[BILL No. 78.] THIRD READING.

HL Deb 30 May 1862 vol 167 cc125-93

Order of the Day for the Third Reading read.

EARL GRANVILLE

My Lords, the Bill which I propose to your Lordships that you should now read the third time and pass, and in regard to which it was thought that the discussion might be much more conveniently taken on the present stage, is unquestionably a measure of very great importance, inasmuch as, on the one hand, it involves a very large amount of taxation on which the Estimates for the year have been founded, and, on the other, it contains many remarkable changes and improvements essentially beneficial in regard to our system of national finance. The esti- mated expenditure of the year amounts to exactly £70,000,000. It was taken at £70,040,000; but owing to the diminution, I believe, of some of the Miscellaneous Estimates, the charge for the year amounts to £70,000,000. The estimated receipts would have been £70,190,000; but there has been made a slight change, which will make a difference in the estimated receipts of £10,000, which will reduce the income of the year to £70,180,000, leaving a small estimated surplus of £180,000. That is a small surplus, undoubtedly—I admit, smaller than I think is generally desirable to maintain; and as that is a point to which the attention of the House is likely to be specially directed, I wish to say a very few words with regard to the surplus being so small this year before I proceed any further with the general subject. No doubt, in the usual course of events it is wise and prudent to have a larger margin for possible contingencies, any available surplus being devoted to the repayment of the national debt. But there are years when that is impossible—years when the country is engaged in war, and when it becomes an almost hopeless task to balance the income with the expenditure. The question I have, then, to ask your Lordships to consider is, whether there is anything in the present circumstances of this country to place the present condition of financial affairs in a somewhat intermediate condition; whether we are in such a perfectly normal state as to make it reasonable to expect that the usual rule should be applied; or whether there are not exceptional circumstances which should induce you to be satisfied with a less than usual surplus. I admit that if I fail to show that any exceptional circumstances attach to the present state of affairs; if I also fail to show that there is any possible elasticity in the revenue; if I fail to show that, however great our expenditure may be, there is no reason to hope that it will be diminished, I shall fail entirely in showing that we are justified in not providing a very large sursurplus. I must observe, in the first place, that during the last three years we have had many adverse circumstances to contend with. One year we had a decidedly bad harvest, next year we had one far from good; and next year an event often vaguely prophesied, but by many deemed hardly possible, happened in the United States of America, most deplorable to themselves, and in its consequences to all the rest of the world with whom they were engaged in commercial relations; which not only deprived us of that supply of cotton so necessary to our manufactures, but diminished our exports to that country in one year by something like £12,000,000, and affected the commercial relations of nearly every country with which we are in the habit of transacting business. Besides this, within these three years we have had war —war with China, war in New Zealand— and we have also had to make expensive preparations for a war which, thank God, has been averted, with the United States themselves. Taking the expenditure of 1858–9, and comparing it with that of the present year, the excess of expenditure owing to these circumstances during the last three years amounts to no less than £20,000,000. I do not think that demand was unwisely met by Parliament. I believe it has been provided for in a wise and prudent manner. Some extraordinary resources were drawn upon to meet a portion of the charge, chiefly by taking up the malt credit, the Spanish payment, and repayments of advances for works. The balances in the Exchequer were reduced £2,530,000. With regard to the diminution of the balances I may perhaps say a, word. I have heard great objections made to the reduction of these balances, and I believe the Chancellor of the Exchequer himself does not consider them sufficiently strong at the present moment: but they are sufficiently large to meet all the demands that are made upon them; and I believe there is practical economy in keeping them low, if they are capable of meeting the public requirements. The circumstances to which I have adverted show, I think, that the present is not a normal year. A portion of the £20,000,000 to which I have adverted was replaced by £6,500,000 arising from the extraordinary resources just mentioned. The other £14,000,000 was raised from taxation. Therefore I think the manner in which that demand was met was not unwise. There is another circumstance, which perhaps hardly bears on the question, yet it is one which should not be entirely overlooked. During that time we have increased the debt by £1,200,000 for fortifications; and on the other hand, we have redeemed debt to the amount of £4,000,000.

I think, then, I have said enough to show that we are in an abnormal state in regard to our finances; and I now come to the question whether it is possible for the Government to entertain a hope that this great expenditure should be in any degree diminished. I believe I am expressing the opinion of the Government when I state in the strongest terms their feelings upon this point—their conviction that it is their paramount duty to provide for the effective defence of the shores of this island, and the protection of our commerce all over the world. Already, however, an important step has been made in the direction of reduction of expenditure. Comparing the estimated expenditure of the present year with the expenditure of 1861–2, there is a diminution of £1,833,000, and comparing it with the expenditure of 1860–1, there is a diminution in round numbers of £3,500,000, It may be said that this diminution is merely the result of the cessation of the Chinese war, and of the extraordinary expenditure for the defence of the North American provinces; but, deducting these two great sources of expense, I still find that the expenditure is reduced as compared with 1861–2 to the amount of £735,000, and as compared with 1860–1 to the amount of £1,361,000. Without venturing to prophesy how far further reduction can take place — although the Government of Her Majesty, when they believe it prudent and safe to do so, will in the highest interests of the country apply their best energies to diminish the burdens of the people—I must say that I do not think we have any reason to despair of further reductions in the public charges. With regard next to the question of the national income, nobody now feels any doubt of the wonderful elasticity of our revenue. While discussing a question of taxation last year, I called your Lordships' attention to the elasticity of our revenue under the financial system which has so happily obtained during the past twenty years. The more you reduce or the more you abolish Customs duties, the more buoyant they appear to become, and the larger the sum they yield to the Exchequer. Still more remarkable is the effect produced by the abolition—not the reduction, but the abolition—of Excise duties. Before the year 1858 there were twenty-seven Excise duties. Within the last few years fifteen out of those twenty-seven have been abolished, and already the remaining twelve produce a larger amount than the whole number yielded before. There is nothing in the present state of affairs to diminish your confidence, that when you reduce or abolish obnoxious taxes—imposts which press down our commerce and manufactures — the revenue will eventually be no loser by your measures. During the last three years, notwithstanding large reductions and remissions of taxation, the produce of the remaining sources of revenue has increased at the rate of about £900,000 per annum. I think, therefore, we need not speak in a desponding tone of the prospects of our revenue under the existing financial system.

Under all these circumstances I am sure your Lordships will consider that the Government have exercised a wise discretion in not asking the House of Commons for further taxation at this moment—further taxation, not for the purpose of making both ends meet, but for the purpose of securing a large margin at a time when a large portion of our population are enduring great privation in a manner which is most creditable alike to themselves and to the country to which they belong. At such a period I think it would have been most inexpedient and most unstatesman-like for the Government to propose, or for Parliament to sanction, additional taxation, when we all naturally wish to relieve as much as possible the distressed people of the manufacturing districts. The other day the noble Earl opposite spoke of the necessity of having a discussion upon this Bill in the present serious state of our finances. Considering some of the matters to which I have already alluded— considering, more particularly, the state of civil war which now exists in North America, and of which it is impossible to say what the result may be—the question of our finances must be serious; and I have no hesitation in saying, that in my opinion it is most important and desirable that our financial position should be fairly and openly discussed by your Lordships, when taking part, concurrently with the other House, in passing a Bill of this sort. I must deny, however, that there is anything in the state of our finances, serious as I admit it to be, calculated to cause alarm or despair. It has been well said, that mistrust has its dupes as well as over-confidence; and when I reflect how much we have to console us—when I look around and see the state of the country—when I consider all the redeeming features, even in the case of our distressed manufacturing population in Lancashire and parts of Yorkshire—when I observe the immense benefits caused by our increased trade with France — an increase which, if it continues at the same rate as during the last four months, will amount to £10,000,000 per annum, nearly equivalent to the £12,000,000 to which I have referred as having been lost during the last year in our trade with the United States—I do think that we have every reason to congratulate ourselves upon having agreed to that treaty of commerce, which, though at first objected to in many quarters, has produced such gratifying results. The total increase in our exports to France, as compared with two years ago, is 150 per cent. In cotton and cotton yarns the increase is 300 per cent; in hardware and cutlery, it is 200 per cent; while in iron and steel, from which, in consequence of the high duties still maintained by France, little was expected, the increase also amounts to 200 per cent. The increase in linen and linen yarns is 50 per cent, and in woollen yarns it is no less than between 500 and 600 per cent. I think these figures are most remarkable; and if you consider what the parts of the country are from which our increased exports are made to France, you will see how far they go to alleviate the distress which afflicts a large portion of the industrious classes of this country. It is a great source of satisfaction to me to remember that up to the last moment the Legislature has continued to remove all those painful restrictions which weighed so severely upon our commercial and manufacturing resources. They are nearly all swept away, and we behold the beneficial result in our increased trade with almost every part of the world, and in the impression produced upon the poor population of our own country. That portion of our population which is now suffering such severe distress know that they have nothing to complain of in the conduct of the Government or Parliament; they know that the Legislature is not to blame for any of those unhappy events which are causing them so much unmerited distress, and which are owing to external causes; and to the feeling thereby produced in their breasts, as well as to their own improved moral, social, and intellectual condition, I attribute the order, peace, and contentment which reign in the suffering manufacturing districts, and which, in their turn, have an important bearing upon the material prosperity of the country. My Lords, I believe that our revenue, founded upon a solid basis, is not in danger. I believe it was prudent not to attempt any innovation at the present time. I believe it was wise in this Bill to renew the income tax and the sugar duties at their former rates, to relieve an important portion of the agricultural community by commuting the hop duty, and to make some change, purely administrative, with respect to certain stamps and the admission of wines. I believe this course to be prudent, and it is in this belief that I move the third reading of the Bill. I know it is not the intention of your Lordships to obstruct the passing of the Bill in any way; but, at the same time, I trust that the dispassionate debate of this evening will bring out more clearly than ever that there is not that ground for despair or alarm with regard to our financial position which appears to be entertained in some quarters.

Moved, that the Bill be now read 3^a.

THE EARL OF CARNARVON

said, that the noble Earl, in discussing this Bill, had taken a somewhat one-sided view. It was perhaps, in one sense, the most important Bill that had ever been brought before their Lordships' House. It was a Bill which dealt with between £22,000,000 and £23,000,000 of public taxation, and on that ground alone was deserving their Lordships' most serious consideration. It was the largest Money Bill that had ever come up to their Lordships' House and the noble Earl had not alluded to the fact that it came before their Lordships' House in a new, and he might almost say, an extraordinary manner. It embodied in its provisions an amount of taxation that had never been raised under any previous Bill. It had been the practice of late years to deal with these separate sources of taxation more or less in separate measures, and he did not think any ground of expediency had been shown for the change now made; but if their Lordships would remember certain circumstances within the last two years—the circumstances which had attended the repeal of the paper duties— they would be at no loss to conjecture what were the feelings that had dictated this change. It was, in fact, the completion of the threat held out by the Chancellor of the Exchequer two years ago, when their Lordships, in the undoubted exercise of their right, interposed their veto upon what they considered a gratuitous and wasteful sacrifice of revenue under the precarious circumstances of the State. It was quite true that their Lordships did not now propose to resist this Bill; but he might question how far it was wise and dignified to revive instead of burying the recollections of two years of unsatisfactory finance. Be that as it might, their Lordships still reserved to themselves the full right of either amending or rejecting any measure of this sort, or any measure of the kind that might come before them, throwing on those who had endeavoured to place them in this dilemma the responsibility of so doing. If the House of Commons chose to curtail its own privileges, and to merge half-a-dozen debates on as many different changes in a single debate on a single Bill, their Lordships had no right to complain of their so doing. He went along with the noble Earl in thinking the circumstances of the year exceptional and abnormal. He thought that no reflective person could at this moment look either at home or abroad without a feeling of great anxiety. At home, whatever elasticity and recuperative power there might be in their finances, there was, he would not say a declining, but a depressed and suffering condition of trade. There was a scarcity of employment in one branch of industry, begetting distress, and that distress, however nobly borne, acting and re-acting on other classes —small shopkeepers, petty tradesmen, and small ratepayers, in a vicious circle. Nor, whether the amount of the stocks of cotton in America, or the amount of those available in England was considered, could there be said to be a prospect of immediate relief. Looking abroad, they viewed a scene disfigured with bloodshed or darkened by political doubt. Under those circumstances, what was the policy which reasonable men would pursue? He should say, after making full, ample, unequivocal preparation for the military and naval defences of the country, let them husband their resources, and allow, as far as possible, a margin over and above the foreseen disbursements of the year. In one word, let them take nothing for granted, but found every calculation on a basis as unfavourable as possible to themselves. The noble Earl had dwelt much on the exceptional character of the year and the elasticity of the resources of the country. But whilst the future is a subject of indefinite conjecture, from the past and the present alone can any safe inference be drawn in a financial debate. This elasticity of the national resources seemed to him (the Earl of Carnarvon) to be a collateral question, and he would not discuss it. He would accept from the Government their estimate of what was necessary for the military and naval service of the year. Nor would be discuss the question how the finances were dispensed, so to speak, although he was very far from saying that there was not great room for criticism on that point. He believed that there was a great and extraordinary waste in many of the public departments of this country. He would, however, not now go into those questions; what he wished to do was to draw attention to the treatment of our financial resources by the Government. Now, the first and indispensable condition of sound finance was accuracy of calculation on the part of the financier, and moral certainty on the part of those to whom the financial arrangements applied. Accuracy of calculation begot confidence; confidence begot public credit, and public credit begot everything that was great and honourable in a nation. Now, could it be said that the financial operations of the Government were so characterized? With the highest possible opinion of the ability of the right hon. Gentleman the Chancellor of the Exchequer, it was impossible to assign to his calculations a character of accuracy. He generally commenced the year with an eloquent speech and a plausible surplus; and he generally concluded the year with a practical deficit, and often a supplemental budget. Out of the last ten years the right hon. Gentleman had been for five or six years Chancellor of the Exchequer; and, with the exception of 1853—in which he admitted that the anticipations of the budget had been realized in a satisfactory manner—there was no single year which was not marked with miscalculation as to the relative position of income and expenditure. Such had been the character of the right hon. Gentleman's administration of the finances of the country. Take the year 1860–1:—The Chancellor of the Exchequer estimated the income at.£72,308,000; the actual income was £70,283,000, showing a miscalculation of £2,025,000. The estimated expenditure was £70,100,000, the actual expenditure was £72,842,000, showing a miscalculation of £2,724,000, the income being less than the actual expenditure by £2,560,000, and only £180,000 above the estimate expenditure. Take the next year, 1861–2. The estimated income was £70,283,000. The actual income was £69,674,000, being a miscalculation of £609,000. On the other hand, the estimated expenditure was £69,875,000; the actual expenditure was £70,837,000, being a miscalculation of £962,000. It was plain from these figures, that in those two years at least the Chancellor of the Exchequer underrated the amount of his expenditure and overrated the amount of his income; and it was worth attention that the points to which these miscalculations were traceable were, as had been predicted, the Chinese indemnity on the one hand, and the collection of the Excise on the other. Now, he could understand a Chancellor of the Exchequer, when he had a surplus, being animated by a love of peace, and a detestation of war, carrying his aversion to war to the reduction of military and naval armaments; but he could not understand a Chancellor of the Exchequer closing his eyes to the risks and necessities of war, and permitting that love of peace to cover his miscalculations as regarded war. When, in 1854, this country sent out 25,000 troops to defend the Turkish empire, he believed that the Government merely made provision for sending them out to Malta, on the supposition that they would be brought back again. That was only one of the long series of miscalculations which, he feared, had marked the finance of his right hon. Friend; but it was a type of the whole. In 1860 the same Chancellor of the Exchequer had the fortune to have to preside over another military operation. We sent out the expedition to China; and what were the words of the Chancellor of the Exchequer at that time? He told the House of Commons that this expedition went out as the bearer of a peaceful remonstrance to China, and in accordance with that opinion be asked for the modest Vote of £500,000. But at the close of that Session Mr. Gladstone had to come to the House and ask it to extend the Vote by £3,000,000. This was a matter of expenditure; but let them now turn the pages of the national ledger, looking still under the head of China, and see if the right hon. Gentleman had been more successful in his calculation of income. Last year he estimated the amount of the Chinese indemnity at £750,000; in his financial speech of this year he had to reduce it to £434,000, as the- total available receipts; and he went on to say, that whereas he had anticipated the realization of the indemnity within four or five years, he could not now hope that it would be realized in less than seven or eight years, "unless," Mr. Gladstone said in a manner characteristic of his whole policy, "some arrrangement might be made to anticipate the payments." The fact was, that each year's budget was a budget, not of facts and ascertained figures, but of imagination. It was perfectly clear that the result of such miscalculation must be to destroy that confidence in the budgets of the Finance Minister which it was of the utmost importance that the public should possess. For the last two or three years the budget had become a mere exhibition of rhetorical subtlety and skill—a tickling of the ears by calculations, which on examination were found not really worth the paper on which they were written. This not only engendered mistrust, but set up a spirit of speculation and gambling, and, in fact, went to the roots of public morality. With every respect for his right hon. Friend, he believed that this proceeded from two causes, one moral and one financial. The moral deficiency preceded from an over-sanguine but most dangerous temperament, which made the intellectual belief the creature of the moral wish, and which led the right hon. Gentleman to overrate income and underrate expenditure. Starting with self-deception, he ended in deceiving others, and turned finance from a matter of hard, dry calculation into a question of sentiment and conjecture. he believed this proceeded from a great error —the error of the never estimating for a surplus;—he did not say of realizing a surplus, for except in 1853 the present Chancellor of the Exchequer had never had a single shilling surplus; but he never estimated for a surplus—he drew his calculation so fine as to leave no margin, or, as in the present year, one of £150,000. And did it not follow, if he so equalized his expenditure and his income, that the slightest unfavourable turn of events in the year must disturb his whole calculation? No landowner or private gentleman would go upon that insane principle of living up to the utmost farthing of his income, without taking into account the chances of a bad harvest, failure of rents, losses by fire, or other vicissitudes that might arise. He might venture to say that Mr. Gladstone had uniformly been a Minister of small surpluses. In 1853 he estimated for a large surplus of £870,000; and those who remembered the budget speech of that year could not fail to be struck with the greater prudence, the reserve, and the self-restraint of the right hon. Gentleman's speech, which was not to be found in any other of his financial statements. In the following year, 1854, though it was a year of war, he estimated for a surplus of £430,000, and in 1860 for a surplus of £460,000. That year showed a deficiency of more than £2,500,000. In the year just passed he estimated for a surplus of £400,000, and the falling-off was still greater, and this year he came down to the miserable, paltry figure of £150,000, or, as the noble Earl said, £180,000. He would ask this House-looking at the vast extent of our Empire, and the various contingencies which with such an extended dominion must necessarily be provided against—he would ask their Lordships whether a surplus of £150,000 or £180,000 could be considered either safe or creditable? Mr. Gladstone himself admitted that the surplus was only a nominal surplus. But he did more—he took credit for it, and told the House of Commons that he did not estimate for a larger surplus, because, if he did, the House would have compelled him to appropriate it against his inclination to the remission of taxation; and he added, "The only security of the Chancellor of the Exchequer lies in his utter destitution." Were these the expressions of a statesman, and were they to be expected from the pupil and friend of Sir Robert Peel? When a Minister came down to the House of Commons and told them he could not do that which he considered right— that he dared not keep a surplus, because if he did the House would compel him to appropriate it against his own sense of public policy to the remission of taxation—that was language hardly worthy of the right hon. Gentleman or of the assembly he was addressing. There had only been one parallel to this; that was the right hon. Gentleman's conduct when he went down to a commercial town, and, addressing the people there, exhorted them to put a pressure on himself to reduce taxation which he, as a Minister of the Crown, on his own responsibility and his own authority, had recommended the House of Commons to adopt.

