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The Pamphlet Collection of Sir Robert Stout: Volume 14

The National Debt

The National Debt.

This fiscal monster, which has swallowed upwards of two thousand miliions during the present century, owes its origin to Indirect Taxation, the Funding (i.e., Mortgaging) system, and "The Balance of Power." From the Norman Conquest to the Accession of Charles II. this country contrived to fight and pay its way without contracting any permanent debt, because its revenue was principally derived from lands reserved to the Crown, lands allotted on conditions of feudal service, and feudal payments from the allottees, strictly in the nature of Rent, with occasional direct levies on personalty. Charles II.'s Parliament of Land holders did away with these feudal obligations and paymonts, and, converting themselves into Landowners, gave His Majesty and his successors Excise Duties on Beer, &c., payable by the people, "in compensation" for what they and their predecessors had been bound to pay as tenants of the Crown. Prior to the Restoration of the Stuarts it had occasionally been the practice of English Sovereigns to raise or extort loans from their subjects under letters of Privy Seal, the latest wholesale issue of these having been made by James I., in 1604, much to the disgust of the nobility and gentry of the English counties who had only just acolaimed the new monarch.

Charles II. incurred a "Banker's Debt," or "King's Debt," which was not acknowledged by his successor, nor until the latter part of William Ill.'s reign. Its original amount was £1,328,526, bearing (nominally) 6 per cent, interest; but, after much litigation and long suspension of the payments, it was in Anne's reign agreed to charge on the Hereditary Excise an annuity at the rate of 3 per cent, on the original loan, to be redeemable on payment of £664,263, or half the "King's Debt." This sum was afterwards incorporated with the Capital of the loans incurred after the Revolution.

James II. borrowed £84,888 6s. 9d. on the security of Exchequer tallies, anticipating the proceeds of duties on French linens, both this sovereign and his brother having frequently resorted to such improvident shifts as a substitute for Loans under the Privy Seal.

With William III. came the notion that it was the function of this country to maintain "The Balance of Power in Europe;" and hence arose the Funding system, which was the mortgaging of taxes. The "King's Debt" being now converted into the "National Debt," a very rapid growth of liabilities followed, and a history of their progress is here given:—
Year £ £
1688 The "Kings' Debt" incorporated by William III. 664,264
1702 The "National Debt" at the Accession of Anne 12,767,225 Increase in 14 years 12,102,962
1714 The "National Debt" at the Accession of George I. 36,175,460 Increase in 12 years 23,408,235
1727 The "National Debt" at the Accession of George II. 52,523,023 Increase in 13 years 16,317,563
1760 The "National Debt" at the Accession of George III. 102,014,018 Increase in 33 years 49,490,996
1820 The "National Debt" at the Accession of George IV. 834,900,900 Increase in 60 years 732,886,942
1830 The "National Debt" at the Accession of Wiiliam IV. 784,803,997 Decrease in 10 years 50,196,963
1837 The "National Debt" at the Accession of Victoria 787,529,114 Increase in 7 years 2,725,117
1886 The "National Debt" at end of last financial year 748,716,170 Decrease in 49 years 38,812,944
The amount of Debt last year includes not only the Capitals of funded and unfunded loans and the Stock value of Terminable Annuities but certain other ...items of National liability, and is made up as follows:—
£ £
Total of the Funded Debt on 31st March, 1886 638,849,694
Total of the Unfunded Debt on 31st March, 1886 17,602,800
Value in Stock, at par, of Terminable Annuities, ditto 85,829,917
Deficits calculated at the price of the day on the Savings Banks and Friendly Societies to 20th November, 1885 2,133,497
Liability of the Consolidated Fund on 31st March, 1886, under various Acts relating to the Courts of Justice 3,768,704
Ditto in respect of Advances by the Bank of England to the Exchequer from the Dividend Account 496,558
Ditto in respect of Advance by the National Debt Commissioners from Life, &c. Annuities Account 35,000
It is important to observe that a certain amount of set-off existed, viz.:—
Probable Amount of Loans due to the State that will be recovered 27,769,954
Nominal Value of Suez Canal Shares 3,532,040
Balances at the Banks of England and Ireland on the 31st March, 1886 5,625,944
And this would reduce the net total to £711,788,232
page 81
The following is a detailed summary of last year's changes in the National Debt, as supplied in the Finance Accounts, from page 95 to page 102, inclusive:—
Dr. £ s. d.
Amount of Funded Debt, March 31, 1885 640,181,896 2 6
Amount of Funded Created in 1885-6 nil
Amount of Funded Reduced as per contra 1,332,202 9 8
Amount of Funded March 31, 1885 638,819,693 12 10
Amount of Unfunded Debt, March 31, 1886 17,602,800 0 0
Capital Value of Terminable Annuities 85,829,917 0 0
Deficit calculated at price of the day on the Savings Banks and Friendly Societies to November 20, 1885 2,133,497 0 0
Liabilities of Consolidated Fund (as on last page) 4,300,262 0 0
Total Debt, March 31, 1886 £748,716,169 12 10
Cr. £ s. d.
By Capital purchased with money from various Sinking Funds, &c. 135,909 5 11
By Capital purchased with sums received for composition of Stamp Duties on Transfers 199,685 16 1
By Capital purchased with forfeited deposits in a Trustee Savings Bank 10 9 4
By Capital Transferred for Purchase of Annuities 906,744 12 2
By Capital Transferred for redemption of Land Tax 70,552 0 4
By Capital On account of Surplus Tax 16,563 2 8
By Capital Received in respect of Fore shores 2,737 3 2
Total Reduction, 1885-6 £1,332,202 9 8

