SECOND READING.

HC Deb 11 April 1878 vol 239 cc1181-90

Order for Second Reading read.

Motion made, and Question proposed, "That the Bill be now read a second time."—(Mr. Raikes.)

SIR CHARLES W. DILKE moved— That this House regrets that it should be proposed to raise that portion of the Ways and Means of the year which is to be met out of indirect taxation by increasing the tobacco duties, which are already so high as to cause an enormous amount of smuggling, and so assessed as that the tobacco commonly consumed by the poor is taxed at 500 per cent upon its value, and that commonly consumed by the rich at not more than 5 per cent. The proposals which he had placed upon the Paper did not contemplate a debate upon the question as to whether the Chancellor of the Exchequer had proposed too large, or not sufficiently large, an amount of indirect, compared with direct, taxation. That was a question wholly apart from the subject which he had raised. In the course of that evening, they had heard it said by the right hon. Gentleman the Member for the City of London (Mr. Goschen), that too large an amount had been thrown upon direct, and too small an amount upon indirect, taxation. He (Sir Charles W. Dilke) did not propose to go into that subject, or discuss the question whether the amount of taxation which the working classes paid rendered it unnecessary or necessary to throw a larger amount upon them. What he said in his Resolution was, that, as a certain proportion of the Revenue of the year had to be obtained out of indirect taxation, the Government had decided to increase the duties on tobacco. Now, in the few remarks he was going to make, he would prove to the House that which he had stated in his Resolution—namely, that there was nothing which was the subject of duty that was so largely smuggled into this country as was tobacco. The smuggling, under the present high tobacco duties, was of so large a scale as to induce the Commissioners of Revenue, in their annual Reports to Parliament, to state that it was perfectly enormous in amount. They had stated that 17,000 lbs. weight of tobacco, which was seized in a single year, was a trifling quantity, and did not in the least represent the total amount smuggled annually. Therefore, the quantity smuggled must be very large indeed. He need hardly point out to the House, that if there were so large an amount of smuggling with the present duties, anything which tended to raise them must lead to an increase of smuggling. Not only was the duty evaded on tobacco coming from Hamburg, Belgium, and the Dutch ports, but there was also a very large amount of half-innocent smuggling by persons coming from Jersey and other places where tobacco was very cheap, and who brought with them a certain quantity for their own consumption—there being no idea in the minds of those persons of defrauding the Revenue. While reminding hon. Members that the amount of smuggling of tobacco was enormous at the present time, he would venture to say that the main portion of his case was with regard to the extraordinary nature of the tobacco tax, as compared with the value of the articles upon which it was raised. He had stated in his Resolution that it ranged from 5 to 500 per cent; but it was fully from 2 per cent to 1,200 or 1,400 per cent. He could name a gentleman who frequently smoked cigars upon which the duty was not 2 per cent. He had investigated cases in which the duty was not 2 per cent, but 5 per cent was a common charge indeed; whereas upon cheap tobacco it was as much as 1,200 or 1,400 per cent. Therefore, he thought that 500 per cent, which he had named, was a moderate figure at which to take it. While speaking on the point of duty, he might incidentally ask the attention of the Chancellor of the Exchequer to a point raised some years ago. In 1863 there were very long debates upon this question, and his friend, Mr. Ayrton, now no longer a Member of that House, made a very elaborate speech upon the tobacco duties, and proposed a Resolution in which he was partially supported by the present Chancellor of the Exchequer. The right hon. Gentleman did not support the statements made by Mr. Ayrton in his speeches; but he did support him so far as the proposal for an investigation was concerned. Up to 1863 the duties were heavier than they were now. As regarded foreign and Continental made cigars—he was not speaking of Havannahs or Manillas—the duties were of a prohibitive kind, and the result was to prohibit the importation of those cigars. But a great change was made in 1863 by the right hon. Gentleman who was now Member for Greenwich (Mr. Gladstone). His proposals were opposed by Mr. Ayrton, and partially opposed by the present Chancellor of the Exchequer, and that in the interests of the manfacturers of cigars in England. Mr. Ayrton tried to show that the trade of the manufacturers of cigars in England would be destroyed if these proposals were passed. But the effect of the changes which were carried out had been to cause a large importation of Continental made cigars. The importation of Continental cigars had increased from almost nothing at all in 1863 to 7,000,000 in 1870, and at the present time it was from 30,000,000 to 36,000,000 every year. Now, these cigars were imported upon a scale of duty which was carefully adjusted by the right hon. Gentleman the Member for Greenwich, the duties being on unmanufactured tobacco 3s. 2d., and on cigars 5s., a difference of 1s. 10d. These duties were carefully arrived at, after much consideration, as being the right amount to be charged to keep the English manufacturer on fair terms with the foreigner. But if the both duties were raised by 4d., as was now proposed by the Chancellor of the Exchequer, although the difference would still be 1s. 10d., the difference of proportion would be changed, and that was the matter to which he asked the attention of the right hon. Gentleman. He asked him, quite apart from his Resolution, how it was that he proposed to raise both duties by the same amount? The manufacturers of cigars in England complained that at present they had to pay for the offal, which meant the stalk, or the waste occurring in the process of manufacture; and, at the existing rates of duty, they were only just able to compete with the foreigner. Therefore, why were the rates, which were so carefully laid down in 1863, to be changed now, and in the way proposed? The difference between the duty of 3s. 6d. a-lb. on unmanufactured cigars and 5s. 4d. on cigars was, no doubt, still 1s. 10d., as arranged in 1863; but, taking the percentage under the present proposals, it would make a difference between 58 per cent and 52½ per cent as under the old rates, this being really 5½ per cent against the English manufacturer, and in favour of the Continental manufacturer. This would seriously damage, if not destroy, the manufacture of cigars in England. Upon that he would ask why it was proposed to increase all the duties by 4d., instead of having a proportionate increase? He would go further, and say that whatever extra charges ought to be thrown on indirect taxation, it could not be worse raised than by increasing the tobacco duties—in the first place, because they were already so immensely high as to cause an enormous amount of smuggling; and, in the second place, because they were so adjusted, as stated in his Resolution, that 5 per cent was paid on the dearer article and 500 on the cheap.

