ENGLAND IN CRISIS

Evening Post, Volume CXIV, Issue 126, 24 November 1932, Page 14

ENGLAND IN CRISIS

INTERNATIONAL DEBTS

STRANGLEHOLD ON TRADE

WHY GOLD WAS DROPPED

Sir Harold Beauchamp, who returned from London to-day by the Rangitane, when asked by "The Post" for a few observations on the present disturbed condition of industry, commerce and finance, said he was of the same opinion to-day as when he left New Zealand in May last, that "we cannot look for a real revival in world-wide trade until some definite arrangement bo made for the wiping out of the heavy international indebtedness which is strangling trade in. all parts of the world.

"I expressed that opinion on two or three occasions when I was interviewed in Canada, and for at least a fortnight before the resolutions were passed at the Conference at Lausanne, when proposals were carried to wipe out international indebtedness on certain terms and conditions. That, of course, cannot be done unless America falls 'in with ••these proposals.". ' .

Sir Harold briefly reviewed financial conditions in England for the year ended 30th September last, as they appeared to him. "Since the dark days of August and September of last year, which led, on 20th September, to the relinquishing of the gold; standard," he said, "England has been fighting her way up the slippery slope down which she had been rapidly sliding, and has made steady progress.

"It will be recalled that early in 1931 Mr. Snowden, the then Chancellor of 'the Exchequer, warned the country of the financial position, but nevertheless his Budget in April was only of a makeshift nature, and the urgent necessity for a cut in expenditure was not emphasised.

"The report of the May Economy Committee, issued at the end of July, 1931, pointed out that if the loss to tho Treasury from the borrowings for the Unemployment Insurance Fund were brought into the year's accounts, a deficit would be shown in the Budget for ,1932-33-of £120,000,000. The Committee made drastic recommendations with regard to cutting expenditure.

WHEN FOREIGNERS TOOK ALARM

:"Thc Government, not realising the nation's peril, contented itself with the setting up of a Sub-committee to look into the report, and the announcement that it would be studied during the vacation. In the meantime the report of the May Committee had been studied abroad, and confirmed the fears which had been long felt regarding the drift of Great Britain into an unsound financial and economic position. A heavy withdrawal of foreign balances commenced. A £50,000,000 credit, half for use, in Prance and the other half in the United States, which had been arranged for to meet withdrawals, speedily melted. The seriousness of the position was realised, and Cabinet was summoned. Statements intended to be ; reassuring were made by- the Prime Minister, but the Labour Government split on thel question of cuts. in the dole. It was then that Britain was standing on the brink of a financial precipice. The Ministry resigned, and a National Government was formed. A further foreign credit, consisting of the equivalent of £40,000,000 in France and £40,000,000 in the. United States, was arranged, making the total borrowing for maintenance, of the pound £130,000,000. The Labour .Ministers who' refused to join the National Government, blind to tho gravity of the position, persisted in ascribing the cause to a 'bankers' ramp.' "Unfortunately the drift had gone so far that foreign confidence in Britain was seriously undermined and large sales of sterling continued. ' The credits provided quickly, ran out. British Government securities were being sold at absurdly low prices. On 20th September it was officially announced that it had become, necessary to suspend the gold standard, as withdrawals of funds since tho middle of" July had amounted to more than £200,000,000, and the Bank of England rate was raised from ; &i per.cent, to 6 per cent. WHEN STERLING COLLAPSED.1 "The fall of the pound, consequent on the departure from the gold standard, was heavy, in relation to most foreign currencies. The. average New York rate for the week ended 19th September was 4.86 dollars, the, following week it was 3.97$ dollars. The . Paris rates were approximately 123.97 francs, and 101.08 francs respectively. The fall in the pound- continued, and at one stage 3.23 United States dollars to the pound was .touched. It has since fluctuated in value, being at present about 3.45 dollars. An uncertain pound is a serious deterrent to business, and the. disadvantages are ; fully realised by the Government. Tho establishment of an Exchange Equalisation Account was announced by the Chancellor of the Exchequer in April last, with borrowing powers up to £150,000,000, to better equip the Bank of England to maintain a steadying influence on.the exchange. "The control of the nation's affairs by a National Government pledged to balance Budgets and restore confidence ■ has been effective. The credits of £130,000,000 obtained from the United States and France to maintain tho pound have been repaid. The Bank of England rate is now 2 per cent.— a year ago it was 6 per cent. The British Government, whose borrowing oil' three months' Treasury bills_ was then at a price to return the lender over "5i per cent. per.annum, has recently been able to meet its weekly requirements at a. nominal return to the holder, the.rates during September ranging from 8s to 13s 5d per cent. . per annum. The wonderful, success of the great 5 per cent. War Loan conversion scherrfe —tho very' moderate terms offered took the City by surprise—was a striking indication of the tremendous change that has taken place.' At the end of last year;, British Government stocks were in the doldrums. The improvement made can be realised by a comparison with prices, existing in September this year with \he lowest prices in 1931:-—■ September, 1931. 1932. War Loan, 5 p.c. ...... 90* *102 Conversion,' 3i p.c. .... 07 99 Funding, 4 p.c 78- 110 Consols, 2} p.c 49} ■ 73} "The Emergency Budget introduced after the setting up of the National Government showed that the Budget of April, 1931, in which there was an estimated surplus of £.134,000, would actually result in a deficit -of nearly £75,000,000, and the deficit for tho financial year 1032-33, before taking account of economics and new taxation proposals, would be, as far as could be judged, £170,000,000. To bridge these alarming 'gaps was the first duty of the National Government, and economies effected, and the increased taxation imposed, enabled the nation by.a great effort to balance its Budget to April last. Mr. Chamberlain, the Chancellor of the Exchequer, paid a warm tribute to the British taxpayer for what had been accomplished. He also stated that the country had reached the practical limits of direct taxation. I may here mention there is no doubt the need of obtaining additional revenue and p£ adjusting the

