§ When we examine these figures from the point of view of their effect on the inflationary tendencies, we have to look at them in relation to the economic situation as a whole. The expenditure of the Government on capital account puts money into circulation and creates purchasing power just as much as does the expenditure on revenue account, and has to be offset by private saving, or by the revenue surplus. When we make this examination, we see that, in 1947–48, the Government put back into circulation, in one way or another, all the money they withdrew by taxation. They paid for their own capital expenditure, but there was no surplus over to help to stem the inflationary tendencies in the rest of the economic system. It is at such an overall and absolute surplus that we must aim this year, and it must be substantial enough to make an impact on the situation. Especially in view of the reduction in our external deficit, I believe that we should aim at such a true overall surplus of about £300 million.
§ Taking the figures which I have already given, on the basis of present taxation the revenue surplus for 1948–49 would be £598 million; but the net capital expenditure by the Government would amount to £279 million, so that there would remain an absolute, overall surplus of about £319 million, which could be used to counter the inflationary tendencies by relieving the Government of the necessity to renew borrowings to that extent.
§ The question is whether this is a sufficiently large sum for that purpose. In 60 my view, it is just about adequate, so that, if we are to do anything to increase incentives by adjustment of taxation, we shall also have to find fresh sources of taxation to set off against the remissions which we make. It is only in this way that we can provide what I regard as an exceptional surplus to deal with the inflationary situation. We are, indeed, in a very special and critical situation, as was shown by the White Paper upon Personal Incomes, Costs and Prices; and we must take exceptional measures to counter the situation.