He now came to a most important point —the present balance of the national account. How did it stand? They might take it two ways, either for three years —1859–60, 1860–1, and 1861–2—or they might take the two last years, during which Mr. Gladstone had been wholly and solely responsible for national finances. He would take it both ways. In 1859–60 Mr. Gladstone inherited the financial arrangements of his predecessor, and no great alteration was made; and the result was that that year he had a surplus of £1,587,000. In the following year 1860–1, there was a deficiency of about £2,558,000,—a deficiency which would have been greater had not their Lordships stepped in and prevented it by refusing to agree to the repeal of the paper duty. In 1861–2, as it was, they had, mainly through the repeal of the paper duty, a deficiency of £1,164,000, to which must be added £278,000, excess of expenditure since ascertained, which brought up the deficiency to about £1,400,000. Reviewing thus the three years they had a total deficit of £4,000,000; but it was fail-to deduct the surplus of 1859–60. Deducting, therefore, £1,587,000 from the £4,000,000, there was left a net deficiency of £2,413,000. But this was not all. The right hon. Gentleman had anticipated the national resources; the malt credit to the amount of £1,972,000 was called in, an additional income tax of £2,000,000 was imposed, and five quarters' tax was crowded into four quarters of the year. Then, £500,000 of the Spanish debt was received, and that, too, which properly was capital, was applied in the most singular way to current expenditure. If, then, those anticipated resources, amounting to £4,472,000, were added to the deficit of £2,413,000 which he had before mentioned, there would be a total excess of expenditure over revenue for those three years of £6,885,000. If, on the other hand, they took the last two years, during which Mr. Gladstone had been wholly and solely responsible for the finances of the country, excluding the benefit of the surplus left him by the preceding Government, there was a deficit of £4,000,000. They had anticipated resources besides to the extent of £3,500,000; so that, instead of £6,800,000, the total excess of expenditure over income was £7,500,000. But he would point out to their Lordships that there should have been charged to the expenditure £970,000 for fortifications. It was very well for the Government to treat that as a separate charge, and to justify it as a mere addition to the permanent debt. If, indeed, the construction of the forts could be regarded as an outlay made once for all, there would be some reason for jutting the charge for fortifications—whether it were £2,000,000 or £10,000,000 —to the public debt of the country; but if they viewed it, as any man of sense must do, in reference to the improvements in mechanism, to the changes in the art of attack and defence that were taking place every day—the appliances of war that were constantly changing—he would be a sanguine Minister indeed who would venture to calculate that the two or three millions, whichever it might be, would be the first and last expenditure. To this total, therefore, they ought to add this £970,000, which would bring the deficit up to £8,470,000. Had the Government paid off the debt it engaged to Day in November, 1860—that debt of £2,000,000 bonds to which the right hon. Gentleman, above all others, was pledged —they would have this moment—but they bad charged it on a future year instead— an excess of expenditure over income of £10,670,000. But how had they been able to tide over these things? First, by allowing the Chancellor of the Exchequer to dip his hand into the Exchequer and draw out £2,684,000 from the Exchequer balances. The noble Earl (Earl Granville) said those balances were not much less than they had been for the last thirty years; but the noble Earl forgot that the income and expenditure of the country had changed very considerably during that period, and they were, therefore, not to look to what was the case thirty years ago to guide them as to the balances to be retained in the Exchequer under existing circumstances. But the loss of three millions of balance took away from the Government a useful reserve, which they might fall back upon in any crisis arising. As it was, the Government was dependent on the Bank, and in the event of a monetary crisis the State would be placed in a position of a great embarrassment. The next means adopted to meet the difficulties in which the Government found themselves involved, was the appropriation of £881,000 repayments. What were the repayments? Money which had been advanced by the State for public purposes. But the State had borrowed the money in order to make the advances, and therefore, when the repayments were appropriated to get rid of the difficulties of the year, to defray current expenditure, they were actually living on borrowed money, and taking that which ought to have been applied to the extinction of the debt of the country. He did not think the noble Lord would question that view of the case, as it was the policy which had been recognised by successive Chancellors of the Exchequer. When Sir Charles Wood was Chancellor of the Exchequer he distinctly laid down that these repayments should go to the extinction of the debt. Lastly, on Mr. Gladstone's own showing, a new debt to the amount of £461,000 was created in 1860; and that, together with the items before mentioned, made a total of £4,026,000, which was exactly equal to the £4,000,000 deficit which had accrued during the last three years. The answer contained in those figures to the question how so large a deficit could have arisen, involved, he thought, a very severe condemnation of the policy of the Government. For it came to this, that they had created a deficiency, and they had met it by what he would not call a misappropriation, but by misapplication; by borrowing; by anticipating resources; by postponing the payment of the debt; by creating debt; by living on borrowed money, and by converting capital to the purposes of ordinary expenditure. And when, lastly, were all these improvident shifts and spendthrift expedients had recourse to? At a time when, of all others, there was the smallest justification—at a time when the taxes on tea, on sugar, and on income were at a high rate; when £2,000,000 of Exchequer Bonds were to be redeemed, and no one was more pledged than Mr. Gladstone to redeem them, and with the falling-in of the Long Annuities that pledge might have been redeemed.

He would now reply to two points which the noble Earl (Earl Granville) urged. The noble Earl brought forward arguments purely financial. He said, in the first place, they had effected a reduction of debt, and in the next, that they were effecting a reduction of expenditure. He would first deal with the alleged reduction of debt. How did the fact stand? In 1859 the total public debt was £805,078,000; in 1862 it was £800,757,000—showing a supposed reduction of £4,321,000; but from that, by the arguments of Her Majesty's Government, they had to deduct for fortifications £1,170,000 — making a total reduction of debt of £3,151,000. But there was a further deduction which he made from this reduction. Their Lordships would not have forgotten the financial arrangements of the Government of his noble Friend the Earl of Derby, by which £2,000,000 Exchequer bonds had been paid off. He could not therefore allow the Chancellor of the Exchequer to take credit for that reduction. Well, then, it came to this—that the reduction effected by Her Majesty's Government amounted only to £1,151,000 —a sum very different from £3,500,000 or £4,000,000. And what was the process by which this modified and greatly attenuated reduction was effected? Simply by the conversion of stock into annuities. For that surely Mr. Gladstone deserved no particular commendation. It was a common banking operation. It was merely the acceptance of an increased burden for a time, in order to put an end to the obligation at a future time. He had, therefore, to a certain extent disposed of the alleged reduction of debt effected within the last three years. But if the calculation was taken on the two last years, during which Mr. Gladstone was wholly and solely responsible, the result would be even less favourable. On the 31st of March, 1860, the total debt was £802,190,000. On the 31st of March, 1862, it was £800,757,000, so that there was an apparent reduction of £1,433,000. Against this, however, was to be set £1,170,000 for fortifications, and £461,000 increase of debt, bringing up the whole amount to £1,631,000, and therefore showing an increase of £300,000 instead of any diminution in the public debt. But, again, the amount of the debt might be measured not merely by its amount, but by its annual charge. The charge of the debt in March, 1859, was £28,179,000, from which the Long Annuities were to be deducted—£2,147,000, leaving the real charge at £26,032,000. The charge, however, in March, 1862, was £26,043,000, leaving an increase of £11,000 against Mr. Gladstone, instead of a reduction. If their Lordships took the second argument of the noble Earl, they would find that he compared the estimated expenditure of the present year with the actual expenditure of last year. But was this a fair method of dealing with the question? If the noble Earl compared the estimated expenditure of one year, let it be with the estimated expenditure of another. But the noble Earl was following in Mr. Gladstone's mode of reasoning. Mr. Gladstone compared the estimated expenditure of 1862–3 with the actual expenditure of 1861–2. It was quite true that the actual expenditure of 1861–62 was £70,838,000, and the estimated expenditure of 1862–3 was put down at £69,120,000, being a decrease of £1,718,000. But if their Lordships compared the estimated expenditure of 1861–62, £69,875,000, with the estimated expenditure of 1862–3, £69,120,000, they would find the decrease only £755,000 — a very different sum from a supposed decrease of £1,718,000. But even granting a decrease of £2,000,000 in expenditure had been effected by the Government during the last two years, against that must be put the deficit of upwards of £8,000,000, to which he had already referred. Their Lordships had this consolation with other Chancellors of the Exchequer, that however tortuous their policy might be, the Legislature usually knew the object they had in view. But the only tiling certain about the policy of the right hon. Gentleman was, that it was exactly the inverse and the contradictory of the language he had used in former years. Who had been so strong an opponent as the present Chancellor of the Exchequer of the war duties on tea and sugar? Who had so strongly condemned loans in time of peace as the Minister who had postponed the payment of the debt to another year, and had appropriated the Exchequer balances? Who had so bitterly denounced the income tax as a permanent source of revenue as the Minister who had increased it successively from 5d. to 9d., 10d. and 13d? In these conflicting principles he confessed he could not see one spot on which the country could rest with security. In these troubled waters there was only one landmark in view, and that was the income tax, to which, as the only resource for the national credit of the country in any national emergency, the country was rapidly drifting. It was like that fabled mountain, to which we were gradually being brought nearer, until the moment was approaching when every bolt and bar was coming out, and when the ship must inevitably collapse and fall to pieces. The fiscal policy of the present Government seemed to him the more dangerous, because, whereas formerly there existed many sources of taxation, collected from many quarters, and affecting numerous classes, yet crushing none, and expanding with the growth and prosperity of the country, there was now substituted for this system one iron and despotic rule, which in the very nature of things must be unequal, and which was generally op- pressive and unjust in its character. It was unjust, not only from the money that it extracted from the pockets of the ratepayers, but because this "gigantic engine for great national purposes"—as the income tax had been described by the Chancellor of the Exchequer—must be either large and exceptional in its character, or permanent in its duration and moderate in its amount. But in the financial policy of the right hon. Gentleman the income tax combined both disadvantages; for while it was becoming larger and larger in its amount, it was becoming more and more permanent in its duration. Every mistake of policy brought with it its own retribution, but the penalty was never greater than upon a mistake of fiscal policy. He believed that in every age fiscal revolutions were the precursors of social and political revolutions; while, on the other hand, a well-ordered finance was the fountain of every blessing that a country could enjoy, and that upon this public life and morality depended. He was a great admirer of the character and abilities of his right hon. Friend, but he could not he blind to the terrible evils of his financial policy. He would, in conclusion, most earnestly implore their Lordships, as one branch of the Legislature, to review the present state of our finance with sensitive scrupulousness, and, as it was their bounden duty and right to do, to watch with the utmost jealousy a system so new and so dangerous as that on which Parliament was now entering, but to which he hoped and believed the Legislature was not yet wholly and irrevocably committed.