MR. MUNDELLA

seconded the Motion, and desired to bear his testimony as to what had been stated by the hon. Member for Chelsea, regarding the incidence of the tax. First, it would affect the English manufacturer. The right hon. Gentleman must know that 4d. on the lb. levied on cigars was a great disadvantage to the English manufacturer, who, by the present proposals, would have to pay the same amount upon the raw material from which he made his cigars. There was waste to begin with of from 20 to 35 per cent in the process of manufacture; so that by the present proposals the English manufacturer would have to pay the same duty on 35 per cent of waste as the Continental manufacturer paid on the real article. So that in every way it was handicapping the English manufacturer as against his foreign competitor, and that was a state of things which he did not want to see. Now, as to the incidence of this tax on the poor. The day after the right hon. Gentleman announced his intention to increase the duty, he had a letter from one of his constituents, saying that tobacco had been increased in price ½d. per ounce. Therefore, the retailer was charging an increase of 8d. per lb., although the Chancellor of the Exchequer had only raised the duty by 4d. It was quite true that there were certain lower classes of tobacco on which nearly 1,000 per cent was charged, so that the working man who bought a single 1d. worth of tobacco would pay a much heavier tax upon that 1d. worth than the gentleman who smoked his 1s. cigar. That was really not a fair state of things, and it was neither equitable nor desirable that it should continue to exist. On the imports of foreign cigars there could be no difficulty on the part of the right hon. Gentleman raising the duty so as to give the English manufacturer a fair chance of competing against the foreign makers. The cigar trade was a large and growing trade. No doubt, recent legislation had tended rather to repress that trade and make it as difficult as possible to compete with the foreigner; and if the English manufacturer was to be handicapped in this way by having to pay the same duty on the raw material, in which there was 35 per cent of waste, as the foreigner paid on his manufactured article, all chance of competition was gone. Therefore, he seconded the Resolution of his hon. Friend, and trusted the Chancellor of the Exchequer would see some means of fairly adjusting these taxes.

