Some Technical Aspects of the Finance of Rearmament

THE object of this note is to discuss not the desirability of meeting part of the proposed expenditure on rearmament by borrowing, but some of the technical considerations which seem to have weighed with the Government in selecting the methods by which the additional money shall be provided. The Government has taken power to finance over a period of five years part of the expenditure of the Defence Departments up to a total of 400 millions by borrowing. The Departments are to pay 3 per cent. interest on the money loaned to them, and after their borrowing has been completed, the money will be repaid by instalments over a period of thirty years. Powers have also been taken to lend the realised surplus on the Budget, that is the Old Sinking Fund, to the Defence Departments, thus modifying the Exchequer and Audit Act of i868 which required that all surpluses realised in this way should be issued to the Commissioners of the National Debt for the purpose of debt reduction. At the time of writing (first week in March, I937), these two facts are all that is known of official intentions. In the light of recent financial history, however, it seems possible to deduce from the nature of the powers which the Government has taken, the probable character of its intentions. One of the results of the reduction in the volume of impending maturities of relatively slhort term government debt since the great conversion of I932 and of the improvement in the financial mechanism of the Unemployment Insurance Fund since the genuine balancing of the Budget in I93I, has been to increase the importance of the extrabudgetary funds which are administered by the National Debt Office on behalf of the public departments through which they arise. The existence of these funds which have

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