CHAP. III. Domestic Affairs continued.-State of the Finances.-Mr Vansittart's new Plan of Finance.-Objections urged against it.-Army Estimates.-English and Irish Budgets. THE state of the finances of this country may well excite astonishment. The prodigious amount of the public debt, the magnitude of the loans which in a season of war are annually contracted, the variety of the taxes imposed, and the entire confidence which, notwithstanding all these circumstances, is still reposed in the national credit, appear to set at defiance all the suggestions of theory. The extent and fertility of the resources of the country, and the scrupulous fidelity of the government in the discharge of its pecuniary obligations, can alone account for these singular phenomena. Yet as the means of tax ation, although extensive, are in their nature not inexhaustible, while the expenditure seems to be altogether without limits, it is obvious that without some vigorous effort to maintain a due proportion, ultimate embarrassment must be the result of the present system. To arrange and methodise the public income and expenditure,-to mitigate in some degree the burdens of a period exposed to unusual difficulties, to arrest unnecessary profusion in the public business, and to raise a given sum with the least possible séverity on those who are to pay, a wise system of finance may do much; but as an instrument for arresting the progress of continued extravagance to certain ruin,-of wasteful expenditure to national bankruptcy, and of excessive taxation to the discourage ment and ultimate destruction of industry, all such systems seem to be unavailing. The nation which has recourse to the funding system, without making any provision for retracing its steps, and for recovering in a period of repose from the difficulties into which it may have been led during a season of war, must look forward to insolvency as the inevitable consequence. Great Britain has, on almost every emergency, resorted to the funding system since the Revolution. A weak and timid minister will be partial to this system, and will rashly increase that burden, which can be removed only by his more resolute successors. At the close of the American war this system had been carried to a great extent, without the provision of ade. quate means for arresting its progress. It was reserved for the virtue and talents of Mr Pitt to provide the remedy. The fundamental principle of Mr Pitt's system was developed in the new arrangements with regard to the sinking fund. His plan was, to separate it completely from the other departments of expenditure, and to place it under the controul of commissioners, responsible not to ministers, but to parliament. He provided also that this fund should operate in war as well as in peace; that while new debts were contracted, the sinking fund should pay off the old; and that, at the period of every new loan, taxes beyond what might be necessary to pay the interest should be imposed, and form an addition to the sinking fund. It has been thought by some persons, that the only mode of discharging the national debt, is by obtain ing a surplus of revenue beyond the expenditure; that the separation of the sinking fund from the other funds is in peace a measure of no real efficacy; that in war it is equally unavailing, and must for ever be attended with loss, because it increases the sums raised by loan, and upon which the persons who make the advance must receive a profit. It would therefore, it has been said, be far better that any surplus which may arise during peace, should be employed in defraying the expences of the war, and in lessening the amount of the loans.-Those who argue this forget, however, that in the actual conduct of the finances something more is to be considered than the mere science of calculation; and that it is our duty to appretiate well, not only the nature of the affairs themselves, but the character of the men by whom they are to be administered; not only what can, but what will be done. It may be laid down as a fixed principle, that every minister will have some object, in which it would be convenient and agreeable to VOL. VI. PART I. spend any surplus of the public money. If then this surplus be left floating and mixed with other funds, the result will be, that an immediate and desirable use of it will be preferred to one which, though great, is distant, and therefore uninteresting. This is no vague theory; it has been confirmed by the experience of Great Britain for the last century. The influence of every sinking fund prior to that of Mr Pitt, though operating in the most favourable circumstances, and during long periods of peace, has been utterly insignificant.-It may be said, indeed, that although a sinking fund is expedient in time of peace, yet during war there can be no motive for its adoption. But those who reason in this manner ought to reflect on the temptation which would arise in a time of war to apply the surplus of the sinking fund to pay the interest of loans, instead of diminishing their amount; thus avoiding, for the time, that discontent which the imposition of new taxes inevitably creates. Even when peace arrives, the winding up of the concerns of war occasions much extraordinary expence, to which this existing surplus might be most conveniently applied. For these reasons, a sinking fund may be considered as a necessary appendage to the funding system; it ought to be separated as completely as possible from all other funds, and to be guarded by the strongest barriers. It ought to operate at all times by its own intrinsic force, and not according to