The Total War Debt—What are our Loans to the Allies worth?—Other Uncertain Items—The Prospects of making Germany pay—The Right Way to regard the Debt—Our Capital largely intact—A Reform of the Income Tax—The Debt to America—The Levy on Capital and other Schemes—The only Real Aids to Recovery.
A table published week by week by the Economist shows that from August 1, 1914, to November 9, 1918, the Government paid out £8612 millions sterling. From this we have to deduct an estimate of the amount that the Government would have spent if there had not been a war, so that we are at once landed in the realm of conjecture. The last pre-war financial year saw an expenditure of £198 millions, and it is safe to assume that this figure would have swollen by a few millions a year if peace had continued, so that we may take at least £860 millions from the above total as normal peace expenditure for the 4-1/2 years. This gives us £7752 millions as the gross cost of the war, as far as the period of actual fighting is concerned. From this figure, however, we are able to make some big deductions. There are loans to Allies and Dominions, and some other much more readily realisable assets than these. We do not know the actual figure of the loans to Allies and Dominions during the war period, because they are not included in the weekly financial statements. The amount that we borrow abroad is set out week by week—at least, that is believed to be the meaning of the cryptic item "Other Debt"—but the amount that we lend to Allies and Dominions is hidden away in the Supply Services or somewhere, and we only get occasional information about it from the Chancellor in the course of his speeches on the Budget or on Votes of Credit. In his last Vote of Credit speech, on November 12, 1918, Mr Bonar Law gave the chief items of the loans to Allies, and a very interesting list it was. The totals up to October 19, 1918, were £1465 millions to Allies and £218-1/2 millions to Dominions. The Allies were indebted to us as follows:—Russia, £568 millions; France, £425 millions; Italy, £345 millions; smaller States, £127 millions.[1]
[Footnote 1: Parliamentary Debates, Vol. 110, No. 114, p. 2560.]
Some of these debts may be written off at once, and that cheerfully, seeing that they have been lent brothers-in-arms who have been hit much harder than we have by the war, and had nothing like our financial strength. The question is, what figure ought we to put on this asset in deducting it from gross war expenditure in order to arrive at a guess at the real cost? We take our loans to Dominions, of course, as good to the last penny. Mr Bonar Law, in his Budget speech last April, took our loans to Allies at half their face value. Strict bookkeeping would probably demand a lower figure than 50 per cent.; but let us follow the ex-Chancellor's example and take loans to Allies, which we will estimate at £1480 millions up to November 9th, as good for £740 millions, and loans to Dominions at £220 millions up to the same date, a total of £960 millions, to be deducted from gross war cost. Concerning £740 millions of this sum, however, there is a certain amount of doubt. No one questions for a moment the solvency of France and Italy, but in view of the pressure that the war has exercised on their producing power, and, in the case of France, the complication added by the uncertainties of the position in Russia, in which French investors are so deeply interested, one cannot feel sure that they will be able at once to make interest payments. Much will depend on the sums that they are able to recover from Germany against their bill of damages, on which more anon. But in any case it seems likely that a general scheme of interest funding, as between the Allies, may have to be adopted for some years to come.
As to the other assets that we have to set against our gross expenditure during the fighting period, they were enumerated by the Chancellor in his Budget speech last April in the following terms;—
Balances in agents' hands, debts
due, foodstuffs, etc £375 millions.
Land, securities, buildings and ships 97 "
Stores in Munitions Department
(cost price 325 millions) taken at 100 "
Additions this financial year 100 "
Arrears of taxation 500 "
—-
Total[1] £1172
[Footnote 1: Parliamentary Debates, Vol. 105, No. 33, pp. 698-699.]
It will be remembered that in his Budget speech the Chancellor was proceeding on the assumption that the war would last till March 31st next—the date at which our financial year ends—and would then be convenient enough to stop. Happily for us, the valour of our soldiers and those of our Allies, the splendid success of our Fleet and our merchantmen In bringing over American troops and their food and equipment with astonishing speed, and the straightforward diplomacy of President Wilson, combined to achieve victory nearly five months earlier than the most sanguine had dared to expect. With the very pleasant result—though it is a small matter when compared with the end of the killing of the best of our manhood—that the financial position is very greatly improved. With regard to the figures given above, it should be observed that the "debts" are advances to Dominions, but on quite a different basis from our loans to them, being money owed by them against goods and services supplied.[1] They and the balances in the hands of agents are both as good as gold. Concerning the others, one is entitled at first sight to feel a good deal of scepticism, since such articles as land, buildings, ships and stores, bought or built by Government during a war, are likely to find an extremely sluggish demand when the war is over. However, Mr Bonar Law assured the House that his valuation of these amounts had been arrived at on a conservative basis, and, what is better still, in his Vote of Credit speech on November 12th, he was able to state that revised estimates had shown that their value would be "far greater" than he had previously expected. So perhaps we are entitled to take them at £1300 millions.
[Footnote 1: Parliamentary Debates, Vol. 105, No. 33, p. 698.]
If so, we get the following results for the cost of the fighting period:—