At the end of the financial year, 31st March, 1886, the following amounts of Stock of the Debt were held by Government on account of their own departments: 3 per cent. Consols, £36,313,835. Reduced 3 per cents., £15,820,796. New 3 per cents., £30,009,623. New 3½ per cents., £6,431. 2½ per cents., £15,024,518. 2¾ per cents., £121,677. Consol 3 per cent. Certificates, £6350. Exchequer Bonds, &c., £5,656,000. Annuities for terms, £7,074,138. Total Stock £102,959,230. Estimated Capital Value £178,533,360.

Return showing for each year since 1873-74 the total amount of the National Debt, the estimated amount of Recoverable Loans, the Balances at the Banks of England and Ireland, and the Net Balance of Debt; and what Amount in each year of the Annual Reduction of Debt is due to the Automatic Operation of Terminable Annuities, and the Net Annual Charge in each year upon the Consolidated Fund for the Service of the National Debt.

National Debt.
Years ending 31st March. Total Amounts (Funded, Unfunded, and Capital Value of Terminable Annuities) computed in 3 per Cent. Stock at para. Savings Banks and Friendly Societies' Deflcienies on 20th November in each year.* Liability of the Consolidated Fund under various Acts. Totals of 1. 2, and 3, Estimated Amount of Recoverable Loans. Balances at the banks of England and Ireland. Totals of 5 and 6. Net Balance of Debt (4-7).
1. 2. 3. 4. 5. 6. 7. 8.
£ £ £ £ £ £ £ £
1874 772,934,938 4,382,232 4,701,268 782,018,438 14,303,912 7,442,851 21,746,796 760,271,642
1875 768,945,757 4,552,421 4,675,762 778,173,940 15,984,135 6,265,322 22,249,457 755,924,483
1876 770,906,683 4,457,882 4,675,258 780,039,823 22,158,420 5,119,587 27,278,007 752,761,816
1877 770,014,723 4,521,727 4,624,752 779,161,202 24,844,714 5,988,650 30,833,364 748,327,838
1878 772,151,725 4,386,368 4,579,239 781.117,332 28,469,155 6,243,389 34,712,544 746,404,788
1879 772,965,062 4,583,433 4,558,718 782,107,213 30,954,755 6,915,756 37,870,511 744,236,702
1880 771,605,908 4,149,701 4,523,192 780,278,801 35,579,808 3,273,428 38,853,236 741,425,565
1881 766,144,461 3,900,541 4,462,671 774,507,676 32,688,320 5,923,662 38,611,982 735,895,694
1882 760,688,122 2,144,562* 4,432,170 767,264,854 32,564,576 5,976,585 38,541,161 728,723,693
1883 754,455,270 1,804,417 4,406,681 760,666,368 31,684,818 6,972,730 38,657,548 722,008,820
1884 746,423,961 2,124,833 4,351,206 752,900,003 31,343,145 5,632,569 36,975,714 715,924,289
1885 740,330,654 2,149,300 4,300,736 746,780,690 30,930,805 4,993,207 35,924,012 710,856,678
1886 742,282,411 2,133,497 4,300,262 748,716,170 31,301,994 5,625,944 36,927,938 711,788,232
Annual Charge for the Service of the National Debt. Annual Issues from the Exchequer for the Service of the National Debt.
Repayment of Capital
Year ending 31st March. Interest. By Automatic Operation of Terminable Annuities. Sinking Funds, forming part of the Annual Charge, and Suez Bonds Paid off. Totals. Receipts applicable as a set off against the Charge for Debt. Net Annual Charge (12-13).§
9 10 11 12 13 14
£ £ £ £ £ £
1874 23,595,354 3,104,466 6,906 26,706,726 577,671 26,129,055
1875 23,492,117 3,595,457 6,906 27,094,480 624,051 26,470,129
1876 23,351,529 3,805,314 286,907 27,443,750 764,014 26,679,736
1877 23,351,569 3,999,578 641,637 27,992,834 951,040 27,041,794
1878 23,402,562 4,177,656 832,532 28,412,750 1,107,421 27,305,329
1879 23,542,513 4,397,988 703,682 28,644,183 1,251,363 27,392,820
1880 23,496,263 4,543,441 723,170 28,762,874 1,413,268 27,349,606
1881 23,528,053 6,621,503 425,708 29,575,264 1,406,647 28,168,617