the varying and capricious views of statesmen. Another important change accomplished by Mr Pitt, was the introduc tion of the practice of raising the greater part of the supplies within the year. The sinking fund, adhered to with the characteristic firmness of the minister who established it, might have been sufficient for supporting the na tion under wars of common magnitude and common duration; but a war conducted on a scale exceeding all former experience, and of which the termination appeared wholly uncertain, was found to require some more vigorous measure; the accumulation of debt became too great, and the prospect of its discharge too distant; and provision was now to be made for carrying it on to an indefinite term. These purposes could only be answered by war-taxes, which, by defraying part of the extraordinary expenditure, might diminish the amount of the annual loans. Such a plan indeed, to a certain extent, is, in all cases, highly expedient. Yet it required, perhaps, the decisive and commanding character of Mr Pitt to force upon the nation so ungrateful a remedy. This remedy was administered also in the most unpopular of modes that of direct contribution. After ineffectual attempts to arrive at income through the medium of assessed taxes, the direct and offensive form of an income-tax was at length adopted, and submitted to by the nation. A variety of exemptions and allowances were at first admitted, with the view of mitigating its pressure; but as the nation became inured to the burden, it was gradually rendered more severe and more productive. Large war-taxes were afterwards imposed upon wine, spirits, and tea, and other articles of general consumption; which, with the income-tax, raised the whole produce to upwards of twenty millions, and, joined to the permanent taxes, formed the enormous annual contribution of between sixty and seventy millions. No such burden had ever before been endured by any country in any age. The administration which succeed. ed to power on the death of Mr Pitt, either from an apprehension that the limits of taxation had been approached, or from a desire to innovate as much as possible on the plans of their great predecessor, once more attempted to revive the funding system to a large extent. The object which they proposed was, that the war, of whose termination there was no prospect, might be continued indefinitely without any considerable increase of taxation. The war-taxes, exclusively of that on income, were to be applied to pay the interest of the annual Îoan. They were also to furnish a sinking fund of 5 per cent. which, at the end of fourteen years, would extinguish the debt, and leave the revenue disposeable, to provide for a new loan. This diversion of the war-taxes from their original object necessarily occasioned an annual deficiency, to be compensated by a supplementary loan, increasing every year till it amounted to a sum equal to the whole of these taxes. The interest on the supplementary loans was to be chiefly defrayed, 1st, by the falling in of annuities 2d, by stopping the accumulation of the sinking fund, after its amount should have equalled the interest on the redeemed debt; an event which was expected to take place about the year 1817.-This plan manifestly involved a recurrence to the funding sys tem, and a revival of it in the most obnoxious shape which it could assume; for, not only were new loans to be contracted for the public service, but even to pay the interest of the public debt. The ministers, by whom these ar rangements had been made, were soon removed from power, and their place was supplied by their political adver saries. The plan was therefore abandoned, and the new ministers set out upon the principle of preserving entire the war taxes, and consequently of providing for every successive loan by new impositions. But they soon found that this was a task which they pos sessed no adequate means of performing; that taxation was rapidly approaching that term when an increase of the rate diminishes instead of increasing the produce. This tendency was accelerated by the expenses, judícious and ultimately economical, which were occasioned by the great scale of the war in the peninsula. It was increased still more by the stagnation of trade, occasioned by the shutting of all the continental ports. In short, after several temporary expedients had been tried, the chancellor of the exchequer, Mr Vansittart, became sensible that recourse must be had to measures of a different and more decisive character. On the 3d of March, in the present year, Mr Vansittart explained his new plan to the committee of the whole house appointed to enquire into the finances of the country. Besides some propositions of minor importance, as to the redemption of the land-tax, and an addition to the sum appropriated to the sinking fund on each new loan, Mr Vansittart proposed an important change, the nature of which may be explained in a few words. By the original constitution of the sinking fund, the stock purchased by the commissioners was not cancelled, but was considered still to be the property of these commissioners, who regularly drew the interest, and applied it to the further discharge of the national debt. It was in this manner that the fund accumulated by compound interest; a circumstance on which so much reliance was placed. This arrangement was now abolished, and the whole stock purchased by the commissioners (which happened to be 236,000,000l. the precise amount of the debt when the fund was instituted) was to be cancelled, and the interest to become disposable for current services, or for paying