HC Deb 06 April 1948 vol 449 cc56-9

The figures I have given for the realised surplus in 1947–48, and for the expected surplus on the existing basis of taxation in 1948–49, are on the conventional basis, that is they relate to the position on that part of the Exchequer balance sheet which is commonly spoken of as "above the line." This basis has been criticised in the past, on the ground that "the line" does not divide capital items on the one side from revenue items on the other. Originally, the criticism was that capital payments were being charged to the revenue account, so that the real surplus available for tax reductions was larger than appeared in the Budget. Latterly, it has been criticised on the opposite ground, that payments which should be charged to the revenue account were being met by borrowing, and that capital receipts were being credited to the revenue account, with the result that the surplus shown in the budget was greater than the true surplus of the year. It was also argued that there was a number of non-recurrent items in the Budget, arising mainly out of the aftermath of the war, more of them occurring on the receipts side than on the payments side, and that therefore the surplus was itself non-recurrent and would not be maintainable.

These opposing lines of criticism open up a subject of great interest, and, especially at the present time, of considerable importance; and I would, therefore, like to express a layman's view on the issues presented. It is not profitable, now that war terminal items on both sides have diminished considerably, to pursue arguments based simply on recurrence or non-recurrence of such items. Items must be shown in full in the accounts, whether or not they will recur in a subsequent year. They are no less real because they are non-recurrent. Moreover, there is no clear frontier between entirely non-recurrent items and those which may take some years to decline to nothing. Indeed, the Committee may hope that some of the present rates of taxation may have some element of non-recurrence in them; but none of us can say which items may diminish or by how much.

As I see it, what is really important in the long run is that we should study whether there will be sufficient money available in the Budget surplus, taken together with savings, to finance the nation's investment programme. We must, therefore, examine what is the true surplus or deficit on the transactions of the Government of a revenue character. To the extent of such surplus or deficit, there will be a correspondingly less or greater need to have recourse to our savings in order to finance our investment programme.

I have had a rough analysis made on these lines of the final figure for 1947–48, which is set out on pages 4 and 5 of 1he Blue Paper to enable hon. Members to follow the matter more easily. The proceeds of taxation are all in the revenue account. There are also some miscellaneous receipts (broadcasting Licences, Crown Lands, etc.) which are clearly revenue. On the other hand, receipts from the sale of surplus stores—£197 million, capital repayments from trading services—£101 million, and repayments of loans, etc.—£85 million, are put to capital, and the surrender to the Exchequer of balances on war time accounts—£112 million, is omitted from revenue account, as an internal transaction of the Government.

On the expenditure side, sinking fund, loans to allies, etc., are excluded from the revenue account, together with the advance payment to the Argentine, and certain payments which are the cost of creating physical assets—including the net value of changes in food stocks but not including such items as ships of war and aeroplanes. The total so transferred to capital account is about £211 million. But Post-War Credits—£56 million—are included in the revenue account. War damage and Excess Profits Tax refunds are left in the capital account. On this basis, a real surplus of receipts over payments on revenue account for 1947–48 is shown, at about £338 million.

Hon. Members may have noticed that, on page 29 of the National Income White Paper, a deficit of £537 million on the current account of the Central Government appears, and they may wonder how this can be reconciled with the surplus of £338 million which I have just mentioned. The difference is almost wholly due to two large factors. First, I have taken war damage payments and E.P.T. refunds into the capital account, whereas the White Paper treats them in the revenue account of the Central Government. This accounts for £306 million of the difference. Second, the White Paper covers the calendar year 1947, whereas the Budget figures cover the financial year 1947–48. The big increases of taxation and the big reductions of expenditure, made between the first quarter of 1947 and the first quarter of 1948, account for over £500 million in round figures. The anticipated real surplus in 1948–49 on the existing basis of taxation would, on the basis which I described a moment or two ago, amount to about £598 million.

These figures that I am giving are not intended as a criticism of the form of the present Budget statement, but rather as an experimental analysis of receipts and expenditure, which will, I hope, lead to instructed discussion in financial and statistical circles, which may enable us, at some future date, to work out a better form for our Budget statements—if it can be substantiated that there is a better form.