THE DUKE OF NEWCASTLE

My Lords, the noble Earl has delivered a speech of remarkable ability and great clearness and lucidity of expression; but so far as this Bill is concerned, it was so modified by qualifications and reservations, that very little need be said in answer, if the noble Earl had not entered into that elaborate and personal attack upon the Chancellor of the Exchequer which characterized the greater portion of his speech. Perhaps, as a much older man than the noble Earl, I may venture to suggest to him, that when he applies the powers which he possesses to the examination of financial questions, he should avoid any attempt at ambitious oratory, and should rather give a most careful consideration to the truth and accuracy of those figures on which alone we can form a correct judgment. When the noble Earl taunted the Chancellor of the Exchequer with having perverted his annual speech on the budget into an occasion for rhetorical display, I might, were I so disposed, retort the charge, and assert that the noble Earl has sacrificed a certain amount of truth, correctness, and justice to the pleasure of indulging in an oratorical effort. I think it would have been fairer if, while the noble Earl had not spared one remark which he felt called upon to make on the financial policy of the Government, he had abstained from those personal and severe remarks which he has made on Mr. Gladstone himself. Such remarks are all very well in the House of Commons, where my right hon. Friend can answer for himself, but I cannot help thinking that here they are not well placed. The noble Earl says that Mr. Gladstone is responsible for the expenditure of the country, and that he has no right to throw any of that responsibility on the public. I readily assent, and my right hon. Friend has in his place in Parliament denied the accuracy of some assertions which have been made with reference to the speech which has given occasion to those comments; and neither he nor any of his colleagues desire to shrink from any responsibility that justly attaches to us in regard to the public expenditure.

My Lords, it will not be possible for me to reply step by step to the elaborate figures of the noble Earl, because, from the rapidity of his diction, I could hardly follow one of his deductions before it was superseded by another subject. I can only take one or two specimens of his statements, remarking, that if the noble Earl is correct, this country is in a lamentable condition, more nearly approaching bankruptcy than that sound financial position in which, for my own part, I believe the country is now placed.

But before I go further into details, I must say a few words upon the form of the Bill, which my noble Friend characterized, on account of its embracing the whole financial operations of the year, as novel and extraordinary. Now, it can only so far be described as novel, as it was adopted last year for the first time after a lapse of some years; and although, when reintroduced, the matter was elaborately discussed in the House of Commons, it was never seriously resisted in either House. But, looking fur- ther back, I entirely deny that it is a novel proceeding to include the whole financial scheme in one measure. On the contrary, the practice dates from the Revolution and the very best periods of our history; and although some persons have called it unconstitutional, I say that if the phrase constitutional means that which is sanctioned by the principles and practice of the best portions of our history, then the form of this Bill is strictly constitutional, and one to which we have a right to revert. No doubt it was the difficulty and embarrassment created by the vote of your Lordships two years ago which led to the renewal of what was formerly the invariable practice; but that any indignity is thereby offered to this House, or any impediment thrown in the way of its rights and privileges, I utterly deny. During the debates on the French Treaty, two years ago, Mr. Pitt's Act of 1787 was constantly alluded to. The noble Lord says this is one of the largest financial Bills ever introduced. I do not know whether or not that is so, as far as the mere amount of money is concerned; but Mr. Pitt's Bill certainly embraced far more numerous enactments, repealing some taxes, imposing others, and, in fact, reorganizing our whole fiscal system. And what was the course taken in reference to that measure of Mr. Pitt? A Motion was made to divide the Bill into two; but the House of Commons negatived the proposition; and again, when the question was renewed in your Lordships' House, as to the propriety of embracing the whole financial measures of the year in one Bill, the Amendment was rejected and the principle was confirmed. The same course was taken with the Bill of 1808, and the Bill of 1808 also comprehended provisions for both imposing and repealing taxes; it imposed those taxes for a period of one year only; and, to carry out the parallel still further, those taxes were reenacted annually down to 1822. I do not wish to insist too much upon precedents, though I could, if necessary, bring forward scores of Acts subsequent in date to those to which I have referred, in which now taxes were imposed, existing taxes remitted, and even the taxes appropriated, all within the limits of one Bill. But I say, further, that that is not only the constitutional but is the most convenient course. I ask whether on the occasion of every Budget we have not repeatedly heard it remarked that it could be more conveniently considered as a whole. In 1860, when there were four or five distinct financial Bills, in the absence of my noble Friend the Lord President, I was allowed by noble Lords opposite to move the second reading of some of those measures, and to pass them sub silentio, so that the discussion might be taken upon a single point in a future Bill; and not only were several of those Bills allowed so to pass, but the Standing Orders were suspended to enable them to go through various stages on the same day. This House has just as much right to reject the present measure, if it thinks fit, as it had to throw out the repeal of the paper duty; or it may, if it chooses, make amendments in it. I know, indeed, that the latter proceeding would be tantamount to the rejection of the Bill, because, if we amended it here, the other House would throw it out when it went down again to them. But I maintain that for this further reason it is better to include the entire financial scheme in one measure, because then, if this House should resort again to the course that it took two years ago— which, however, I sincerely trust it will not do—the House of Commons would have an opportunity of reviewing the financial position of the country as a whole. My Lords, there are plenty of high authorities who uphold the present form of this Bill; and I appeal to the noble Lord opposite whether he can safely disapprove a course which has the sanction of Mr. Walpole, and Sir William Heathcote, gentlemen who sit on his own side of the other House of Parliament—Mr. Walpole, moreover, having been Chairman of the Committee of the House of Commons which considered the question of how far the privileges of that assembly were affected by your Lordships having thrown out the Paper Duty Repeal Bill. I say then, we have high authority, not confined to one political party, for asserting that this measure is in its form accordant with constitutional principle and established usage. My noble Friend opposite touched lightly on the other objection raised to the form of the Bill—namely, that it is annual. Now, he must remember that it was formerly held essential to the proper control of Parliament that certain taxes should be voted annually only; and that principle was followed till the year 1846, when a longer period far their duration was adopted in the case of the Sugar Duties on grounds of convenience, not so much con- nected with finance as with the interests of trade.

My Lords, I must express my satisfaction that in dealing with this question the noble Lord has neither complained of the extravagant character of our expenditure nor declared his opinion adversely to the armaments which, upon the recommendation of the Government, have been sanctioned by Parliament. I rejoice that we have not heard from him—what would I am sure be exceedingly unpalatable in this House—any denunciation of "bloated armaments." So far from that, the noble Earl says we have done nothing but what is right in respect to our defensive establishments, and he even refuses to give us any credit on that score. Now, we do not claim to ourselves any merit in this matter; but we do think it necessary to justify ourselves when attacked for what we have done; and attacked, too, by a leader of the party to which my noble Friend opposite belongs. Why, we have not only been assailed, but have been condemned most strongly; we have not only been told that we are preparing armaments beyond the necessities of the case, but we have been asked to declare the country against whom we are arming, and we have been told that we are irritating other Powers and bringing on those quarrels which a more economical policy would prevent. Now, although my noble Friend opposite says he believes we have done our duty in this respect, and nothing more—in which opinion I entirely concur with him—at the same time, I hope he will agree with me that those who are politically associated with him in another place have no right to throw out against us any one of the taunts to which I have referred. We have been told that ours is an increasing expenditure; and although the noble Earl disputed the figures of my noble Friend the Lord President, I do not think he was able to deny that we have considerably reduced the expenditure of the country, and that, too, while we have improved and strengthened our means of meeting it. The simple fact is this—that whereas the expenditure of 1860–1 was £72,504,000, the expenditure of 1861–2 was £70,838,000, thus showing the expenditure of 1861–2 to be less by £1,666,000 than that of 1860–1, and the estimated expenditure for the present year, minus the Indian charge, &c., less than that of 1861–2 by £1,833,000, and less than that of 1860–1 by £3,499,000. The noble Earl complained of our comparing the estimated expenditure of one year with actual expenditure of another; but it is clear that we can only give the estimated expenditure for the current year, always admitting that it may not turn out to be quite accurate. The noble Earl referred to another point. With regard to the remission of taxes, I say we are not in that hapless condition which the noble Earl represented. I have no personal knowledge of the figures I am about to quote, but I have derived them from a source which cannot mislead. I say then, my Lords, that the taxes imposed during the last three years as compared with the taxes reduced or repealed amount to only £1,050,000. But my noble Friend seemed, as I understood him, to deny that there had been any reduction of debt. So far from that, in March 1859 the funded and unfunded debt of the country amounted to £805,017,000; whereas in March 1862 it amounted to £800,770,000, showing a reduction of upwards of £4,000,000. I entirely agree with him that there was an addition to the debt of £1,170,000 for fortifications; but that left a balance of debt redeemed to the extent of £3,170,000. It is quite true, as my noble Friend stated, that extraordinary resources were had recourse to for the financial arrangements; but, said my noble Friend, it is not fair to quote the state of the balances for the last thirty years when the Estimates have increased; but the President of the Council said the balances were 50 per cent higher than the average of the last thirty years, and therefore there was an ample margin left for the increase of the expenditure. With reference to the attack made on my right, hon. Friend, Mr. Gladstone, the noble Earl will forgive me for saying that, after the pains he has evidently taken with his figures, I am surprised at the many inaccuracies he has committed. As his statement proceeded, I could at once detect great fallacies—I do not say intentional unfairness. My noble Friend says that there was but one year in which Mr. Gladstone distinguished himself, as Chancellor of the Exchequer, by not making great miscalculations. Now, I believe you will find it rare indeed that any year occurs when the Chancellor of the Exchequer, be he Mr. Gladstone or any one else, is proved to be perfectly accurate in his estimates; circumstances always arise in the twelve months which change the calculations on one side or another. But when my noble Friend says that Mr. Gladstone was invariably in error on the wrong side, and always showed a deficiency when he had calculated on a surplus, I must be allowed to say that the fact is not so. One great miscalculation he certainly did make in 1859–60, but it was on the right side; he calculated upon a balance of half-a-million in his favour, and was gratified to find a surplus exceeding £3,000,000. But, my Lords, this subject must not be treated as one personal to Mr. Gladstone, although a great part of my noble Friend's speech was an attack upon him. We are here not to question Mr. Gladstone's calculations, but to look at results; and the results of the financial measures of Mr. Gladstone have been eminently satisfactory. The noble Earl says that Mr. Gladstone in 1861 miscalculated to the extent of £2,600,000. Well, the deficiency did, I believe, amount to that sum, but Mr. Gladstone always calculated on a deficiency of £1,300,000; therefore, so far as the miscalculation was concerned, it was just half the sum stated by the noble Earl. But, while my noble Friend was unfair to Mr. Gladstone, he was—I do not know how to characterize his statement, whether as fair or unfair, but certainly he made an assertion to which your Lordships must have listened with wonder, with reference to his right hon. Friend who was Chancellor of the Exchequer under the noble Earl opposite. He says Mr. Gladstone inherited from his predecessor in 1859–60 that flourishing state of things which enabled him to obtain a surplus in the following year. But my noble Friend has entirely forgotten the state of the finances at the time when the Government of the noble Earl left office. We did inherit something, it is true, from our predecessors; we inherited their expenditure, but not the means of meeting it. My noble Friend says that Mr. Gladstone had the full benefit of the fiscal arrangements of Mr. Disraeli. I do not mean to go back and criticise the fiscal arrangements of Mr. Disraeli; if I did so, I might remind him—when my noble Friend made it matter of complaint against Mr. Gladstone that he deferred payment of £2,000,000 of Exchequer Bonds when they became due—that he only followed the example of Mr. Disraeli, who did the same thing. Three-fourths of the speech of my noble Friend was a bill of indictment against Mr. Gladstone, and I cannot doubt, knowing my noble Friend's good taste, that to-morrow, when he reads his speech, he will regret many of the references he made. Perhaps, my Lords, I have sufficiently alluded to what my noble Friend said about Mr. Gladstone, avowing that the Government take on themselves the joint responsibility of all he has done; and it is high time that I should now address myself to some more general considerations. But there was one other point touched upon by my noble Friend so essentially unfair to Mr. Gladstone that I cannot altogether pass it by. My noble Friend charges against Mr. Gladstone a policy in former years which led to extravagance, and says that the policy which then actuated him is getting us into further expenditure. My noble Friend said that Mr. Gladstone when formerly in office was a party to sending out a body of troops to Malta to bring them back again—meaning that they were sent without any intention of their being engaged in military operations. Now, the troops never were sent to Malta in 1854 with a view of being brought home again without striking a blow. The whole thing is an invention, as the documents will show. But if it were true, who was to blame for it? Not Mr. Gladstone, whom my noble Friend has brought into the arena, but myself. I was the individual to blame for it, if so weak and foolish an act were really committed. But, as I have said, the whole thing was an invention, although unhappily the story was very current at the time.

