Art. 14.-RETRENCHMENT AND THRIFT.

Committee on Retrenchment in the Public Expenditure. First, Second, Third, and Final Reports. [Cd. 8086, 8139, 8180, 8200.] Wyman, 1915-16.

FINANCE has always proved one of our most effective weapons in the great wars in which we have hitherto been engaged, and it may be safely affirmed that we have never been involved in any conflict in which economic influences are destined to play a greater part than in the present. The magnitude of our economic task has at last been appreciated by the great mass of the people. For the year ending March 31, 1916, the war expenditure, including the cost of civil government, amounted to 1,559,000,000Z.; and the revenue from taxation, etc., reached 329,766,000l., leaving a balance of 1,229,000,0001. which has been raised by loans, etc. For next year, if the present rate of expenditure is not exceeded, the expenditure will be about 1,825,000,000l., and the revenue may be expected to realise 502,000,000l., leaving a deficiency of 1,323,000,000l. The dead-weight amount of our national debt (including the debt as it stood in March 1915) at the end of March 1917 may, therefore, amount to 3,600,000,000l., involving an annual charge for interest and sinking fund of about 180,000,000l.

Before the war the national income of the United Kingdom amounted to about 2,300,000,000l. per annum; for the year 1915 it probably amounted to 2,600,000,000l., and for the current year it may be estimated to amount to not less than 2,700,000,000l. It will be seen, therefore, that our burden involves a total expenditure by the Government of a sum equivalent to not less than twothirds of the entire estimated national income. In order to form a sound conclusion as to our ability to bear this burden we must consider the national expenditure under all headings, and I have prepared the following provisional estimate for the year ending March 31, 1916.

The above estimates have been based mainly upon the paper which the late Sir Robert Giffen read before the British Association in 1903, and the paper read before the same Association in 1912 by Mr Rew. Due allowances have been made for the growth of population and for the very great rise in the price of foodstuffs and raw materials. Since the outbreak of war there has been an average increase in the cost of living of about 30 per cent.

The past year's operations may, therefore, be summarised as follows:

On the whole the British people have responded wonderfully well to the demands which have been imposed upon them by the war. It must be remembered that no lead in the direction of economy was given to them until the war had been in progress for a considerable

time. Broadly speaking, the result of the year's operations has been that we have increased our savings from an average of about 350,000,000l. per annum to well over 600,000,000l., a remarkable achievement considering the increase in the cost of living.

Taking the governmental and civil expenditure together, the year to March 31, 1916, has closed with a deficit of about 650,000,000l., the bulk of this amount having been covered by the sale of some of our foreign investments in the United States, by the raising of loans in that country, and by the calling in of our credits in the Overseas Dominions and in neutral countries. As a matter of fact, we have overcome the financial difficulties of the first twenty months of the war with astonishing ease, but the outlook for 1916-17 gives cause for some anxiety. The national income for the coming year may be increased to 2,700,000,0007.-in view of the needs of the army, I do not consider that we can reasonably expect that it will exceed that figure—and, if the cost of living does not rise further, the position at the end of March 1917 should be roughly as follows:

The process of balancing the national income and expenditure can only be satisfactorily accomplished by increasing the national income on the one hand and by diminishing the national expenditure upon the other. For the reasons stated above, we cannot depend upon any material increase of the national income; and it is of the utmost importance that the energies of the nation should be concentrated upon the problem of the reduction of expenditure.

This problem may be considered under four heads, viz.: (1) The reduction of the civil expenditure of the Imperial Government. (2) The reduction of the war expenditure of the Imperial Government. (3) The reduction of Local

Government Expenditure. (4) The reduction of private expenditure.

In the face of this great crisis in the national finances and the pressing necessity for universal and sweeping economies in public and private expenditure, the House of Commons approached the question of retrenchment in a spirit of characteristic feebleness and timidity. After an energetic campaign by Bankers and City men in favour of thrift and retrenchment, Mr Asquith announced on July 20, 1915, that a Retrenchment Committee of twelve members, with the Chancellor of the Exchequer as Chairman, had been appointed. The terms of reference were as follows:

'To enquire and report what savings in public expenditure can, in view of the necessities created by the war, be effected in the Civil Departments without detriment to the interests of the State.'

The result has been exactly what might have been anticipated from an enquiry conducted under such limited powers. The Committee has been debarred from reporting upon the war expenditure, which, for the year to March 31, 1916, represents an outlay of 1,465,000,000l. out of a total expenditure of 1,559,000,000l. Their activities have, therefore, been confined to the criticism of expenditures amounting to 124,000,000l.; and even in this limited field they were informed that they were not to criticise expenditure arising out of questions of policy already decided by Parliament. The experiences of the Committee in connexion with Irish expenditure afford a luminous illustration of the hopelessness of looking for any material reduction of civil expenditure from the House of Commons as at present constituted. On Dec. 15 the Committee issued the following White Paper:

'In view of the pressure of Parliamentary business upon the Chancellor of the Exchequer, we were invited to turn our attention to the expenditure on Irish services under the Chairmanship of the Chief Secretary. Mr J. P. Boland, M.P., Sir J. Lonsdale, M.P., and Mr W. Kavanagh consented to join us for the purpose; but the Irish Nationalist party subsequently decided not to nominate any members to serve on the Committee, and Mr Boland, therefore, did not attend any meeting.

'We have had three meetings, at which we had the advantage of hearing general evidence on the Irish services. We were informed of the steps taken since the outbreak of war by the Treasury and the Irish Government to secure economies by administrative action, and we understand that in the result certain savings have already been effected. We believe that further savings are possible, but large economies cannot be carried into effect without legislation likely to prove contentious.

'On consideration of the whole position, therefore, we felt that the prospects of economy resulting from our labours were not sufficient to justify a prolonged enquiry; and we arrived at the conclusion that the best course would be to leave the special questions of economies in the Departments in Ireland to be dealt with by the Irish Government and the Treasury, and we hope that, in connexion with the forthcoming estimates, they will carry still further the scrutiny of expenditure which has already taken place.' . . .

In other words, the Chancellor of the Exchequer, being engaged with matters of greater importance than retrenchment, turned the Committee on to the thorny question of the reduction of Irish expenditure. But the Irish Nationalist party, having been taught for years to regard the Imperial Exchequer as a sort of milch-cow, naturally viewed any reduction of Irish expenditure (which, by the way, has grown from 5,057,708l. in 1890 to 12,656,000l. in 1915) with extreme disfavour; and the unhappy Committee were firmly told to turn their attention elsewhere.

The Committee's final report was issued on Feb. 21, 1916. They obtained provisional estimates from all Departments for the year 1916-17, and they were able to report that, in addition to the economies secured in certain directions in the estimates for 1915-16, it was found possible to effect further considerable reductions. On the other hand, the Committee were informed that most of the large Civil Departments were engaged on war work, which would necessitate a substantial counterbalancing increase of expenditure next year, as it did for 1915-16. Excluding the cost of new services required entirely for war purposes, which are met from the Votes of Credit and do not appear on the estimates, the net result of the increase and decrease together is an