1882 23,279,712 6,026,859 359,374 29,665,945 1,378,139 28,287,806
1883 23,035,334 6,296,793 346,971 29,679,093 1,509,194 28.169,904
1884 22,902,406 5,981,210 767,910 29,651,526** 1,460,693 28,190,833
1885 22,565,934 6,303,421 678,884 29,548,239 1,251,979 28,296,260
1886 22,285,075 948,007 216,596 23,449,678 1,591,063 21,858,615
page 82
According to Mulhall the following were the figures of Amount and Cost of National Debt at certain dates:—
Year. Amount of Debt Interest Charge.
1702 13 millions £1,300,000
1748 78 millions 3100000
1763 147 millions 4800000
1783 257 millions 9700000
1797 413 millions £17,000,000
1817 841 millions 32000000
1837 788 millions 29.100,000
Comparative Statement of Amount and Cost of National Debt at quinquennial intervals since the above, taken from the Statistical Abstracts of United Kingdom:—
Capital of Funded Debt. Estimated Capital of Terminable Annuities. Amount of Unfunded Debt. Annual cost of Interest and Management.
£ £ £ £
On 6th January, 1841 766,371,725 (Not computed) 21,076,350 29,467,475
On 6th January, 1846 766,672,822 (Not computed) 18,380,200 Total Debt. 28,588,567
On 6th January, 1851 769,272,562 (Not computed) 17,756,600 £ 28,297,584
On 31st March, 1856 775,730,994 25,666,104 28,182,700 829,579,798 28,112,825
(After this line, the amounts of unclaimed Stock and Dividends are added in.)
On 31st March, 1861 788,970,609 18,947,740 16,689,000 824,607,459 26,231,019
On 31st March, 1866 773,941,190 25,435,034 8,187,700 807,563,924 26,233,288
On 31st March, 1871 732,043,270 57,969,885 6,091,000 796,104,155 26,826,437
(After this line the Suez Bonds are added to Unfunded Debt.)
1876 713,657,517 51,911,227 11,401,800 776,970,544 27,443,750
(From 1876. onwards, the Interest of the Local Loans Debt and Suez Bonds is added to the Annual Permanent Debt charge.)
On 31st March, 1881 709,078.526 87,547.666 22,077,500 768,703,692 29,575,264
On 31st March, 1886 638,849,694 85,829,917 17,602,800 742,282,411 23,449,678
It would appear, then, that from
  • 1856 to 1866, 22 millions
  • 1866 to 1876, 31 millions
  • 1876 to 1886, 34 millions
have been paid off the Debt, and these sums have been taken from the Labour and Capital of the country, whilst through an unjust revenue system Land has escaped contribution almost altogether. Twelve per cent, would probably be a liberal calculation of the proportion of the whole national revenue contributed by Real Property, and seeing that during the periods above mentioned Debt has formed about a two-fifths part of the costs of government defrayed out of Taxes, it will be seen that Landed and other Real Property has contributed but a trifling part of the charge for National Debt. Yet it is the Realty of the country upon which the main burden of this part of the National Expenditure should have devolved for many reasons.
Adam Smith, when writing of the public debt, doubted whether any considerable progress could ever be made towards its extinction whilst so small a surplus revenue accrued above the annual cost of Army, Navy, and Civil Services. He said the liberation could never be brought about without
(1.)Some very considerable augmentation of Revenue; or
(2.)Some equally considerable reduction of Expenditure.
He then goes on to write as follows (p. 747 "Wealth of Nations"):—

"A more equal Land-Tax: a more equal tax upon the rent of houses, and . . . alterations in . . . Customs and Excise, might, without increasing the burden of the greater part of the people, but only distributing its weight more equally . . . produce a considerably augmented revenue."