My noble Friend says that the tendency of Mr. Gladstone's miscalculations has been to destroy confidence and strike at the roots of public morality, I would recommend my noble Friend to go into the City and ask whether the converse is not the case— whether under such adverse circumstances there has not been less fluctuation in the funds than, perhaps, at any former similar period; and as to destroying public morality, I am wholly at a loss to conceive how any fiscal measures of the Government can be fairly represented to have had such an effect. My noble Friend, after talking of public morality, asks how Mr. Gladstone can dare to do as he has done. Mr. Gladstone is not responsible solely for the financial measures of Government; but, if there be a public man who is firm of purpose, I might say obstinate in adherence to his opinions, it is Mr. Gladstone. My noble Friend maintains, as might be expected, that there is no surplus; that is really the gist of the whole matter. The noble Earl, at the same time, has admitted, what has been denied elsewhere, that the present is an exceptional year, and that in the face of the distress which exists in some parts of the country, of the great armaments which we are obliged to maintain, of the war in New Zealand, and of the threat of war hardly yet passed off from the United States, we cannot regulate our financial arrangements as we have done in more peaceful and prosperous times. In making that admission the noble Earl has admitted pretty nearly the whole of the case; for, after all, what really is it that he wants in the shape of a surplus? I have heard it said that we ought to have a surplus of £2,000,000. It has never been the practice to provide such a surplus, and I much doubt whether such a surplus would ever be allowed by the House of Commons. The noble Earl has said it is monstrous to hear the Chancellor of the Exchequer declaring that he is liable to have demands made upon him by the majority of the House of Commons, and that he therefore cannot do what is right. But there is no doubt of the fact. It is notorious that at a time when the public did not expect a surplus, but contemplated an additional penny of income tax on account of the Trent affair, a Motion was made in the House of Commons, and supported, moreover, by hon, and right hon. Gentlemen on the Opposition side, for the reduction of a large amount of taxation. Even supposing that a surplus sufficient to satisfy the noble Earl could be obtained, which it could not be without the imposition of taxation, what would happen to it? It might be disposed of by a Motion such as I have mentioned for the removal of taxation prejudicial to certain interests; or if it escaped that danger, it would be made to disappear in another manner equally unsatisfactory in such a year as the present. Does my noble Friend know that there is such a body as the Commissioners for the Reduction of the National Debt, who meet at the beginning of every quarter to examine the accounts and inquire whether there is any surplus? If there is a surplus, what do they do with it? Do they leave it with the Chancellor of the Exchequer to meet contingencies? Certainly not. The Commissioners are not only enabled, but compelled by law to appropriate every quarter the surplus revenue of the preceding twelve months to the reduction of the national debt; so that while, for the purpose of obtaining a large surplus, you were imposing,£2,000,000 of taxation upon the people, you would in fact, be appropriating that amount to the reduction of the national debt. Probably, however, the noble Earl does not contemplate so large a surplus; very likely he would be content with an ordinary surplus. Well, the surplus estimated for this year is £180,000. Our surpluses upon the average do not exceed £400,000 or £500,000, and I ask whether it is worthy of your Lordships to wrangle as to whether the surplus for the present year should consist of £400,000 or £180,000? The noble Earl and his Friends in the other House were not always so extremely anxious about a surplus. What was their conduct last year? The proposal of the Government then was to reduce the income tax by one penny and to repeal the paper duty. Did the Opposition say that we were going too far in the way of reduction, and that we ought to provide for a large surplus? No; they gratefully accepted the reduction of the income tax, and, instead of saying, "We will not repeal the paper duty, because it is necessary you should have the money in your pockets," they proposed to repeal another tax which produced a larger sum than the paper duty. If they had succeeded in accomplishing their object, our estimated surplus of £450,000 would have been reduced to the extent of £285,000, the amount by which their proposed reduction exceeded ours; in other words, they would have left us with a surplus smaller than that which we have submitted to Parliament this year. I contend that there is little consistency in such conduct, and that if we have erred in proposing a surplus of only £180,000, the noble Earl and his Friends are not the men to find fault with us. The noble Earl said he did not deny the buoyancy of the revenue and its power of recovering itself, although he seemed disposed to dispute the figures quoted by the President of the Council. It is a fact that within the last few years, notwithstanding many and large reductions of taxation, involving the extinction of numerous independent sources of revenue, the produce of the remaining duties has increased to the extent of something like £13,000,000, which of itself is a sufficient justification for the policy we have recently pursued. The revenue in 1858–9, miscellaneous deducted, was £63,351,000, and in 1861–2 it was £67,827,000. But there were taxes received in 1861–2 which were not in force in 1858–9, and which yielded £1,790,000. Deducting that sum, the comparison stands thus: revenue in 1858–9, £63,351,000; in 1861–2, £66,037,000, showing an increase of £2,686,000, or about £900,000 per annum. I need hardly say that the revenue in both years was derived from the same or equivalent sources. Then strictures have been made upon the commercial treaty with France, and prophecies of evil have been freely indulged in, but the result shows how unfounded these charges are. In fact, I am afraid I must say that it comes to this—there seems to be a determination on the part of the Opposition I do not complain of it—to bring charges against the budget, whatever it may be. We were told that the budgets of 1860–1 and 1861–2 were of too ambitious a character, and last winter hopes were expressed that we were not going to bring forward what in American phrase was termed a "sensation" budget. Well, the budget we have produced is neither an "ambitious" nor a "sensation" budget, and we find it complained of for its simplicity. The noble Earl has painted a picture which, if true, would show this country to be on the verge of ruin and frightful bankruptcy; and if the picture he had drawn be a correct one, there is not a country in Europe which is not happy and prosperous in comparison with our own, We have had evil prophecies before on financial questions. As to the French treaty, we have been perseveringly told that while it would benefit the rich, it would be the ruin of the poor. Has that prophecy been fulfilled? Why, £10,000,000 have been received by the people of this country for exports to France beyond what would have been received if the treaty had not been entered into, and to this amount the manufacturing interests have been compensated for the loss they have sustained through the civil strife still raging beyond the Atlantic. Before I sit down, I wish to remind my noble Friend on the cross benches (Lord Overstone) of the unfavourable estimate he formed two years ago of our financial condition, and of the measure to which he prophesied that the Government would in consequence be driven. The apprehensions which my noble Friend entertained upon that occasion have certainly not been realized. My noble Friend believed at that time that a large addition would be made to the income tax in the following year; but the income tax had been diminished by a sum of £1,000,000 in the year 1861, and £1,000,000 of Excise taxation has at the same time been remitted; while in the present year no addition has been made to the income tax. I believe I have noticed all the main points in the address of the noble Earl who preceded me; if I have left any of the minor details of the question untouched, it is only because it is impossible for any one to refer, without special preparation, to statements founded on minute and complicated financial accounts.

LORD OVERSTONE

, who was very indistinctly heard, was understood to say, that he could not help—though he did it with regret—expressing an unfavourable opinion of the financial measures of a Government of whose general policy he entirely approved. He could not, however, conceal his conviction—a conviction which was, he believed, shared by many persons of experience on the subject—that the management of our national finance during the last two years had been of a very perilous character, and had led to results neither satisfactory nor safe. The noble Duke (the Duke of Newcastle) had charged the noble Earl (the Earl of Carnarvon), on very insufficient grounds, with having introduced personal considerations into the question, and with having made a personal attack upon the right hon. Gentleman who had the conduct of the financial affairs of the country. Towards that Gentleman he entertained the highest personal respect. There was no one whose good opinion and friendly feeling he would be more unwilling to alienate. But, whilst thus, he might say, loving the criminal, he must condemn the crime. In dealing with the subject, therefore, he could not be supposed to be actuated by the slightest hostility to the eminent man who was mainly responsible for that policy; and his sole claim to the attention of their Lordships, in bringing his views under the notice of their Lordships, was that the subject had been enveloped with so much ingenious rhetoric and such a blaze of delusive eloquence that he did not believe the plain simple facts of the case were really understood by the public. The principle of learning to see ourselves as others see us was one upon which it was well to proceed in the financial affairs of a nation, as in the private affairs of individuals; and in the full belief, that if the financial course pursued by the Government were clearly and plainly understood by the public at large, they would not consent to its continuance, he ventured to address to the House the few remarks which he was about to make. In the beginning of the year 1860, by the falling-in of the Long Annuities and other Terminable Annuities, the charge upon the public revenue was relieved to the extent of over £2,000,000, and, notwithtanding that circumstance, we had since had recourse to financial expedients of a character more or less dangerous. It was difficult to state any possible form of objectionable financial procedure to which we had not resorted. We had converted capital into income, we had seriously diminished our balances in the Exchequer, we had added to our debt, and we had repealed taxes without a surplus revenue. Year by year and quarter by quarter official acknowledgments of the excess of our expenditure over income were published, and we were now presenting to Parliament and the country financial arrangements for the coming year, of which he had never yet found a man of common sense who would venture to pronounce that they were sufficient for the purpose, or that the asserted surplus had any reality. We had converted capital into income by anticipating the payment of a large amount of taxes. Our next step had been to repudiate the payment of our Exchequer bonds, although, when those bonds were issued, it was promised that they should be repaid on the return of peace, and that every effort should be made to pay off in the first years of peace the burdens incurred in time of war. Although he thought it was very inexpedient to enter into any such engagement, and had never approved of the policy of issuing those Exchequer bonds, yet, as it had been solemnly entered into, it became necessary for the credit of the country that it should be firmly carried out. But not only had that not been done, but, notwithstanding various illegitimate devices to support the balance of revenue against charges to which he had alluded, those bonds had been renewed instead of having been discharged and cancelled. What had been the result? They lie in the hands of the Bank of England, not negotiable with the public; and thus in reality constitute but another form of borrowing money from the Bank. Moreover, in addition to the renewal of those bonds, new bonds to the value of £600,000 had been issued, thus creating an increase of debt. But, passing on to the diminution of the Exchequer balances, he should beg their Lordships to bear in mind that that diminution was in reality equivalent to a deficiency of revenue as compared with expenditure. Their Lordships had, indeed, been told by the noble Earl the Lord President, that those balances had not been diminished below the average of the last thirty years; but he might be permitted to say that that bad nothing to do with the question at issue. The only mode of justly estimating the state of the Exchequer balances was to look at the amounts since the passing of the Bank Act in 1844. When that great monetary arrangement was made, the Bank Directors informed Sir Robert Peel that they were prepared to carry on the affairs of the Bank under the restrictions imposed upon them by that Act, but upon the undertaking that the Exchequer balances should be kept full and efficient, so that there might be no chance of a pressure being put on the Bank at an inconvenient moment of monetary derangement or disturbed state of credit. Under these circumstances, the state of the balances at any time previous to the year 1844 could not fairly enter into any estimate of their present condition. The balances had diminished during the last two years to the extent of £2,600,000. The noble Earl said that the demand of the Government on the Bank for a recent payment of the dividends amounted to a sum not worth speaking of; yet it should be borne in mind that the Government ought, under all contingencies, to be able to provide for their various demands, without improper pressure upon the Bank of England, whatever fluctuation should occur, from the complicated nature of the transactions of the country, or the various accidents by which the revenue may be affected. Hence the great importance of not permitting these balances, for purposes of immediate convenience, to be permanently reduced. It was believed by many—and amongst them men of competent knowledge and authority—that the balances were reduced at present to a point which placed them in an anxious and unsatisfactory position. Coming now to the budget for the present year, the Chancellor of the Exchequer, after scrambling and scraping in every direction, could only present us with an estimated surplus of £180,000. The announcement of such an estimated surplus, in the realization of which no well-informed person placed the slightest confidence, was itself an element of danger in our system of national finance. Some persons might, indeed, say that a provision for a large surplus could not in these days be expected to be made; yet he thought that they had a right to ask Government to hold out the expectation, at least, of such a surplus as would make persons who understood financial affairs feel confidence that there would not be a further succession of balance-sheets showing an excess of expenditure over revenue—in other words, a chronic state of deficiency during a period of peace. There was nothing to prevent this from being done, for the resources of the country were not worn out, our commercial industry and energy were not paralyzed, the public spirit of the people was not exhausted, nor were they unwilling to bear whatever burdens might be necessary for the credit, or for the safety and honour of the country. Their Lordships received from time to time, with great satisfaction, assurances from the heads of Departments that the dockyards were well supplied, that our fleets were maintained in an advanced state of efficiency, and that the military arsenals were well stored. But there was an arsenal of another kind of even greater importance, in the more immediate neighbourhood of their Lordships' House—the arsenal in Downing Street; and it disturbed his feelings, and seriously impaired his confidence, when he saw the resources which ought to be there accumulated undergoing continual diminution. Allusion had been made to the French Treaty, and to the part which he had taken in the discussion of that Treaty on a former occasion. He had within the last few days read over with attention the words he uttered two years ago in reference to the French Treaty, and he was now prepared to repeat them—or, if he were to vary them at all, it would be for the purpose of expressing them in a still more emphatic manner. His opposition to the policy of subjecting ourselves to the obligations of that treaty, and that of those who felt with him, was not dictated by any jealous feeling as to extended commercial intercourse with France, still less by any doubtful or qualified allegiance to the principles of free trade. They objected to the treaty as being both an unsound and a dangerous mode of bringing those principles into operation—unsound in principle; dangerous in its probable practical results. They maintained that every country, taking an enlightened view of its own interests, would liberalize its commercial code to the utmost practicable extent. That in so doing it would necessarily promote its own true interests, whatever might be the course pursued by other countries. That other countries, observing the beneficial results of their liberal legislation, woud be led spontaneously, and therefore in the safest and most certain way, to the adoption of the same course. That the attempt to make free-trade measures a matter of mutual bargain, must necessarily weaken public confidence in the soundness of those principles; and introduce, unnecessarily, many causes of international jealousy and dissension. They said, "Repeal whatever Customs duties you can safely part with, and which in any way restrict free intercourse with other countries; and having done this, place your reliance upon the results which must ensue; trust to the force of your example and the beneficial results arising from it, rather than to treaty obligation, as the best foundation on which to establish free commercial intercourse with France. If your imports are largely increased, these must be paid for by a corresponding increase of exports." They urged that these principles had been deliberately adopted and acted upon by this country as the basis of its commercial policy; that we had already repealed protective duties extensively, without seeking reciprocity through treaty obligations; and further, that the result of this enlightened policy was won producing its legitimate effects upon other nations; that the French Government had clearly perceived the necessity of liberalizing its commercial system, with a view to its own internal prosperity and progress. For these reasons they objected to the Commercial Treaty, as opposed to sound principles of free trade, and to the system of commercial policy which had been deliberately adopted and acted upon by this country. They further urged that the treaty involved the obligation of immediately repealing taxes, the maintenance of which was not inconsistent with the principles of free trade, and which, in the existing state of its finances, this country could not properly part with; and that it also restricted free discretion in the management of our financial arrangements hereafter. With regard to the terms of the treaty, they urged that a treaty, if entered into at all, ought to secure equal and reciprocal advantages for both parties; that the terms of this treaty were entirely one-sided and extravagant — giving on the part of this country absolute freedom from protective duties, but securing to the other party the right of imposing protective duties to the extent of 30 per cent. What has been the result? The terms thus conceded on our part were at once found by the French Government to be so excessive, that, looking to their own interests alone, to act upon the terms of the treaty would be to nullify the advantages of it even to themselves. They have, consequently, lowered, of their own free will, their import duties far below the amount which the terms of the treaty conceded to them the power of levying. The international trade which may now arise, and whatever benefits may accrue from it, are due, not to the terms of the treaty, but to the more liberal terms which the French Government has, of its own free will, accorded. The French Government has, in fact, made for, or granted to, England, a better and more liberal treaty than their own Government or their negotiator ventured even to ask for. But why has the French Government thus relaxed the terms of the treaty? Not from consideration for English interests, but because it had arrived at the conviction that a nearer approach to free trade than that secured by the terms of the treaty was essential to the interests of France herself. Does not this clearly prove that the more liberal commercial code of France, and the extended intercourse with that country, is the result, not of the treaty, the terms of which have not been enforced, but of more enlightened views on the part of the French Government; springing out of their observation of the prosperity which England has derived from free trade, adopted without reciprocity treaties, and which have led that Government to adopt a scale of import duties much lower than that which the treaty authorized them to enforce. The French Government themselves thought the duties the right to levy which had been conceded by this country so excessive, that they actually lowered the ad valorem duty of 30 per cent upon textile fabrics to 15 per cent, and the duty upon glass, porcelain, and other articles, to 10 per cent. On the following articles—the duties on which, by virtue of the terms of the treaty, might be 30 per cent ad valorem—the duties actually levied by the French Government are—

Textile Manufactures—Cotton, Linen, Woollen, Silk (generally) per cent ad valorem.	15
Stone Ware and Earthenware	20
Cutlery	20
Leather	10
Glass and Porcelain (generally)
Carriages

Upon many other articles duties are levied much less than those which might be levied under the terms of the Treaty; but being specific, and not ad valorem duties, it is difficult to state the exact amount of reduction. It thus appears that the interchange of commodities now going on between France and England is by virtue, not of the terms of our original treaty, but of the more moderate and reasonable terms voluntarily conceded by the French Government. He had not intended to address their Lordships that evening, but the remarks which had been made upon the French Treaty had induced him to rise; and the few observations which he had offered, had altogether for their object to bring the people of this country to a clear understanding of the facts of the case as regards the French Treaty and our recent financial arrangements.

