By Our City Editor The new price agreement between the Air Ministry and the Aircraft manufacturers certainly has the appearance of salutary harshness. One of its most noteworthy provisions is that if the manufacturer produces more cheaply than he expected he only retains one-tenth of the first part of any savings. This one-tenth will then, of course, be subject to A.P.D., N.D.C. and income tax.
So for every E100 saved in this stage the manufacturer will retain about :t:4 net. A very interesting question is raised here.
The great value of the profit motive has always been the incentive to introduce economies of process, and most economies of process (which practically means most human progress), has been due to this particular operation of this particular motive. If, therefore, the scope of the profit motive is so rigorously cut down, will the incentive to produce economies still remain?
The question is of enormous importance. If it can be answered affirmatively with regard to the aircraft industry at the present juncture it can be answered affirmatively elsewhere. Prosperous companies may continue to earn large profits and yet regard with resignation the certainty that the great bulk of their earnings will be turned over to am investment board while they and their shareholders retain the merest pittance from their gains.
Such companies would, in fact, no longer be working for profit but for a mere commission on the savings they build up for us. The use of those savings and the general direction of investment would be taken out of their hands.
There is, of course, at the moment a purely patriotic motive at work which rather complicates matters. But I do not think that patriotism alone will cause the aircraft manufacturers to put out their best efforts. If patriotism were their sole motive It would have to be intense to the point of fanaticism, and if it were as intense as all that they would, I should have thought, handed over all their profits to the Government without ever being asked, The fact is that we are always going wrong about the psychology of earning. There seems almost no limit to the amount of money you can take away from people if you will only let them earn it first. Who would have thought a quarter of a century ago that men could he mulcted as the modern surtax payer is mulcted and yet go on working in order to let us mulct them some more? We are probably even now not yet in sight of the limit.
It seems to be true that people need a monetary reward to urge them to put out their best work, but that that reward is much smaller than is generally supposed. The monetary reward is not really the chief motive at all but a sort of indispensable seasoning.
WE CANNOT YET SIT BACK Although the new agreement is a step in the right direction, and considerably cuts profits on turnover, it is to be hoped that its provisions will not lull us into supposing that all is well, and the unjustifiable profit has been eliminated from this or any other branch of rearmament.
While the Government do not introduce legislation for taxing back an even heavier proportion than is provided for tinder the A.P.D. it is difficult to believe in their complete singleness of purpose.
Of couree, we are then immediately up against the old difficulty already alluded to in these pages.
Why, we shall be ,ieked, single out armament firms? There is no reason why we should since prosperity is likely to extend far beyond the armament
industry and all such prosperity is due to the spending of public money.
There is only one defensible policy— a rigorous curtailing of earnings through a new E.P.D. or better still a limitation of earnings to a fixed percentage plus a fractional commission of
anything in excess of this. This is even better than a mere limitation of dividends.
Those who feel this matter to be of Importance would do well to study the Report of the Select Committee on estimates, and in particular pay attention to its recommendation that the new aircraft agreement should apply to contracts entered into before March 1, 1937. The Government should certainly have foreseen and legislated for the present situation long before It actually did so, and we should not be penalised by reason of its delay. The report contains interesting observations concerning the machine tool industry. The Committee considers it deplorable that at a. time of national emergency the industry should have refused facilities for the investigation of costs.
It is gratifying that, at any rate this particular scandal has been put an end to through the compulsory powers of investigation which have been taken under the Ministry of Supply Bill.
JULY FOR BEER-DRINKERS Sonic weeks ago I wrote about the curious connection between the earnings of steel and beer, and certainly beer might be regarded as potentially on the boom just now. July is generally a beer drinker's month and may even prove it this year in spite of the present April weather, so that increased earnings appear probable. As to the past despite the poor April output the half year to June 30 shows a further rise on the corresponding six months last year when output was 38 per cent. higher than the low point of 1932.
From the shareholders point of view certain depressing factors have been removed. The fears of increased taxation seem for the moment unfounded. The industry is still faced with increased costa, and those firms which are in process of modernising plant may be faced with some slight difficulties. But the recent Watney results give ground for optimism in respect of the industry as a whole.
NEW ZEALAND'S BUDGET The New Zealand Budget shows a clear determination to put finance on a sound basis by increased taxation and will to sonic slight extent reduce consumption.
The chief instrument by which this will be brought about will, however,
clearly be import restrictions. The credits by means of which the appallingly heavy debt service to this country will be offset (the service amounts to over £5 per annum for every man, woman and child) will largely be used for producer goods and arms.
New Zealand's import requirements will remain approximately what they are, and it will be a king time before she can develop her industries to a point where she can attain an appreciably greater degree of self sufficiency. This means that increased prices for her exports due to British inflation will certainly be offset by a rise in internal prices, in other words ...hat she will have
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to stint herself very severely in order to honour her bond.
It is true that New Zealand's position may be eased if stockholders exercise their rights of converting into medium term stock as repayment becomes due by the proposed drawings. But this will only be done if New Zealand gives proof of "good behaviour " as a debtor, and good behaviour means a considerable degree of self-imposed abstinence.
The actual amounts of the new taxes may appear small by British standards; for Instance income tax is only 2s. and company tax also 2s.. What we have to look to, however, is the rise. Income tax was previously is. 8d., and the new company tax double the old (these are, of course, not the maximum rates). In addition there are heavier death duties and taxes on petrol and beer.