Abstract
When the officials at the British Treasury sat down to sketch out their proposals for the 1937 budget, they knew that they had a problem. During the previous year the Government had been forced to embark upon a costly five year rearmament program by the massive growth of the German military establishment, and the bills for that program were beginning to fall due. £180 million had been spent for defence in 1936, £60 million more than during the previous year, but £100 million less than the military services estimated would be necessary in 1937. The Services' estimate was in the words of Edward Bridges, a Treasury under-secretary, “a good deal higher than anything which I anticipated in my gloomier moments.” He knew, however, that there was little chance that it would be reduced. The question immediately at hand was where the funds could be found to pay for the burgeoning cost of defence not only in the coming year, but in the years to follow.Another Treasury under-secretary, Fredrick Phillips, estimated that they could not realistically expect to raise more than £180 million of the £280 million they required from existing taxation. Although the canons of orthodox finance, to which the Treasury usually adhered, dictated that taxes should be increased to meet the deficit, everyone at the Treasury realized that such a measure would extinguish the growing prosperity which the Government had so laboriously and successfully nurtured since the economic collapse of 1931. Reluctantly they decided to resort to the fiscal device which Neville Chamberlain, the Chancellor of the Exchequer, had once disparaged as “the broad road that leads to destruction”: borrowing.
Published Version
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