EARL GREY

My Lords, after the able speech of the noble Lord who has just sat down, as no member of Her Majesty's Government seems inclined to rise, I must take the liberty of offering a very few observations. Your Lordships' attention has been called to the unsatisfactory condition of the finances of the country, and it remains clear upon the statement made, and which has not been denied by Her Majesty's Government, that within these few years we have incurred a deficit of about £5,000,000; and, more than that, that we are entering upon the year to come with financial arrangements which it has been justly observed but few men can understand. My noble Friend has justly said, that for the safety of the country, to maintain our credit and to keep the Exchequer in a proper state are no less essential than to have our military and naval affairs in proper order. We have had some attempt on the part of Her Majesty's Government to defend the policy which they have adopted. We are told, if there has been a deficiency, it has arisen from the exceptional circumstances of the year. Now, my Lords, it appears to me that this is a dangerous doctrine, I remember a time when a very different doctrine was held in very different circumstances. I remember that in 1854 it was stated, on the highest authority, that even entering upon a great European war, it was our duty, if possible, to avoid any addition to our debt; and that if an addition was found necessary, it ought, at all events, to be deferred until the nation had made every effort to avoid that necessity. I am afraid, when the country is involved in a great European war, it will never be possible to avoid the creation of debt; but I do say that it is most important, that except in a very great exigency from that or some other cause, debt should not be incurred. If we look back to the circumstances under which we have added to our debt in late years, I think it is perfectly clear that there was nothing to justify that addition. The first addition was made in 1860–1, in which year there was an admitted excess of expenditure of £2,500,000; but a real excess, if you make allowance for capital employed as income, to a much larger amount. How did that excess arise? As my noble Friend has stated, mainly from the repeal of taxation at the commencement of the Chinese war. Now, my Lords, though I have stated that a great European war will probably always make it necessary for this country to have recourse to loans, I do not think the same thing is true in the case of those minor hostilities in which we are sometimes unhappily engaged in remote parts of the world. The whole expense of the Chinese war, as we have been told, was somewhere about £7,500,000, and that expense was spread over two years. It is true that is a very large sum in itself, and I think it very large, especially when I remember that it has been incurred, not to promote any real interests of this country, or to provide for its safety, but rather in pursuance of a policy very much akin to the famous policy of the boy who killed the goose which laid the golden eggs; because we have given a blow to the Imperial authority in China by which the tranquillity and security of that country are endangered, and we shall probably see the Chinese empire involved in anarchy and confusion, which cannot fail to be most fatal to ourselves. But, apart from any questions of policy, assuredly this sum of £7,500,000, not entirely incurred in a single year, affords no adequate excuse for involving ourselves in debt. That sum, if laid, before Parliament at the proper time, would have been provided for without anticipating our resources. But what was done? In the February of that year, the Budget so well known as "the ambitious Budget" was brought forward. In that Budget there was a most ludicrous and inadequate estimate of the expenses of the Chinese war. A vote of credit for £500,000 was taken, and certain additions to the naval and military Estimates were made on account of that war; but, altogether, the estimate was ludicrously insufficient. Attempts were made in this and the other House of Parliament to obtain some information from the Government, because every one that knew what was going on knew that the Estimate was insufficient. I myself sought for information, but was refused, and Parliament was kept entirely and completely in the dark until all the financial measures proposed by the Government had been passed, with the exception of one, which, by the wise foresight of your Lordships, was rejected. After those measures were safe, the Chancellor of the Exchequer, in July, went down to the other House of Parliament, and presented a little bill for expenses not previously made known, to the amount of £3,300,000. This is a charge which could not have been unexpected, but which, on the contrary, must have been foreseen; because, on the Motion of Sir JohnPakington, a Return was made to the other House of Parliament, showing the dates at which orders were given for sending the various troops and stores to China. It appeared that these orders began as early as November, 1859, and that very few were given after the meeting of Parliament. Prom these materials it was not, I admit, possible to form an exact calculation of the expenses of these preparations; but still it would have been easy to say, "Here are the measures ordered and in progress;" and it would then have been obvious that the preparations must cost a very large sum beyond what was made known to Parliament, and provision ought to have been made accordingly. My Lords, in July this little bill of £3,300,000 was presented to Parliament. The sum of £1,000,000 was fortunately provided by the paper duties, which had been saved by your Lordships' interference; and the remainder was met, partly by additional taxes, and partly by draughts on the balances in the Exchequer. This was the mode in which the deficit arose in the year 1860–1 — and let me remind your Lordships that that was a year of the greatest prosperity that this country had ever known. There never was a year in which it was so unnecessary, with a view to the relief of the people from severe burdens, that taxation should be repealed at the risk of creating a deficiency in the revenue. The next Budget showed a small surplus, but this was arrived at in a manner which every person of experience saw to be fallacious. For myself, I urged upon your Lordships that this surplus would never accrue, and that, independently of all other miscalculations, there were two obvious errors which would alter the result. One of these errors was the China money. The sum of £750,000 of the China indemnity was calculated upon, although on the face of the papers laid before Parliament it was perfectly clear that no such sum could be realized within the year. Instead of £750,000, what was really available was little more than £270,000; so that there was a falling off of nearly £500,000 from this source. Again, very little allowance was made for the probable effect upon the trade of the country of the civil war in America, which was already commencing. It was quite obvious that there was great danger that one important branch of our manufactures would be liable to great depression, and this apprehension has been justified by the result. It was impossible to suppose, that with a failure in the supply of cotton, the Excise consumption of the people could be kept up. The old rule used to be, that in estimating the finance of the following year no receipts should be reckoned upon except those which, as far as human foresight could discover, were quite certain; and that, on the other hand, in providing for expenditure, a fair margin should be left for excess over the estimate. But the Budget of 1861 was framed on a directly opposite principle. Every resource of income which might possibly come in was swelled to the utmost, while the possible expenditure was put down at the lowest amount. To that principle we owe the deficit. In consequence of the apprehension of a rupture with America, a large expenditure was incurred in transporting troops to Canada. For that I attach no blame to the Government. I believe that that expense was wisely incurred, that it was a measure of true economy, and that to our prompt preparations against possible hostilities we owe our escape from the great calamity of war; but I do contend that this extraor- dinary expense was one that ought not to have taken us by surprise, and we ought to have been prepared to meet such a charge without incurring fresh debt, by financial arrangements which would have left a sufficient margin for so probable a contingency. My Lords, there is another point to which I wish to call your attention You have had a deficit for two years. Some persons say that arises from the enormity of our expenditure. I do not altogether concur in that view, yet I am bound to say that I think this expenditure is higher than it need be. I should be the last to recommend any diminution in our means of self-defence. In the actual state of the world it is absolutely necessary that our army and navy should be kept up in an efficient state, and that preparations should be made by which we should be able to protect ourselves in the event of war. Yet I still believe that with proper economy this might be done at much less than the present expenditure. After the lamentable failures which marked the commencement of the Russian war, and the deplorable exhibitions which then occurred through the want of foresight with which that war was undertaken and conducted, there has, I think, arisen a tendency to excess on the other side, and there is now a disposition in the management both of the army and navy to run to greater expenses than are absolutely necessary, in the endeavour to have everything of the most perfect character. I think that with proper judgment the enormous expenditure under these heads may be reduced. I am not satisfied that all has been done that can be done in relieving the country from charges for foreign garrisons, and other expenditure beyond our own shores. In our civil expenditure, likewise, I think there is no inconsiderable room for the exercise of a wise economy. But on this subject I wish to remark that for the public expenditure, whatever it may be, the Government are responsible. They frame the Estimates. If they submit them to Parliament, and if they, looking to the whole situation of the country, say that our armaments do not admit of a safe reduction, they are bound to propose some means of raising the necessary revenue, so as to prevent our incurring debt. I protest against the practice of the Government proposing a large expenditure and endeavouring to reconcile the country to the dangerous course of failing, in time of peace, fairly to meet its expenditure, by pretending that we are placed in what they call exceptional circumstances, and by dwelling upon the great benefits derived from the repeal of taxation. The repeal of taxes, I do not deny, is often a great relief to the country; but I entirely deny that, because the relief from taxes is a benefit, that is a reason which justifies the Government in throwing upon the future the burden of the expenditure incurred for the present time. I also observe a disposition on the part of the Government to throw on the Parliament and the nation the responsibility of keeping up a large expenditure. I could not help being struck, in a report of a speech made by the Chancellor of the Exchequer at Manchester, with an observation which he addressed to the inhabitants of that great city. He told them that, no doubt, the great excess of expenditure was partly caused by real necessity. "Partly caused by real necessity!" Does that mean that the Chancellor of the Exchequer calls upon Parliament to sanction an expenditure which he believes is only "partly necessary"? The right hon. Gentleman went on to say, that if the nation chose to have a large expenditure and pressed it on Parliament, and if Parliament pressed it on the Government, the Chancellor of the Exchequer had no power to resist it. Now, I admit that the Government are a good deal pressed by Parliament, and I admit also, that whatever may be their duty, it is not always possible for them to resist that pressure. But if it be really true that we are now spending annually more than we ought to spend, and that that excessive expenditure is in part due to the disposition of the nation and of Parliament to press expenditure upon the Government, what, I ask, ought to be their policy? Should it not be to make the nation feel, that if it will have expenditure, it must provide the means by which that expenditure can be honestly met; that if it will spend money, it must pay taxes? Has not the financial policy of the last three years been the reverse of this? Have we not been spending upon the largest scale, and, at the same time, as my noble Friend (Lord Overstone) las just shown you in a manner the most conclusive, meeting that large expenditure by every spendthrift device? You have been anticipating resources by every means n your power; you have been calling up credits, diminishing balances, increasing debt, postponing to a future period the pressure which a large expenditure must necessarily create, and which must come some time or other, and with greater severity the longer it is deferred. Against that system I join with my noble Friend in protesting. I think it is most dangerous to the future welfare and the future credit of the country, and I cannot help thinking that the present state of our finances is such as to create the greatest alarm. My noble Friend the Lord President said, that it was a serious state of things, but that no real occasion for alarm existed, as the resources of the country were untouched. Now, I should, perhaps, agree with my noble Friend that there is no occasion for alarm, were it not for the spirit in which these matters are dealt with; and I am persuaded, that if we continue to deal with them in such a spirit, recklessly incurring expenditure without providing sufficiently to meet it, we shall end by exposing this country to extreme distress and difficulty.