It is evident that the great economist little foresaw, when he wrote these words, that our National Debt, after increasing by nearly six hundred millions, would be reduced by at least £100,000,000 under a system of taxation by which the trader, the merchant, and the artisan have had to pay in increasing ratio, whilst owners of landed property have contributed a steadily dwindling decimal part; and this permitted by what are supposed to be Reformed Parliaments, and directed by so-called Liberal Cabinets. Let us hope that something more just and equitable may be accomplished during the next hundred years, and those who seek redress for fiscal inequalities will do well to remember Adam Smith's hint, and insist upon a more equal land tax, a more equal house duty, and the total abolition of the Customs and Excise burdens upon national industry.

The evil of the Debt lies mainly here, that, owing to the extravagance and mismanagement of aristocratic governments of landowners, a mortgage of some £750,000,000 still lies upon the taxes of this country, having been placed there by unconstitutional means, for no Parliament has any right to bind its successor to vote taxes. Being so placed, however, it should be the aim of statesmen to minimise evil consequences, by seeing that in the repayment of National Debt injury is not done to National Wealth; in other words, that the revenue necessary for repayment shall not be raised in such way as to interfere with wealth production.

We are not of opinion that the efforts made recently to reduce the Debt have been unwise. Our complaint would rather be that in reducing Debt before re-adjusting the incidence of taxation Mr. Childers put the cart before the horse. By so doing he succeeded in inducing a landlord House of Commons to add 7 or 8 millions to the fixed burdens of the taxpayers in a time of serious trade depression, and this being effected, the same House of landed gentlemen snapped their fingers at him when, two years later, he attempted to equalize a portion of the incidence. Now had the horse been put before the cart, the Chancellor of 1883 might have availed himself of the expiring annuities to reduce indirect taxes and abolish the breakfast table imposts altogether. The stimulus thus given to trade would have improved the yield of Income Tax and other branches of Revenue, and ere now have recouped the Exchequer, besides greatly benefiting the masses of the people. The calls of increased expenditure in 1885 would, under such circumstances, have been met with much less risk of unpopularity; a bold attempt to extend and equalize the Death Duties and House Tax simultaneously would probably have been successful, and the further reduction of Debt would then have been prepared for by a more righteous adjustment of the people's burdens. The national advantage of further reduction may be surmised from the following statement of What the National Debt has Cost the Taxpayer in Simple Interest Alone.

Years. £
1691 to 1700—Ten Years 9,228,211
1701 to 1710—Ten Years 14,779,968
1711 to 1720—Ten Years 29,437,104
1721 to 1730—Ten Years 25,762,251
1731 to 1740—Ten Years 21,114,749
1741 to 1750—Ten Years 25,853,046
1751 to 1760—Ten Years 28,664,024
1761 to 1770—Ten Years 47,092,783
1771 to 1780—Ten Years 52,093,419
1781 to 1790—Ten Years 92,135,484
1791 to 1800—Ten Years 135,123,780
1801 to 1810—Ten Years 224,138,726
1811 to 1820—Ten Years 303,639,929
1821 to 1836—Ten Years 294,437,684
1831 to 1840—Ten Years 290,254,607
1841 to 1850—Ten Years 285,099,761
1851 to 1860—Ten Years 280,780,788
1861 to 1870—Ten Years 255,000,000
1871 to 1880—Ten Years 285,031,907
1881 to 1886—Six Years 142,852,180
Total in 196 years £2,792,020,401
page 83

Mr. Henry Lloyd Morgan, who first compiled a similar table to the above, remarked:—"This is for simple interest only; yet even this gigantic sum represents only a comparatively small portion of the actual costs of war; moreover, it must be remembered that all this has been abstracted from the working capital of the country; therefore, in reality, 'compound interest' should be charged to represent even the outlay for payment of the simple interest; to which must be added a much larger sum for extra taxation levied to carry on war."

a In a prior Return the Capital Value of Terminable Annuities was computed in 3 per cent. Stock at £92.3077.

Two million pounds for loan to India is included in this year.

Five per cent, on the amount outstanding at the end of each financial year for loans for Public Works has been allowed for possible bad debts.

* An annuity was created under "Savings Bank Act, 1880," to pay off the Total Capital Deficiency of Trustee Savings Banks, and the Capital Value thereof is included in Column 1 from 1881-2 inclusive.

The Old Sinking Fund and sundry other amounts are also applicable to the reduction of debt, but do not form part of the annual charge.

These receipts consist mainly of interest on loans for Local Works, interest on Purchase Money of Suez Canal Shares, and the amount payable by the Bank of England out of the profits of issue.

§ It will be found that the figures in this column, from 1875 inclusive, agree with the totals of columns 1 and 2 on page 4 of House of Commons Paper, No. 240 of Session 1886, after the addition of Issues from the Exchequer in respect of the Bankruptcy Book Debt detailed in Notes to Appendix, page 8 of the Paper.

** Exclusive of £1,914,633 issued to redeem the Indian Loan Annuity.