The war came upon England as a bolt from the clear sky, and she consequently had no time to put her fiscal house in order to meet the unwelcome guest. The first problem which presented itself, and which demanded quick action, was the protection of the domestic financial institutions and of the country's gold supply. This the government attempted to do by setting aside the note issue requirements of the Peel Act, issuing a paper currency which was loaned to the banks, raising the rate of discount at the Bank of England, and closing the Stock Exchange. When these objects were accomplished, attention was turned to securing needed funds. The first measures, however, indicate a striking feature of the war policy in that, throughout the war, a rapid increase in the amount of paper currency was in evidence.

Loan Policy. - The first use of the loan policy was in the issue of short-term treasury obligations which were readily discounted at the banks. The paralyzed condition of industry had increased the funds in the banks to such an extent that the chance to use them in this way was welcome. The rapidly growing needs, however, could not be long sustained by the treasury certificates, and long-term bonds were issued early. Several other issues of bonds were made, with varying rates of interest and tax exemptions. An extensive use of the treasury certificates was made, however, throughout the war. Borrowing abroad was also carried on to some extent. As in the United States, small savings were secured through war savings certificates - a feature which was urged, however, more extensively than in this country.

The English plan of borrowing incorporated some peculiar features which are of interest. The short-term obligations were not offered entirely to the banks, but were open to purchase by the public after the first few months of hostilities. The sale was generally at a rate favorable to the government. During the latter part of the war a continuous short-term obligation and bond sale was inaugurated. The advantage claimed for this was that it did away with the expense and excitement of particular drives. Special subscription days and weeks were frequently inaugurated, however, and enthusiastic individuals would sometimes offer prizes to those who would draw securities with a certain number. The revenue from this continuous sale generally proved to be satisfactory in amount. England, of course, was interested in securing credit in this country to enable her to purchase goods. One method by which she accomplished this was to buy up American securities from her subjects with the payment of short-term obligations, and in turn using these as collateral to obtain credit here.

Tax Policy. - The fiscal officials were severely criticized in many quarters for not making a heavier use of taxes. Precedent had been set of meeting nearly half of such extraordinary needs from taxes, and many considered that the precedent should not be broken. As the war progressed, taxes tended to form a larger part of the budget. The budget had been passed shortly before the outbreak of the war, and was not remodeled. Substantial increases in revenue over the previous budget were provided, however, for the purpose of carrying out an extensive social program. The increases in the next budget were slight, consisting in small increases in the taxes on incomes, tea, and beer.

The appalling increase in expenditures, and the increasing strain upon the credit machinery, caused the recognition of the need for heavier taxes. The normal income tax was raised to over 17 per cent, and the exemption was lowered to about $650. The rates of the supertax were also raised. In addition, a war profits tax was inaugurated. This took 50 per cent of the profits which arose from war activities. It differed from the excess profits tax of the United States in that it did not attempt to reach abnormal profits except as they arose from the war. In order that those with incomes of less than the exemption amount might help share the burden, the tax upon generally consumed goods was raised 50 per cent. The budget of the following year placed a progressive rate upon incomes which reached 25 per cent for those over $12,500, while the war profits tax was increased to 60 per cent. The rates on consumable goods were raised and more commodities were added to the taxable list. Somewhat later the war profits tax was increased to 80 per cent, while the last budget that properly can be called a war budget increased income taxes slightly and introduced taxes upon luxuries.