THE DUKE OF ARGYLL

My Lords, before answering one or two points raised by my noble Friends who have just addressed the House, I wish to express the pleasure with which I listened to the speech of the noble Earl opposite (the Earl of Carnarvon), because, partial and erroneous as I believe some of the alleged facts and inferences contained in it to be, it was, considered as a party speech, one of eminent ability, and was well calculated to raise the reputation of this House. I think, however, that too large a portion of that speech was taken up by purely personal allusions to the present Chancellor of the Exchequer; and, indeed, I may say that the two speeches last addressed to your Lordships had rather too narrow a scope. But I wish to set aside merely personal allusions, and to consider now the three principal charges which the Government have to answer. There is no question as to the Bill now before the House, or as to the policy to be pursued this year. The question we are considering appears to be purely a retrospective one, and is, in point of fact, a resuscitation of the debates which we have had for the last three years. The three principal charges against the Government are these—first, that the Estimates have not been correct; secondly, that temporary resources have been used as income; and thirdly, that the remission of taxation has been improvident and dangerous. Now, on the first of these points, I am perfectly willing to admit, that while some of the Estimates have proved singu- larly correct, there was in others a large margin which had to be met out of extra resources. But we must consider what influence accidental causes have exerted in creating the deficits. Now, to show how largely these accidental causes have interfered with the Estimates, I will refer for a moment to the deficit of last year. That deficit has arisen mainly from two causes —the failure of certain branches of commerce, and the preparations which unfortunately became necessary in view of a possible American war. Surely noble Lords do not suppose that Mr. Gladstone could foresee the act of Captain Wilkes, or the outbreak of the war which has so seriously affected the trade of this country. My noble Friend (Lord Overstone) appears to be of opinion that the Estimates should provide for such a surplus as would always secure us against a deficit. But no Government can ever be sure of making such a provision in the face of unforeseen events like those to which I have referred. My noble Friend (the Earl of Carnarvon) has spoken of the spendthrift policy of the Government, and prominent among the resources which the Government are described as having had recourse to are the Exchequer bonds. Now, it is clear that my noble Friend, who appears to have paid such close attention to the speeches of Mr. Gladstone, has not paid equal attention to the speeches of Mr. Disraeli. He said, that Lord Derby's Government had made arrangements to pay off the Exchequer bonds which fell due during their tenure of office; and these bonds were always referred to as if they were debts which ought to be paid off, and as to which some hardship was inflicted upon individuals unless they were paid off. ["No!"] Then, if that was not their argument, I must say that the language of my noble Friend was utterly inappropriate, for the noble Lord on the cross-benches spoke of paying off these bonds like honest men. [Lord OVERSTONE: I never used that expression.] Then the language of the noble Lord is unintelligible. Now, Exchequer bonds are securities, as to which it was contemplated, from the first, that any and every Government might renew them according to the exigencies of the time. So far as the Chancellor of the Exchequer could possibly foresee the financial exigencies of the next three years, he intended to pay them off at the end of that term; but it was optional with the Government either to do so or to renew them at their convenience, and no financial principle whatever is involved in the question. Now, it did so happen that in 1858, under the Government of the noble Earl opposite (the Earl of Derby) £2,000,000 of these Exchequer bonds fell due; and what course did the right hon. Gentleman who was then Chancellor of the Exchequer take respecting them? He came down to the House of Commons on the 19th April, and stated that he had to face a deficit of £3,900,000, arising mainly from the war sinking fund established by the previous Government, which, as he very fairly argued, it was not necessary to maintain, and from these £2,000,000 of Exchequer bonds. But, instead of paying them off "like an honest man," or like one who was "maintaining the faith of the country," the right hon. Gentleman made it one of the main features of his financial scheme to get over the difficulty of a deficit by postponing the payment of the £2,000,000 of Exchequer bonds. No doubt he did not intend to postpone payment for a period of three years; but if it was for six months only, the same principle would be involved; for if one Government may postpone payment for six months to suit its convenience, another Government may do so for six years, if in its judgment the exigencies of the country require such a course. I need not quote the words used by the right hon. Gentleman on this occasion, but it is clear that the Government of the noble Earl did not think that it was an illegitimate resource, under a temporary pressure, to postpone the payment of Exchequer bonds. Great apprehension has been expressed this evening as to the proposal by any Government of a budget showing a very small estimated surplus. But the Government of the noble Earl provided on this occasion for only a small surplus, which was made up by a trifling addition of taxes, and by the renewal of these obligations; and they looked forward to the probability of a future deficit of no less than £3,000,000. I think a member of the Government which proposed a Budget with a prospective deficit of £3,000,000, has no right to blame us for proposing one which, under the present extraordinary circumstances, still leaves a surplus of £180,000. The noble Lord (Lord Over-stone) has referred to another use of temporary resources—the use of the reserved balances in the Bank of England. I believe that when the Government draws beyond its balances, it has the power of raising money by "deficiency bills," and the interest it pays on the deficiency bills is the measure of the extent to which those reserves have been drawn on. At present, I believe, the reserves in the Bank of England are amply sufficient for the purposes of the Government; and at any time a very trifling sum has been raised upon deficiency bills. I now come to the noble Earl's third point—that the remission of taxation has been erroneous and in the wrong direction. The Government of the noble Earl opposite allowed the income tax to fall from 7d. to 5d. But then their Chancellor of the Exchequer proceeded to propose Estimates by which the House of Commons was bound to provide for a deficit of between £5,000,000 and £6,000,000. The noble Earl went out of office in 1859; and when Her Majesty's present Government came in, taking up as far as possible the Estimates of their predecessors involving this deficit, we found that instead of allowing the income tax to remain at 5d. we were obliged to raise it to 9d., and were obliged to collect two quarters of the increased tax in one quarter of the year. Hence, allowing the income tax to fall to 5d. was an undoubted mistake. This was the position in which we found ourselves in July, 1859. There were "bloated armaments," and preparations made by the previous Governments with no funds provided to meet that expenditure, and the whole charge of providing the additional taxation was thrown upon my right hon. Friend. I do not complain, because the Government to a great extent adopted those armaments, but I wish for explanation on another point. It is perfectly true, that in 1858 Mr. Disraeli postponed payment of the Exchequer bonds which then became due; it is true that in the subsequent part of his administration he made some arrangements by which these £2,000,000, in part or in whole, should be paid off. I ask, how could this payment have taken place when Estimates had been prepared with an acknowledged deficit of between £3,000,000 and £4.000,000 sterling? It is clear that these bonds are a matter of account, and not a part of the revenue, because there was not a farthing of surplus. Considering these facts, it is too much for the noble Earl to say, that the only successful financial year we had was the one in which we succeeded to the policy of the late Government. I now come to the point whether the remissions of taxation made by Mr. Gladstone since 1859 have, or have not, been judicious. I join issue with the noble Lord on the cross-bench (Lord Over-stone) on his assertion that the use we made of the £2,000,000 of terminable annuities that fell in in 1860 was the root of all the evils in which we have been since involved. I will show what was the intention of Mr. Gladstone with regard to the falling-in of these annuities. No doubt, with a large number of unpopular taxes to deal with, he would have taken the opportunity of remitting some of them with these annuities; but this was no after-thought of the Government; what they did was done with a distinct and deliberate intention, announced in 1859— that very year, when, in consequence of what the late Government had begun, and the present had continued, the income tax had been raised to 9d. Mr. Gladstone said— We have the advantage of a falling-off in the Long Annuities, and it will be the duty of Parliament to consider whether they will endeavour to signalize the year of escape from so serious a burden as the constant and permanent payment of £2,000,000 by something done for the benefit of the people, or whether they will simply allow those £2,000,000 to be dragged unnoticed into the general vortex of expenditure." [3 Hansard, cliv., 1394.] That was the sentence in which Mr. Gladstone foreshadowed the financial policy of the coming year. The noble Lord says, that though these £2,000,000 were to fall in, it was absurd to suppose we had them in our pockets to spend. That would be true had there not been on the statute-book taxes that repressed the industry and interfered with the commercial relations between England and other countries. I contend it was a wise policy to apply those £2,000,000 to the remission of this taxation. It would have been the height of folly to have allowed that amount to be absorbed "in the general vortex of expenditure." It was the duty of the Government to apply it in the manner most conducive to the prosperity of the commerce and manufactures of the country; and it was applied to the removal from the tariff of a number of small and unremunerative duties, and to the repeal of the paper duty. I will not enter into that subject, as your Lordships, I believe, are sick of it; although there are some noble Lords opposite who, I think, will go into mourning for the rest of their days for the loss of their beloved paper duty. There is this comfort only—that if the Government of the noble Earl (the Earl of Derby) had had 10s. to gain of political capital, they would have been the first to repeal it. ["Oh, oh!"] But there is this important consideration—the leader of the House of Commons is the leader of the Government; and speeches made in the House of Commons, pledges given, and promises made, in the House of Commons, are not to be broken. ["Hear, hear!"] The noble Earl probably meant that the Estimates were mistaken. [The Earl of DERBY: No, no; I do not.] I repeat, that promises made in the House of Commons cannot be broken; and after the Resolution of that House, it is impossible that the paper duty could ever have been retained among the permanent sources of revenue. I have no doubt of the courage of the noble Lords; but if there be a man who holds an opinion against the clear light of evidence, it is he who is willing to maintain that the remission of duties effected by Mr. Gladstone have not fully answered every promise ever held out, and every expectation ever raised, in the House of Commons. I will not repeat the statements of my noble Friend the President of the Council as to the enormous effect of the remission of duties connected with the French Treaty on the trade of this country during the past year. I believe it is no more than the truth, that in the manufacturing portion of the country it has given a stimulus to trade, and in some particular districts has not only been a very important, but almost the sole substitute for the entire loss of American traffic which has been caused by the unfortunate contest between the States. I will not stop to argue with my noble Friend (Earl Grey) whether the form of the treaty was or was not expedient. The form was not the essence. The essence of the transaction was that Parliament abolished and diminished certain duties, which for our own purposes and for our own reasons were judged inexpedient, and Parliament added a reason for remission at the moment that it would secure additional commerce and communication with the French people. That is the footing upon which it must be put. We must judge of it not as a treaty, but as a strictly financial operation. I say that, viewed in that light, it has signally succeeded, and I defy any one to show where it has failed. I heard in the measured sentences of my noble Friend on the cross bench (Earl Grey) a very solemn denunciation of the extravagant manner in which we are dealing with the resources of the country, and I heard him using the expression that when there was a lurid light in the heavens he dreaded having to meet the dangers indicated by the appearance of the sky with diminished stores and diminished resources. I ask him what are the sources of revenue which have been diminished? Has it been the Customs? Has it been the Excise? No. The whole remissions effected by Mr. Gladstone were in the Customs and in the Excise, and what has been the result? The diminished stores to which my noble Friend refers are now larger and more full than they were two years before Mr. Gladstone's operations. Is it not trifling with the judgment of the House and of the country to come down with fine sentences about diminished stores, and not to be able to put a finger upon a single store which has been diminished? No doubt, my noble Friend may argue, and I am perfectly willing to meet him upon that ground, that if we had not abolished these taxes, the returns for Customs and Excise would be still greater than they are. I have a right to argue upon actual facts. We know that in all the previous operations of Sir Robert Peel, and my noble Friend admits that in the previous operations of Mr. Gladstone, increased revenue has been derived from a remission of taxes; and I challenge him to say why we are to distinguish between results which as a matter of fact have occurred, and results which we therefore anticipate. The facts are so remarkable that I hope your Lordships will attend to them. The reductions in Customs and Excise since 1859 have amounted to £4,300,000, and the total amount of revenue from those branches is no less than £2,000,000 in excess of the sum at which it stood before those remissions. I deduct from that increase the sum due to new taxes, and I say that the mere recuperative effect of those remissions has fully restored—and more than restored—the revenue to the point at which it stood before. Having proved that point, I leave your Lordships to judge of the strength of the arguments used by the noble Earl, when he warned us so solemnly as to the lurid light which appeared in the heavens and the danger of meeting storms which may come with diminished resources. Several times during the course of this debate an earnest hope has been expressed that the season of experiment is now ended. The particular class of experiments to which my noble Friend referred is ended. I do not mean to say that in future times difficult questions of finance may not be raised. New principles may be started; and having full confidence in my noble Friends opposite, I shall not be surprised if new principles be started. At the same time, it may be some satisfaction to them to know that this class of experiments has really come to an end. There are no more protective duties for them to protect as the very palladium of the British Constitution. There are no more trivial duties for them to maintain as the backbone of English finance. There are no more duties injuriously affecting the processes of manufacture round which their affections may cluster. In after-times they will have the satisfaction at least of knowing they have been the consistent declaimers against some of the most beneficial changes ever effected, and they will have this much more solid satisfaction, that when they themselves come into office, they will derive the full advantage of those measures of which they have been the most strenuous opponents.

THE EARL OF DERBY

My Lords, had it been the object of this discussion to cast blame or censure on her Majesty's Government, I should have abstained from offering a single observation to your Lordships, and should have left the case to stand on the able and unanswerable speech of my noble Friend (the Earl of Carnarvon) who opened the discussion, and who so clearly dissected the whole financial position of the country, and also on the forcible observations of the noble Baron (Lord Overstone) and of the noble Earl on the cross benches (Earl Grey); and although the noble Duke (the Duke of Argyll) thinks that these arguments rest on a somewhat shallow basis, I must confess I have not been so much struck with the breadth and force of the answer of the noble Duke as to think it necessary to enter into the questions to which he has adverted. The object of this discussion, if I understand it at all, is not, as the noble Duke asserts it to be, purely retrospective. On the contrary, it is mainly prospective. The object of this discussion is not to cast blame on this or that Government—not to bandy or toss accusations of erroneous estimates or anticipations of revenue, improvident remission of taxes, or breaches of faith with Parliament; but for the purpose of bringing clearly and distinctly before the country, and your Lordships, and before the other House of Parliament, if they have not sufficiently considered this question, the really serious, and, I will venture to say, the alarming condition in which, by some persons and by some means —I do not say by whom or what means— the country finds itself, with regard to its present and as to its future means of meeting its engagements. The object is not to cast reflections on the past, but to call on you seriously to reflect on the future, and to ascertain in what manner those dangers that appear to us to be so threatening may be most satisfactorily warded off. My Lords, one or two observations were made by the noble Dukes on the part of the Government, which induce me to refer to one or two comments which they made on my noble Friend's (the Earl of Carnarvon's) speech. The noble Duke who has just sat down has stated that the whole tenor of my noble Friend's speech was not an examination of the finances of the country, but a personal attack on Mr. Gladstone. Undoubtedly my noble Friend did strongly censure and blame the political course of Mr. Gladstone, in the administration of the finances; but I would appeal to the right hon. Gentleman himself, if he were present, and to all your Lordships who heard my noble Friend, whether a single expression fell from him inconsistent with the most perfect personal respect for his character and admiration for his talents? But I want to know in what manner it is possible for us to discuss the financial position of a country if we are not to discuss the financial acts and speeches of the Chancellor of the Exchequer? And we are told by the Chancellor of the Exchequer himself that the finances of the country are in an unhealthy condition; and will you, with that avowal of the Chancellor of the Exchequer—the Minister who is responsible for that unhealthy condition, if such it be —will you blame this or the other House of Parliament for desiring to investigate the causes that have led to that unhealthy condition, and desiring to ascertain if there are any means to rescue it from that condition? My noble Friend stated, undoubtedly, that Mr. Gladstone's estimates are so erroneous, so far from the fact, so contradicted by the result, that he has destroyed all confidence in his calculations for the future, and that of itself, your Lordships will admit, is a great commercial evil and a great public misfortune. The noble Duke himself does not deny that Mr. Gladstone's estimates have been singularly erroneous and singularly unfortunate for the last two years; and the noble Duke who preceded him commented on another statement of my noble Friend, in which he spoke of Mr. Gladstone's small surpluses. The noble Duke went on to say that was not true, because there was a year in which Mr. Gladstone estimated a great surplus. That is true in one sense, but not in another; but it does not bear on the present financial policy of the country. That was for 1860–1. In July Mr. Gladstone estimated a deficiency of £1,284,000; but when he brought forward his budget in February, on which he based his financial system of the year, and on which he framed his estimates and his calculations, he estimated for a surplus of £460,000 upon the year; and as stated truly by the noble Earl on the cross benches (Earl Grey, at the period when he made that calculation, he must have been aware, though Parliament was not, that although he made it appear there was a surplus of £460,000, it simply rested on imagination, and that it was absolutely impossible that the assumed surplus should not be converted, as it was converted, into a large deficit at the close of the year. Then the noble Duke said—last year, how could Mr. Gladstone, when he spoke of that surplus, foresee the events that have since taken place? What are those events? The civil war in the United States, the consequent ruin of our trade, and the necessity for preparations on our part lest the arms of the Americans should be turned against ourselves, which involved an expenditure I cannot say of what, but certainly considerably under a million. When the budget was brought forward last year, the circumstances of the country were such, that if Mr. Gladstone could not foresee the whole extent of the evil, he must have been conscious that it was a year in which there must be a large additional expenditure, for which he was bound to make provision. He did not do so; and the result of the budget for the last two years has been, as no one has attempted to deny, that there has been a deficit on the two years amounting to £5,000,000 sterling. Now, my Lords, when I say £5,000,000 sterling, that is taking the deficit last year at £2,400,000, including the £970,000 for fortifications, which practically, being an increase of debt, is so much deficit. Then is my noble Friend to blame for having stated, as he did state, that Mr. Gladstone's calculations were singularly incorrect and erroneous? Is he blamable or wrong for saving that when a Chancellor of the Exchequer is found to have been habitually and continuously out in his calculations, that it seriously shakes the confidence of the country in the Government and causes considerable inconvenience? No one has denied that for the last two years the modes adopted for keeping up even a nominal surplus have been in a great measure by anticipating revenue, by taking hold of every casual and exceptional incoming, and by availing themselves of repayments, balances for advances made, —in short, by converting capital into revenue, and making use of those means to supply the permanent expenditure of the country which the Government knew, or which they had been repeatedly warned, they could not calculate on beyond the existing year, and that the result must be to leave the country in a serious deficit. The question of improvident remissions of taxation, and the merits and results of the French Treaty have had such ample justice done them by the noble Baron on the cross benches and the noble Earl who preceded me, that I am content to leave those matters in their hands; but if ever I intended to enter into an elaborate examination of the finances of the country, I should be satisfied to leave the case to the unanswerable speeches of those who have gone before me. I must say one or two words on the present Bill, which, I must say, the noble Duke (the Duke of Argyll) has shown sound judgment in diverting the course of his observations from, and turning the discussion on the merits or demerits of previous Governments. The noble Duke says we have no right to charge the present Government with anticipation of revenues, when we, in 1858, adopted the same plan that the Government have adopted now—namely, the postponement of repayment of the Exchequer bonds. The noble Duke also adverted to the remission of the paper duty, and laid down broadly and distinctly, a sentiment in which I entirely concur, that promises solemnly made to the House of Commons never ought to be broken—indeed, he said never could be broken. For the information of the noble Duke, or to refresh his memory, I will tell him what Mr. Disraeli really did in regard to the paper duty. What he did was this—he refused to vote for the repeal of the paper duty, but he acceded to a proposition that whenever the revenue could afford it the paper duty should not be considered a permanent source of revenue: that was the Resolution passed by the House of Commons, which the noble Duke terms a promise made to the House of Commons to repeal a duty.

THE DUKE OF ARGYLL

explained, that he did not attribute to Mr. Disraeli any promise on the subject, but merely assent to a Resolution condemning the paper duty as a permanent source of revenue.