trade balance hafl made the imposition of tariffs essential, apart altogether from the question of protection. " CONFIDENCE LARGELY RESTORED. "Confidence has now been largely restored," Sir Harold continued. "But splendidly as the National Government has done, much remains to be "accomplished, and the next big task is to reduce' expenditure. A Budget of approximately £800,000,000 (as compared -with about £200,000,000 in 1913----14) is beyond the country's capacity under present conditions. The conversion of the 5 per cent. War Loan to a 3J per cent, basis •will, after this year, effect a saving of about £23,000,000 per annum, but it is obvious that much more will have.to be, done. In the Budget in April, 1931, the total amount required for service of the National Debt, etc., was £312,000,000, excluding payments to the National Debt Sinking Fund, and for the Supply - Services £393,000,000. Of this amount, £272,000,000 was on account of civil services, and it is the oxpenditure under°this head which will have to .be searchingly looked into.

."Britain's National Debt at 31st March, 1914, was over £661,000,000; at 31st March last, it was approximately £7,434,000,000.

"It may be asked why, if confidence has been restored, it is not reflected in the foreign' exchange rates. That the pound sterling!- should be at a. discount ' with tho dollar and franc is perhaps understandable, but that it should bei worth only 14s' 2d in German currency, and be at a discount with Polish and other Continental countries, whose financial strength is fractional compared with Britain's, seems a ridiculous anomaly; but emphasises the dangerous position Britain has been allowed to drift into by leaving her international balance-sheet to look after itself.

"The depreciation of the pound has bceai, of- course, of service to British trade, and it is unlikely the authorities will allow sterling to be linked again to gold until the country's financial position warrants such a step being taken.

•"The low value of. the pound, in terms of gold, has resulted in large shipments of gold being made to Britain. The shipments from India alone have amounted to £65,000,000. , "Tho extraordinarily low rates ruling in -the mQney market, as low as one-half of 1 per cent, for overnight and weekly fixtures, indicate there is still a lack of confidence on the part of investors, many of whom prefer to keep' their resources in liquid form. With a return of confidence, I should not be surprised to see a great expansion in business. Already, a mild boom has occurred in the United States of America, when gilt-edged, securities appreciated in value during the month of July last to the colossal sum of £2,250,000,000."