 more than the original Budget estimate. The Vote of Credit figure includes appreciable sums for war damage payments which were excluded from my original estimate, but the main reasons for the increase, in addition to some steady expansion in production at home, are the growing tempo of the war operations abroad and the development of the system of Reciprocal Aid to our Allies, to which I have already referred. These being the main reasons, the Committee will, I believe, regard the increase in our 964 war expenditure as satisfactory rather than otherwise.
§ On the Revenue side, there was an excess of £47,000,000 on the Inland Revenue estimate. Surtax, Estate Duties and Stamp Duties yielded substantially the amounts estimated in the Budget. Income Tax yielded £94,000,000 more than was estimated, owing largely to the growth of profits and of wages earned on war production, but Excess Profits Tax and National Defence Contribution yielded £47,000,000 less than the estimate. This short fall in Excess Profits Tax does not mean necessarily any loss to the Exchequer, and it is no doubt largely due to the introduction of Tax Reserve Certificates. In previous years considerable sums have been deposited on account of assessments which would only become final after 31st March. During 1942 such sums were largely invested instead in Tax Reserve Certificates, which will not be presented until the due date for the payment of the tax, which may be during 1943 or possibly later. There is therefore a temporary adverse effect on the Budget receipts from excess profits tax revenue, but this should be made good during 1943–44. The Exchequer, of course, has had the use, through the certificates, of the accruing provision for tax, and, to a much greater extent than under the old system of advance deposits. The certificates, it will be remembered, carry no interest for the period between the due date of the tax and the actual payment.
§ Customs and Excise produced the handsome surplus of £80,000,000 over the Budget estimate of £805,000,000. The surplus is due mainly to tobacco £27,000,000, beer £14,000,000, and Purchase Tax £30,000,000. The consumption of tobacco and beer is still on a very high level, despite the greatly increased duties. Thus the weight of tobacco on which duty was paid in 1938–39 was 192,000,000 lbs., and that figure rose to 229,000,000 lbs. in 1942–43, an increase of no less than 19 per cent., despite the increase in duty. A small part of the 1942 revenue was no doubt due to some restocking by retailers, but, even so, the figures are a striking commentary on the persistence with which the smoking public clings to this form of optional expenditure despite a considerable increase in taxation. The same is true of beer. As the Committee is aware, supplies of brewing materials have been controlled, but as a result of substantial 965 reductions in the gravities of the beers brewed the quantity available to consumers has increased from 25,000,000 bulk barrels in 1938–39 to nearly 30,000,000 in 1942–43, showing in this case also an increase of about 19 per cent. That these high rates of consumption have continued possible is no doubt due both to the increase in personal incomes, particularly in the lower ranges, and to the measures we have taken to keep down the prices of necessaries.
§ The excess on the Purchase Tax appears to be due mainly to a much slower rate of diminution than was expected in supplies of taxable goods available to the public, coupled, in some cases, with a higher level of prices. The only other head of the Revenue on which I need comment is Miscellaneous Revenue, which includes receipts and contributions and premiums under the War Damage Act not included in the Budget estimate. Since expenditure under the Act during the year exceeded receipts, the whole of such receipts is included under this head.
§ The total revenue, excluding the Canadian Government's contribution, amounted to £2,595,000,000, an excess of £193,000,000 over the estimate, as against a total expenditure of £5,637,000,000. Towards this huge expenditure overseas disinvestment and the Canadian Government's contribution together provided some £850,000,000. We therefore required domestic finance for a sum of nearly £4,800,000,000. Domestic revenue provided £2,595,000,000, leaving £2,185,000,000 to be met by domestic borrowing, an increase of nearly £200,000,000 over the amount of our domestic borrowing in 1941, which in my last Budget I took as the criterion for our borrowings during 1942.
§ In examining how far the general soundness of the sources of our borrowing was maintained during 1942–43, I must remind the Committee that, as I explained last year, we have not yet got the figures for all these sources up to as recent a date as the end of March. I must again, therefore, first take as the basis for my examination the calendar year 1942, and then estimate how far the results for the financial year 1942–43 are likely to have differed from those of the calendar year. The Committee will remember that the White Paper starts with the figure of the total central Government expenditure in 966 the calendar year; then, by deducting the amount provided by overseas disinvestment, arrives at the figure requiring domestic finance. From this figure, by deducting first the central Government revenue, then the sums raised by borrowing from various specified sources, it arrives, finally, at a figure which we describe as the residue, and it is to this figure, or rather to the trend of the changes in this figure between one year and another, that we have looked as the criterion of the soundness of our borrowing operations from year to year.
§ The residue is made up, broadly speaking, of the balances of the depreciation funds and sinking funds in the hands of companies and institutions in so far as they have not been spent on replacements and renewals and after providing for other capital expenditure financed out of non-Government funds. Table A in the White Paper shows that for the calendar year 1942 the estimated residue was about of the same order as in 1941, namely, £175,000,000 to £200,000,000. To pass from the calendar year to the financial year 1942–43, we have to allow for the fact that, while both expenditure and revenue were higher in the financial year than in the calendar year, we had, in the result, to borrow rather more in the financial year than in the calendar year. Allowing, however, as we clearly may, for some increase in savings, the residue for the financial year 1942–43 will still have been of the same order as that in the calendar year 1941. The general object of maintaining our finances in the same sound conditions as those of 1941, was, therefore, realised, in spite of a great and progressive increase in expenditure.