THE EARL OF DERBY

A permanent source of revenue whenever the revenue would allow of its repeal. But what does the noble Duke, who has such reverence for promises, say of the promises repeatedly made by the present Chancellor of the Exchequer, that in 1860 at the very latest the income tax should be altogether abolished? But more—some of the present colleagues of the right hon. Gentleman urged that the state of the country during the time of the Crimean War was quite exceptional, but nothing could relax the rigid virtue of the Chancellor of the Exchequer; he would listen to no excuses whatever, he was determined that in 1860 the income tax coûte qu'il coûte, must be struck out of the statute-book. There was a belief or knowledge that in 1860 we should be relieved of the burden by the falling-in of the terminable annuities, and no man urged so strongly as Mr. Gladstone, that to keep good faith and carry out the bounden obligation of the Parliament, this £2,000,000 of terminable annuities should be applied to vindicate the pledge of Parliament by realizing the promise to take off the income tax in 1860. Now, says the noble Duke, it does not rest with you to charge us with having violated the promises and anticipated revenue, when you in 1858 took precisely the same course, and abstained from paying off, but renewed the bonds. Well, we did, under pressure of difficulties, left us by our predecessors, and under the pressure of the solemn obligation and pledge given to Parliament, take every means to redeem that pledge by abolishing the income tax in 1860—we did in 1858 renew the bonds that fell due in that year; and whether we did right or wrong on the whole, not in vindication of our pledge, but of that of Mr. Gladstone, we did take 2d. in the pound off the income tax, and for the purpose of gaining that great political object, which at the time Mr. Disraeli said he would not take for any purely financial considerations, but only to effect a great political object—the abolition of the income tax at the time promised. These were the circumstances un- der which we renewed these bonds; but in the following year we did not take the same course, and before we left office we paid off these £2,000,000 of bonds, feeling that whatever was the state of the revenue we were bound to discharge that obligation. Now, my Lords, the noble Duke says that when the present Government succeeded to office in 1859, the Estimates which were introduced by us would have left a deficiency. That is perfectly true. In 1858 we entered into a careful examination of the Estimates, more especially of the Naval Estimates, in the hope of making a reduction. The examination disclosed a state of things that startled and alarmed everybody. we found that the state of our navy was such, as compared with that of other Powers, that not only was no diminution of expenditure possible, but that, on the contrary, it would be our bounden duty, at whatever risk, and whatever the state of the country, largely to increase the Estimates of the navy for the purpose of what was at the time called "the reconstruction of the navy" of the country. I am proud to say the steps we took in hazarding a new and then wholly untried experiment of iron-plated vessels, the first of which was the Warrior, were the first steps taken towards placing the navy of this country in that position which it was essentially necessary for the safety and the very existence of the country in reference to other Powers that it should occupy; and if we, for that purpose, brought forward Estimates that necessarily led to a deficit after a certain period, the object we had in view was one of such paramount importance as entirely to overbear all purely financial and even all economical considerations. The noble Duke (the Duke of Newcastle) in the course of his observations, in charging my noble Friend with departing from the subject and casting imputations on persons who were absent, and the noble Duke who has just sat down, commented, not in the best taste, on the expression used by my right hon. Friend (Mr. Disraeli) in another place, in which he spoke of "bloated armaments." I ask, my Lords, whether the Minister who as Chancellor of the Exchequer consented in times of financial difficulty to that very increase in the Navy Estimates—whether the Minister who, seeing our great deficiency of ordnance, both heavy and light, for the purpose of supplying it introduced a great additional expenditure into the Army Estimates also—I ask whether the Minister who, at a period when there was a loud cry for economy, ventured upon these large augmentations of expenditure for the sake of securing the independence, the integrity, and the very existence of the country, was a Minister who would be likely in his place in Parliament to turn round upon all his previous opinions—upon all those opinions in respect to which he claimed for himself and his colleagues the highest credit for having adopted a wise and judicious policy —whether he would be likely, in the presence of all those colleagues, to bring forward a proposition or to put forth sentiments calculated to discourage the maintenance of such a military and naval force for this country as was essential to its safety. My Lords, in the very speech to which the noble Dukes have, I think, so unfairly referred, it was impossible anything could be stronger than the declaration of my right hon. Friend, that so far as the provision for the defence and safety of the country was concerned, there was no expense he would be desirous of sparing— there was no expense in which he would not cheerfully concur. But the sentiment which my right hon. Friend did express, and which I am persuaded will be shared in by every Member of your Lordships' House, was a deep regret that the circumstances of Europe generally should have led in every nation to a system of bloated armaments—armaments, of course unnaturally, swollen beyond their due dimensions, which, not in this country only, but in every country in Europe, were creating excitement among their neighbours, and financial distress and difficulty at home. He did not animadvert on this country keeping up defences for its protection, but on the practice which prevails throughout Europe of having armaments disproportioned to their means, and which are in every country producing financial embarrassment. It was to that that he referred, in a tone of complaint and regret, which I am sure will be participated in by all who are lovers of the peace and prosperity of nations. My Lords, I really had not intended to say a single word with regard to the proceedings of former Governments, nor even of the present Government. My object has been fully attained by the discussion which has occurred to-night, which will place before the House and before the country the real condition in which we stand. And, my Lords, what is that condition? Why, that at the present moment we are incurring habitually a deficit to a very large amount. We are, to use an expression that was applied to the Crimean war, gradually "drifting" not into war, but into a state of chronic deficiency. It is impossible that there can be a more alarming state of things than that in which, in time of peace, the Minister of the Crown proposes, and Parliament assents to, a system of finance the result of which, year after year, has been to draw upon the resources of the country and diminish the financial reserve which ought to be kept for occasions of great emergency. Nor, my Lords, is it only that we are incurring year by year a deficit, amounting for the last two years to five millions sterling; but we are incurring it, notwithstanding that every means has been taken, as pointed out by the noble Lords on the cross benches, to bring into the revenue of one year that which ought to be held available for emergencies of great moment. And is that all? No; besides this enormous deficit incurred —notwithstanding this, I will not say "spendthrift" course, but I will call it this illegitimate course, of adding to the present temporary income—the House and the country must not forget that we are at this moment labouring under the pressure of £14,000,000 a year of war taxes—taxes which ought to be reserved for periods of war alone, and a great portion of which was originally put on specially to meet the exigencies of war. Well, with these £14,000,000 of war taxes, and with all the means and appliances which the Chancellor of the Exchequer has brought to bear, we have still a deficit of £2,500,000 a year. I ask your Lordships, and I confidently ask the country, whether that is not a state of things which calls for the serious and earnest consideration of Parliament. Now, my Lords, this Bill imposes duties to the amount of £22,000,000 sterling. It includes the renewal of the income tax at 9d. in the pound; it includes the war duties on tea and sugar; it includes an aggregate of taxation equal to somewhere about one-third of our whole national expenditure. And of these £22,000,000 of taxes, £14,000,000 at least have hitherto, and according to all sound principles of finance, been reserved to meet the contingency of war. The noble Duke who first spoke on the other side of the House (the Duke of Newcastle), not certainly following the line of my noble Friend behind me, but rather replying to objections which he anticipated he would have had to meet, dwelt at considerable length upon the form in which this Bill has been sent up to your Lordships. He contended, very unnecessarily I think, because nobody disputed it, that that form was one which, though unusual of late years, it was perfectly within the competence and the privileges of the House of Commons to adopt, and one of which your Lordships had no right to complain. My Lords, the privileges of the two Houses of Parliament are matters which it is not for the advantage of either should be stretched to the utmost. They depend mainly on the means which each House has within itself of vindicating its privileges. And if it be sought to place the House of Lords in a greater difficulty by sending up a whole number of financial propositions comprised in one Bill, rather than to send them up in separate Bills, I say, that in entire accordance with the privileges of this House, the one course interposes to us no greater obstacle than the other; because, as it is perfectly within our province and our right to reject a particular proposition in a single Bill, so it is equally within our competence to reject that same proposition when incorporated with others. It is, then, only for the House of Commons to consider what provision they will make for the public revenue, following out the principle on which they always act, and not tolerating any amendment of their financial measures. I only say this, not for the purpose of raising discussion on the privileges of the two Houses, but to show that if this Bill is intended, by the form in which it is drawn, to fetter the discretion of the House of Lords, that form would not answer its end, although certainly it might incur the risk —and a very great risk it is—of very serious danger to the country through a collision between these two branches of the Legislature. But if the House of Commons is satisfied with the form which this Bill assumes, I confess that I have little objection to take to it in your Lordships' House. In my judgment, that form deprives the House of Commons of some of the most valuable means which they have at their disposal of duly debating and fully considering the financial measures of the Government. Those measures being all thrown into one Bill, they are not each subjected to that discussion which, if they were embodied in separate Bills, must be taken upon each of them at the several stages; but there is only one stage, and that stage the Committee, in which the House of Commons has an opportunity of considering propositions as widely distinct from each other as the tea duties, the sugar duties, the income tax, the malt tax, and all the other taxes comprehended in this one measure. But, my Lords, there is another and a very serious objection to the form of this Bill. I think it is a most serious objection that the sum of £22,000,000 in one Bill is voted by the House of Commons as an annual supply. My Lords, nothing can tend more to shake the confidence of commercial men than uncertainty as to the amount of the duties to which they shall be exposed. And so strongly was this felt to be the case, that although in former times—from a jealousy which, if at any period it was reasonable, has certainly become perfectly unreasonable now—although, I say, from a jealousy lest the House of Commons should not have sufficient control over the expenditure, a custom once prevailed of voting the sugar duties annually, for the purpose of leaving a large branch of the revenue absolutely at the disposal of that House from year to year; yet when it was found that this practice produced very injurious effects upon commerce, the House of Commons, with a full view of all the circumstances, determined that the sugar duties should no longer be voted annually, but that they should be taken in a permanent Bill for the purpose of steadying the trade and giving fixity to the duties. Well, what is the course now pursued? That course is, with regard to the income tax, the sugar duties and the tea duties, to make them all dependent upon the varying circumstances of each succeeding year. And worse than all, as if to increase the want of confidence in the commercial world, it is announced beforehand that the duties will be taken annually for the purpose of enabling the Government to deal with them if circumstances will allow, and to make such changes in them as they may find possible. I say nothing can be more disturbing to all commercial transactions than the amount of uncertainty necessarily arising from these duties being annually voted, and voted, too, with the declared intention to alter them as circumstances will permit. My Lords, I do not intend to enter further into the question than to call your attention to the present state of the finances of the country, and to the mode in which Parliament may and must deal with them. The noble Duke, following the example set by other speakers on former occasions, took great credit to the present Government for the remission of a considerable number of taxes; and in his toleration he congratulated us that there would be no longer any protective duties to protect—that there would no longer be any small articles charged with a small amount of duty, but that all our taxation was concentrated upon a very limited number of articles; and that if we should happen to succeed him in office, we should derive great advantage from that state of things. Now, I must say that I entirely differ from the noble Duke in his estimate of the merit of these remissions. There is a homely proverb which warns us against carrying all our eggs in one basket; and I think there is very great inconvenience, if not danger, in having the taxation of this country depending upon two sources of revenue, and two only the one being a heavy amount of taxation on the principal necessaries of life, such as tea, sugar, tobacco, and similar articles which enter mainly into the consumption of the lower classes; and the other great source of revenue being direct taxation, and more especially the income tax. The noble Duke boasts that we have no other Customs duties to repeal—that they have almost all been struck off the tariff. But what does that mean? Why, it means that your dependence under those circumstances must rest mainly upon the two branches of income which I have mentioned—namely, direct taxation, and taxation upon the necessaries of life. When the noble Duke says there are no more taxes to be repealed, does he mean that whatever the circumstances of the country, there is no more relief to be given in that direction? What does he say of the taxes on tea, sugar, and tobacco? Then, my Lords, supposing a period of difficulty arises, you have to meet that difficulty either by a reduction of expenditure or by an augmentation of those few taxes you can count on, being of a nature singularly dangerous to be augmented. In the present state of things it is not for me to say what course Government ought to pursue, or can pursue. One thing I hold to be certain. The noble Earl (Earl Granville) in his opening speech congratulated the Government on the discretion they had exercised in not asking for any additional taxation. I quite agree that was an act of extreme discretion, because if they had asked for any additional tax, they might have been perfectly certain the House of Commons would not have granted it. I make a present of all the credit that is due to the noble Earl and his colleagues for that act of discretion. Well, then, if it be impossible, or a matter of the greatest difficulty, and most objectionable, to increase the weight of those few taxes which still remain, more especially recollecting the large measure of taxation which ought to be gradually and as speedily as possible reduced, if not abolished—if there is no prospect of an increase of taxation, I say frankly that much as I condemn the abolition of some of these taxes for which the noble Duke claims so much credit—and, once abolished, it is hopeless to look for the renewal of those taxes, those legitimate sources of permanent unobjectionable revenue, that have been cut off from us in any of our future difficulties by the act of the present Government—if you can neither add to our existing taxes nor renew those I think improvidently and unwisely cut off, what remains but that you must submit to a permanent state of chronic deficit, leading to ultimate bankruptcy, or that you must firmly, deliberately, and resolutely apply your minds to the only other mode by which revenue and expenditure may be equalized — namely, that of wise, temperate, judicious, and economical retrenchment? I need not repeat that I will be a party to no measures by which such reductions shall take place in our expenditure as shall weaken the security and credit of the country. I am not in a position, not possessing official information, nor is it my duty to point out to the Government modes in which retrenchment may be effected; but I must confess I have a, very strong impression that, without in the slightest degree overlooking our naval or military efficiency, we are at the present moment spending more largely, suddenly, and to a greater extent than is required by the existing circumstances of the world at large, or by our own state of relative preparation. I may be perfectly wrong, and it may be that Her Majesty's Government have no alternative but to proceed on the enormous scale of expenditure which they are carrying on at this moment. I admit for the last few years it has been absolutely necessary to have large Estimates. I admit it was a wise measure which armed our army, our militia, and volunteers with the best weapon we had at our disposal; and I do not at all complain of the large amount expended within the last few years on small arms or in heavy artillery. But there must come a period when that expenditure may be reduced, and beneficially reduced. I hold in my hand a speech delivered in the House of Commons by the right hon. Baronet the Secretary of State for War, and afterwards published as a pamphlet. I find it there staled, with regard to small arms, that the number of small arms manufactured is 1,066,000; that the number issued to the army, militia, and volunteers is 500,000; to the Indian Government, 186,000—making a total issue of 686,000. The right hon. Gentleman went on to say that there are in store, at home and abroad, 359,000. The annual issue, for the purpose of arming our forces, was something like 100,000 a year. We have, therefore, in store at the present moment three and a half years' consumption, supposing we were continuing to do that which is now accomplished —namely, to new-arm the whole force. I admit that the country is under great obligation to Sir William Armstrong, and I consider it a matter of great congratulation that I was a Member of the Government which in the first instance secured the benefit of Sir William Armstrong's services, and thereby effected an incalculable improvement on our former artillery. But in the same speech I find that we began by manufacturing 100 heavy guns a year, and that a proposal was made to increase the number to 160 or 200. That, perhaps, might be a proper provision at the beginning. But now I find there is in the Estimates a sum of £521,000 for Armstrong guns, for which sum 1,489 guns will have been produced in the course of the year. Of these 681 are to be 100-pounders, and 340 are to be 40-pounders. The Secretary for War went on to state that the same number of guns will be produced for the sum he purposes to appropriate next year; that is to say, that whereas we have expended £521,000 this year for the creation of 1,490 heavy Armstrong guns, it is in contemplation to expend a similar sum for the same number of guns in the next year. My Lords, I confess that looks, to my mind, like a very large and unnecessary expenditure, which might be spread over a very considerable number of years; for I do not apprehend that our present exigencies are so great as to require so large immediate outlay, more especially as, having these heavy and small arms, it was stated by the Secretary for War that a great doubt exists whether there may not be another species of arm—namely, Mr. Whitworth's, both heavy and light, which may not be more advantageous than the Armstrong guns; and the consequence of that will be that we must either be left with an Inferior arm or else incur the whole expense over again, and have to re-arm the whole of the army, and find the vast amount of arms already in store perfectly useless. Now, do not let me he misunderstood. What I say is this:—When you are in doubt as to having the best possible invention, it is most important that you should not overload your stores, at a vast expense of money, with a profusion of stores, which may ultimately be found to be of an inferior character, and he superseded by some new invention. As I said before, I do not presume to say in what direction the Government can effect economy. I should be sorry even to take upon myself to call upon your Lordships to affirm categorically that reduction is capable of being effected consistently with the circumstances of the times. My firm belief is that that is the case, but I do not possess that knowledge that would induce me to ask your Lordships to come to such a categorical decision. But, I say that the Government have before them the simple choice of two alternatives. Additional taxation is impossible. Renewal of taxation is almost equally impossible. It is impossible to continue in the present alarming and serious condition of our finances; and the only alternative to which they must, and I trust will look, is an unsparing, judicious, and at the same time a perfectly safe reduction of the public expenditure.