the interest of new loans An addition of 867,9637. was at the same time to be made to the sinking fund. It was also proposed, that when the loans should in any year exceed the amount of the sinking fund, a new fund of 24 instead of 1 per cent. should be provided for that surplus. Mr Vansittart made the following remarks in support of this proposition: "I beg leave to preface my explanation of the system I am about to recommend, by a few general remarks on the redemption of public debt. We are apt to consider this subject (if I may so express myself) too arithmetically; we compute that a certain annual sum will, at compound interest, redeem a given amount of debt within a certain number of years, but we forget the great considerations of policy and public economy which this operation involves. We do not consider that it disposes of the fortunes of thousands of individuals; that it requires the transfer of a mass of property, amounting perhaps to a fifth part of the whole capital of the country, if estimated according to the returns to the property tax, from an employment in which it has been vested by the proprietors to the manifest advantage of the public, into other modes of occupation. It is an experiment which, as far as my knowledge extends, has never been tried on a great scale. The present Elector of Saxony, it is true, discharged the debt which his predecessors had accumulated upon that country; but neither the amount of the sum, nor the circumstances of the electorate of Saxony, can form any precedent for this wealthy and powerful kingdom. While war continues, and loans are annually contracted exceeding the amount of the sinking fund, that amount, however great, can only be considered as an advantage; but whenever peace may take place, it will soon be found that there is a point beyond which the annual redemption of debt cannot be carried without great public inconvenience. This is no new argument in the House; my noble friend the Marquis of Lans downe urged it with great force and eloquence in opening his plan of finance in 1807. He observed that the mischief of an excessive sinking fund overloading the money market with a superabundance of capital, exceeding the means of employment, would be not inferior, and somewhat similar, to that of a national bankruptcy. When ever, therefore, the sinking fund has reached that point beyond which it cannot be employed with advantage in time of peace, it seems to be wise to think of setting bounds to its further accumulation, and certainly unwise to exhaust the national resources by an augmentation of taxes for its further increase. Whether the sinking fund has now reached that point it belongs not to me to decide, and I wish the most cautious and deliberate wis dom of parliament to be applied to the decision. But it may unquestionably be said, that the sinking fund has now reached an extent of which the history of no country affords an example. In no country has the experiment of an annual repayment of twelve millions, or any thing like it, been tried. This at least is obvious, that the present arrangements of the sinking fund require revision. As the law now stands it will accumulate to about thirty, possibly to above forty millions, and will be at once reduced to twenty, or even to twelve. Whatever may be thought of the effects of its greatest amount, it is undeniable that such a revulsion must be pernicious. If the larger sum be not too great, the smaller must be far too little. But I perfectly agree with Lord Lansdowne, and all the great authorities which have treated of this subject, that the plan of employing thirty or forty millions in the purchase of stock in the time of peace is perfectly impracticable and visionary. A change must therefore be made at some time; and if so, is it not wiser to make it while the inconvenience is still at a distance, than when it is actually pressing, and when any corrective may be opposed with an appearance of justice, by the individual interests which may be affected by it at the moment? On this account, I think it becomes the House now to pause, and take a deliberate view of the situation of the country with respect to the repayment of its debt. But other circumstances concur to point out the present as a proper time for some revision of our system. By the original Sinking Fund Act of 1786, provision had been made, that when the fund should have accumulated to the amount of four millions per annum, its further accumulation should cease, and the sums purchased from that time be discharged and made applicable to the public service. Had not that plan been varied by the act of 1802, the public would before this time have received relief from the operation of the sinking fund, though only to the limited extent of the interest of four millions ayear; for the calculations which were made of its progress fixed the period at which it would have reached its highest amount about the year 1812, and the average rate of interest at which its operations have been conducted, proves in fact that it would before this time have accomplished that object. It seems natural to look for some relief from the sinking fund at the period at which it would actually have been obtained, if the constitution of the fund had not been varied. But there is another circumstance still more striking in our present situation. When the sinking fund was established in 1786, the total amount of debt was about 240 millions, and the redemption of such a sum appeared, if not utterly hopeless, at least placed at a very remote distance. But great as the difficulty then appeared, the firmness and perseve |