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The National Debt, which had been reduced from 762,463,000 in 1909-10 to 707,654,000 in 1913-4, was destined to grow at an enormous rate during the European War. Figures showing the form of the debt are set out below:

The average British National Expenditure in 1914-5 was 1,500,000 a day; it grew to 3,750,000 in 1915-6, to 6,587,000 in 1916-7, and to 6,986,000 in 1917-8. A rule was laid down by Mr. Reginald McKenna, who succeeded Mr. Lloyd George as

British National Debt in million.

Aug. i 1914

March 31 1915

March 31 1916

March 31 1917

March 31 1918

March 31 1919

March 31 1920

March 31 1921

Funded Debt Term. Annuities 3i % War Stock .......

588 30

584 28 ?49

3i8 26 6-1

3i8 24 61

3i8

22 63

3i8

22 63

315 '9 6-z

315 19

67

4-2 % War Stock

ooo

2O

16

14

11

ii

4 & 5 % War Stock

I.Q62

2,091

2,068

2.O4.O

I Q7I

National War Bonds 4 % Funding Loan 4 % Victory Bonds

649

1,636

1,476 409

357

1,441 407 358 22

Treasury Bills. ... Exchequer Bonds Nat. Savings Certs.

15

20

77 67

567 177

I

464 320 75

24.

961 392 138 2 3

957 384 227

1,107 319 274

1,121 292 28 3

Foreign Debt Anglo-French Loan (British Portion) Temporary Advances

I

9

51

20

317 51

218

944 5i 204

1,241 5i

455

1,181

51 205

1,136 155

654

1,105

2,132

3,856

5-872

7,436

7,829

7,596

War Period. The outbreak of war in Aug. 1914 was followed by a number of emergency regulations which were destined to have a profound effect upon the national finances during the war period. The Government decreed a general moratorium, and agreed to advance currency notes to bankers at Bank Rate to the extent of 20% of their deposits. At first the banks availed them- selves of this facility to relieve the shortage of cash to the amount of 13,000,000, but by the end of Nov. 1914, when the mora- torium expired, this amount had virtually been repaid. The banks found that Government expenditure provided them indirectly with all the currency they required, this of course being the inevitable effect of inflation. On Aug. i 1914, the Government gave the Bank of England authority to suspend the Bank Act of 1844, but it was never acted upon, because the pas- sage of the Currency and Bank Notes Act on Aug. 6 1914 rendered the suspension of the Bank Act unnecessary. The excess fiduciary issue was always turned into the currency note issue. The next step was the undertaking of the Government to discount at 2 % above Bank Rate all pre-moratorium bills of exchange. The amount discounted was nearly 200,000,000, of which about 35,000,000 remained in cold storage until after the war.

The war was financed by means of Votes of Credit. There were 25 Votes of Credit, as set out below: Votes of Credit in the War.

1st Aug. 6 1914 2nd Nov. 15 1914. 3rd March I 1915.

4th March I 1915. 5th June 15 1915. 6th July 20 1915. 7th Sept. 15 1915. 8th Nov. II 1915. 9th Feb. 21 1916.

loth Feb. 21 1916. nth May 23 1916. I2th July 24 1916. I3th Oct. n 1916. I4th Dec. 14 1916. I5th Feb. 12 1917. I6th March 15 1917

100,000,000 . 225,000,000 37,000,000

(Financial year) 362,000,000

. 250,000,000

. 250,000,000

150,000,000

. 250,000,000

. 400,000,000

120,000,000

(Financial year) 1,420,000,000 . 3*0,000,000 . 300,000,000 . 450,000,000 . 300,000,000 . 400,000,000 . 200,000,000 60,000,000

(Financial year) 2,010,000,000 . 350,000,000 500,000,000

I7th March 15 1917 i8th May 9 1917

igth July 24 1917 650,000,000

2oth Oct. 30 1917 400,000,000

2ist Dec. 12 1917 550,000,000

(Financial year) 2,450,000,000

22nd March 7 1918 600,000,000

23rd -June 18 1918 500,000,000

24th Aug. I 1918 700,000,000

25th Nov. 1918 700,000,000

(Financial year) 2,500,000,000 Total (1914-8) 8,742,000,000

Chancellor of the Exchequer in 1916, that the Budget should provide for all normal expenditure and the war debt charge. This standard of finance was high higher than that aimed at by any other belligerent. Thus in the year 1915-6, expenditure amounted to 1,559,188,000, of which 336,737,000 was provided by revenue. Tax revenue amounted to 290,088,000 or 18-6% of the expenditure. In 1916-7, 573,428,000 was raised by revenue, or 26% of the total expenditure, tax revenue being 514,105,000, or 23-3 per cent. In 1917-8 tax revenue contrib- uted 22-7% to the expenditure, the total revenue being 26-2 per cent. In 1918-9 tax revenue yielded 29-7 per cent.

Increased taxation was imposed in each War Budget. As far as possible the Government relied upon screwing up existing taxation, and avoided as far as possible the imposition of new taxes. The only new tax of any great importance was the Excess Profits Duty. This duty (see EXCESS PROFITS) was extraordina- rily prolific and ranks as one of the most skilfully-devised fiscal measures of the war; it was largely imitated abroad. It sought to appropriate for national purposes a large slice of the exceptional profits secured by those engaged in business, and at the same time to provide a big new additional source of revenue. The duty was first imposed in 1915, and was applied for a period of seven years to all businesses. At first the rate was 50 %; it was increased to 60% in April 1916, and from 60 to 80% in May 1917. No- change was made in 1918, but in 1919 the rate was reduced ta 40%; and raised again to 60% in 1920. In the budget of 1921 it was brought to an end.

Income Tax (see INCOME TAX) was doubled in the first War Budget introduced on Nov. 17 1914 by Mr. Lloyd George. It was raised from is. 3d. to 2s. 6d., and the rate for earned income was hoisted up from gd. to is. 6d. in the pound. Super Tax was also doubled. In the third War Budget introduced in Sept. 1915 (the second was in May, 1915), 40% was added to income tax, the exemption limit was reduced from 160 to 130, and abatement limits from 160 and 120 to 120 and 100 respectively. The reduction made in Sept. 1915 in the limit of exemption to incomes below 130 increased the number of taxpayers by a very large figure, practically every working man being rendered liable to the tax. To meet the convenience of the working class taxpayers' quarterly assessments were introduced. These classes insisted upon a differentiation between married men and bachelors. This was made in 1918-9 and subsequent Budgets, the differentiation taking the form of an abatement in income of 25 in respect of a wife living with her husband.

An " entertainments tax " was introduced in the Budget for 1916-7, the tax ranging from Jd. on a 2d. ticket to is. on a I2S. 6d. ticket, with an extra shilling for every IDS. over ias. 6d. In the following year this tax, which proved successful, was increased by 50 per cent. Other new taxes imposed in 1916