EARL RUSSELL

My Lords, I am very glad that, on this occasion at least, we shall not have to enter on the question of the privileges of the two Houses of Parliament. The noble Earl (the Earl of Derby) says that the House of Commons have the right to include all the supplies of the year in one Bill, and that your Lordships might, if you pleased, reject that Bill. There can be no doubt respecting these two positions. The noble Earl thinks the Commons have not done wisely in putting £22,000,000 of revenue in one Bill. I differ from him in that opinion. If the House of Commons had sent up the taxes piecemeal, and your Lordships had rejected some and accepted others, there would have been complete confusion in the financial arrangements of the year. The noble Earl said that his observations should be prospective; he did not keep that pledge; but, at the same time, that is clearly the important matter for your Lordships to consider. The question is not what was done by the late Government in 1858, or what was done by Mr. Gladstone in 1859—the real question is, what are your financial prospects at present? I own I have been a good deal surprised, although I have heard something of it out of doors, at the gloomy predictions of noble Lords, and at the very lively apprehensions which they seem to entertain as to the state of our finance. The noble Earl who spoke first on that side of the House (the Earl of Carnarvon), and who I quite admit made a very able speech, was not only afflicted with alarm, but spoke of the moral delinquencies—I think, of the failure in morality—which had been exhibited in the present system of finance.

THE EARL OF CARNARVON

disclaimed having used the expression attributed to him by the noble Earl.

EARL RUSSELL

The noble Earl used the word "morality." What he feared for was the morality of the country. Certainly he did not use the precise phrase "moral delinquency," but he did express his apprehensions for the morality of the country if the Chancellor of the Exchequer should be allowed to pursue his present course. My noble Friend who spoke from the cross benches (Lord Overstone) was exceedingly alarmed at the present state of our finance, and my noble Friend who is now on the cross bench (Earl Grey) was hardly less alarmed. But I cannot avoid asking, what are the symptoms of a country getting into a state of financial embarrassment and political decay? Those symptoms are, I conceive, that the Government goes on with an increasing expenditure and a declining revenue; that it is constantly contracting new debts, and must therefore eventually bring on a financial crisis. What is the case in which we stand at present? The Chancellor of the Exchequer has proposed Estimates for this year which are greatly below those of previous years. They are £1,800,000 below those of last year, and I think £3,500,000, or nearly so, below those of 1860. Therefore you have not an increasing expenditure, as is constantly repeated. We are for ever hearing the phrase, "The expenditure is constantly increasing—where is this to end? If you increase your expenditure every year, what will you arrive at?" Whereas, it was, in fact, a diminishing expenditure. Then, with regard to the state of your revenue. You have a revenue which is fully equal to the demands that are made upon it. My right hon. Friend the Chancellor of the Exchequer has of late years remitted some taxes, and you have heard something of the effect of those remissions; but, at the same time, he imposed other taxes; and the balance between taxes remitted and taxes imposed is £1,090,000 a year, I think, in favour of taxes imposed. There is another security. If you have on one hand a diminishing expenditure, you have on the other an increasing revenue. But that is not all. Are the revenues of the country falling? So far from that, the average of increase of revenue of late years from old sources, from established taxes, has amounted to no less than £900,000 a year. Therefore, in order to meet that with which I shall have to deal presently, a deficit of £3,500,000 in the two past years—[A noble LORD: Five millions]—I state it at £3,500,000, which I hold to be far more accurate, you have £1,950,000 of increased revenue. No one can doubt, that if even you do not reduce your expenditure much below the present rate, yet with an increase of nearly £2,000,000 of revenue per annum, you will soon be in a state in which you can more than pay off all the debt which has been created. So that, so far from the present state of our finance justifying the gloomy apprehensions which have been entertained, I hold that it is a state of finance which may cause anxiety, because the expenditure is very large, and the revenue is very large, but that there is in it nothing to cause the least gloom or apprehension as to the future. Then comes the question raised by my noble Friend on the cross-bench (Earl Grey)—Ought you, under these circumstances, to have during recent years provided a considerable increase of revenue? My noble Friend says that you ought to have taken security against a deficit. I ask, how is that security to be provided? In 1819 the House of Commons voted that there ought to be £5,000,000 of surplus for the purpose of providing a sinking fund. But that did not go on for many years. Nor was it unreasonable or unnatural that that should be so; because I cannot think it unwise that the country and the House of Commons will not agree to provide a large sum for the purpose of a sinking fund, or to pay off past debts, as long as they have enough to do to provide for the demands of the year. That has been to a great extent the cause of those Votes which are made a reproach against my right hon. Friend the present Chancellor of the Exchequer, but on account of which I do not reproach the Chancellors of the Exchequer of former Governments. Now, let us see what took place? In raising the sums for the Russian war, Mr. Gladstone proposed that certain Exchequer bonds should be issued, which, in order to prevent the accumulation of debt, should be paid off at certain times. Sir George Lewis, who succeeded him as Chancellor of the Exchequer, proposed the establishment of a sinking fund, to pay off the debt contracted during that war. Mr. Disraeli came into office in 1858. He found a deficit before him; and the way in which he disposed of that deficit was to sweep away the obligation to pay the Exchequer bonds of Mr. Gladstone, and the sinking fund of Sir George Lewis. He swept away those two means of paying the debt which former Chancellors of the Exchequer had provided. I heard his statement in the House of Commons, and I thought he made a very wise provision. I never thought of reproaching him for taking that course. I believe the country does not like that process which was formerly resorted to, that hocus pocus of paying off debt with one hand, while you were contracting it with the other. Notwithstanding what the noble Earl said about retrospection, this debate has turned very much upon what has been done in former years. The noble Earl seemed possessed with the notion that the country is going to ruin, in consequence of the measures which have been adopted in former years; and the Chancellor of the Exchequer has been charged with having taken the course of a spendthrift—it has been said, "So reck-less has been the course which you have been pursuing, that you have taken the malt credits." What were the malt credits? The malt credits were sums due by certain persons to the State on account of taxes, and what Mr. Gladstone did was to say to those persons, "Pay up what you owe." When a private person incurs an expenditure of £1,000, and has a debtor who owes him £1,000, it does not seem to him to be at all a spendthrift course to say, "I will go to my debtor and obtain from him the means of making this payment." But on the part of the Chancellor of the Exchequer such a course seems to be thought utterly reckless. No doubt, measures have been adopted by the Government which have led to an increase of debt; but the circumstances which have occurred during these years have been unprecedented, and such as could not have been foreseen. The first event which occurred was the China war. The noble Earl opposite (the Earl of Derby) had given those extraordinary orders to the commander of our fleet in China, that he was to go to the mouth of the Peiho with an imposing force. He did not tell him to go in a peaceable manner; he did not tell him to make war; but he placed him in that extraordinary position that he could hardly avoid fighting, without submitting to an imputation upon the gallantry of the officers and men whom he commanded. Four days after we came into office, those extraordinary orders produced the conflict at the Peiho, with a loss of between four hundred and five hundred men, killed and wounded, in that unfortunate and ill-managed expedition. We had to provide for extraordinary measures, in order to vindicate the honour of the country, and secure peace with China. Is there any one who will blame us for having taken that course? Is there any one who will blame the Chancellor of the Exchequer for not having foreseen exactly what result those extraordinary, and I think most unwise, orders of the late Government would produce? I think it was impossible that any budget should have been framed with a foresight of such consequences. Then it happened last year, long after my right hon. Friend had produced his budget, that an occurrence took place which made it necessary for the Government to send forces to Canada, to take care of Her Majesty's possessions there. Would any one have thought the Government blameless if they had declined to take that course?

THE EARL OF DERBY

Did I rightly understand the noble Earl to say that it was we who ordered an imposing demonstration to be made at the mouth of the Peiho? The noble Earl is much mistaken. It was our predecessors; and when we came into office, we found the expedition at the mouth of the Peiho.

THE EARL OF MALMESBURY

I must deny that my instructions to Mr. Bruce were such as were likely to lead to a collision with the Chinese.

EARL RUSSELL

The Earl of Elgin had gone up the Peiho. The former Go- vernment had given instructions to the Earl of Elgin to go up the Peiho. He went up. He overcame the little resistance that was made, and signed the treaty of Tien-tsin. A question afterwards arose with regard to the ratification of the treaty. The noble Earl opposite and his Government were of opinion that an imposing force should be sent to the mouth of the Peiho to accompany Mr. Bruce, who was afterwards to go peaceably up that river. I have always thought those were very imprudent directions, but it was not our business to criticise them when the task devolved upon us of defending the honour of the country; and till this moment I have never expressed any censure upon them. With regard to another great head of expenditure during the course of the past year, I am sure every one would have blamed the Government if it had not sent sufficient force to Canada at the time when hostilities might have broken out, though nobody could very well have foreseen that an American captain would have acted, as his own Government thought, in so outrageous and indefensible a manner as the commander of the ship that boarded the Trent. These are things that would defeat any calculations, and the Chancellor of the Exchequer, I think, would have come with a very ill grace before the House of Commons if he had said, as my noble Friend on the cross benches seemed to think he ought to have done—The state of Europe is very much perplexed, a war is going on in America, and no man can say what may be the consequences; give me £2,000,000 of taxes in order that I may be able to meet any emergency. The House of Commons might say—Produce the evidence of danger, show us something which requires this increase of taxation; but, till that is done, we will not give to your vague apprehensions of danger taxes which will diminish the resources of the people. My noble Friend on the cross benches (Lord Overstone) said something with regard to our commercial interests, and wished to take credit for some predictions which he formerly uttered. But I can assure him that the facts which he states never occurred. My noble Friend seems to imagine that the French Government were anxious to establish a system of free trade, that they would have at once diminished the duties on our manufactures without any treaty. Now, I have heard from persons in official as well as unofficial stations that the Emperor of the French would have been quite unable to make such a change. The sagacity and knowledge of commercial principles possessed by the Emperor of the French enabled him to see that it would be a great advantage to France if the duties on English produce and English manufactures could be reduced. But the protected interests were so strong in France that they would have defeated any attempts that could have been made by means of a legislative decree. He therefore resorted to the course of a treaty with this country, and the Ambassador of the French and Mr. Cobden, who was sent to France, stated their belief, that if we made great reductions in the wine duties, and also certain other reductions, we might obtain the admission of our manufactures into France, but otherwise we should totally fail in that object. That was done, and the results of the treaty have been stated by my noble Friend. I believe Mr. Cobden, who went to negotiate that treaty, and who persuaded the French Government to reduce the duties from 30 per cent to 20, 15, and in some cases 10 per cent, is entitled to the gratitude of this country for uniting the two nations by those commercial bonds which tend so much to their mutual benefit. The noble Earl who spoke last (the Earl of Derby) touched on a topic which he thought it necessary to introduce, and on which I confess, after hearing his explanation, my doubts are much greater than ever. I had understood, with some of my noble Friends, that there had been a question of "bloated armaments."

THE EARL OF DERBY

I beg to say that I did not introduce the subject; it was introduced and enlarged upon by both the noble Dukes opposite.

EARL RUSSELL

The noble Earl is quite right; the subject was introduced by the noble Duke, and in following him he gave an explanation of what the term was intended to convey. But I was about to state that, as I understood, the phrase of bloated armaments applied to this country; and. that according to the argument, those bloated armaments were to be traced to the foreign policy of this country, which had made those armaments a necessity. We had only to change our foreign policy and we entirely got rid of the necessity for keeping them up. "Bloated armaments!" Why there is condemnation in the very phrase. The noble Earl now changes the argument, and says the phrase applied to other countries. [The Earl of DERBY: Hear, hear!] Well, that may be so. But I think the House requires from the leader of the great party of which the right hon. Gentleman the late Chancellor of the Exchequer is the organ in the other House, something more definite than the observations which he has delivered tonight. He says it is impossible for him to judge, from want of information, whether the defence and security of the country require that amount of military force which is now kept on foot; and yet he is perfectly sure that there may be some reduction effected in those armaments. He does not know what the requirements of the country are; he does not know what amount of force has actually been furnished, but yet he feels sure that some reduction may be made.

THE EARL OF DERBY

I beg the noble Earl will not misrepresent my argument. I said I had not the information which would enable me to form a judgment, and therefore that I should be sorry to call on your Lordships to affirm categorically that there was room for retrenchment, my own firm impression being that there is room for retrenchment, though I am unable to point to the exact items capable of reduction.

EARL RUSSELL

If the noble Earl has not information sufficient to form an opinion, why should be entertain an impression that the Estimates are excessive? Why should be not rather think that they are just in accordance with the requirements of the country, for he admits the necessity of providing adequately for its defence? It does, I confess, appear to me as if the noble Earl, not choosing to commit himself to a definite affirmation that reduction can be practised, yet wishes to hold out to those who are firmly convinced that great reductions can be made a shadowy hope that he would be the man to carry them into effect. I must, however, advert shortly to an assertion which I understood to be made elsewhere, though the noble Earl has not touched upon it to-night—namely, that it is our foreign policy which imposes the necessity for large Estimates upon the country. As the person in the first place responsible for that policy, I should feel it a very great charge and a heavy accusation, if I had done anything as the organ of the Government to make it necessary that the people should bear burdens from which otherwise they would be exempt. But I am convinced that the policy which the present Government has followed has been one which, far from intending to increase armaments, has tended to keep them within moderate bounds. The policy has been, in the first place, one of non-intervention in the domestic affairs of other countries. Can any one say that is an aggressive policy; or that, if we had proposed to interfere either on behalf of the sovereigns, or of the nations which deposed those sovereigns, we should not have been more likely to involve ourselves in war, or at all events in preparation for war, than we have been while carefully refusing to interfere in the concerns of those countries. The other principle which I have kept steadily in view is, that we should always encourage the independence of other countries; that it is for the advantage of Europe and for the advantage of the world that each independent nation should preserve its own state, its own privileges, and its own position. But that, again, is not a principle that tends to war; it is one that tends to peace, and to the preservation of the rights of every nation by other countries. I think the noble Earl who began the debate, and the noble Earl who spoke before me, have totally failed in showing that there is any danger in the present state of our finance. I believe that finance is in a sound condition, and even if you have no surplus, that it is not wise to impose taxes without necessity. With regard to the defence of the country, I believe that we have done no more than what is necessary; but at the same time I do not mean to say, that when it can be judiciously done, expenditure from time to time ought not to be reduced. Her Majesty's Government will be happy when the time comes that those reductions can be safely made, and after the defences of the country have been secured every opportunity for reduction will be eagerly embraced.

Motion agreed to.

Bill read 3^* accordingly, and passed.

House adjourned at half-past Ten o'clock, to Monday next, half-past Eleven o'clock.