Amendment proposed, To leave out from the word "That" to the end of the Question, in order to add the words "this House regrets that it should be proposed to raise that portion of the Ways and Means of the year which is to be met out of indirect taxation by increasing the Tobacco Duties, which are already so high as to cause an enormous amount of smuggling, and so assessed as that the Tobacco commonly consumed by the poor is taxed at 500 per cent upon its value, and that commonly consumed by the rich at not more than 5 per cent,"—(Sir Charles W. Dilke,) —instead thereof.

Question proposed, "That the words proposed to be left out stand part of the Question."

MR. WHITWELL

desired to say a word on the inequalities of the tax. Tobacco, now taxed 3s. 2d. per lb., would, by the increase of 4d., have an additional percentage on the value of the tobacco of 100 per cent, while ordinary cigars, costing 4s. or 5s. per 100, would only be increased 6¾ per cent. To increase the duty by 6d. all round on the 4d., 6d., or 1s. tobacco, and to only charge the same on tobacco which varied from 5s. to 8s. in value, made such a discriminate tax upon the tobacco used by the working man, that if the hon. Baronet the Member for Chelsea divided the House on his Resolution, he would support him.

MR. GORST

hoped some arrangement might be made to prevent the injustice which would fall on the manufacturers of cigars in England if the suggestions of the Budget were adopted. For many years the English trade had found it almost impossible to compete with the foreigner; and if the manufacturers were to be handicapped in the way proposed by the Chancellor of the Exchequer, it would prevent their competing at all. It was actually proposed to make them pay the same amount on 35 per cent of waste as the foreigner would have to pay on the manufactured article. If the proposals of the Chancellor of the Exchequer were carried out, they would cause the extinction of the cigar trade in England.

SIR RICHARD WALLACE rose to correct a statement made a few days ago by the hon. Baronet the Member for Chelsea, who had said that the tobacco generally used in France, and known by the name of caporal, was sold at 6d. per lb., whereas the real price of it was 6fr. 25c., which was equivalent to 5s. in English money. The only tobacco sold at 6d. per lb. was of a very inferior quality, and was called tabac de cantine, and was sold only at that price to soldiers and sailors on active service; and some hon. Members had underrated the amount brought in by the Tobacco Tax in France for the year 1872. The amount received from that source had been £8,000,000; and he had been informed that that amount had since been increased upon.

MR. ORR-EWING

thought the objection to the tax brought by the hon. Baronet the Member for Chelsea (Sir Charles W. Dilke) was not tenable. Great smokers usually bought their tobacco by the pound.

MR. DILLWYN

complained, that the tax would fall more heavily on the poor than on the rich, because the lower kinds of tobacco were taxed as heavily as the higher.

MR. SAMUDA

did not agree with all the objections raised to the tax; but still, he thought that it would place the English manufacturer of cigars in a worse position. He hoped the Chancellor of the Exchequer would modify his proposals on this point.

MR. FAWCETT

said, that from numerous communications he had received, he had no doubt that the British manufacturers of cigars would be greatly injured by the new tax. With regard to the question of direct and indirect taxation, which had been raised—according to the figures given by his hon. Friend (Sir Charles W. Dilke), the lower qualities of tobacco would be taxed at 100 or 200 times more than the expensive cigar smoked by the rich. The objection of his hon. Friend, therefore, was that that particular substance or commodity should be chosen for the increase of duty which was distinguished, above all others, for the inequality of taxation unconnected with indirect taxation. Turning to another subject mentioned in the debate, he wished it to be distinctly understood that he did not at all object to the amount of the additional taxation which the Chancellor of the Exchequer de manded. Instead of that amount being too large, he thought it too small; for he could not resist the fact that all this additional taxation was for national purposes, and had been sanctioned by the majority of Parliament; which, he was bound to assume, represented the majority of the nation. Being demanded by the nation, it ought, in his opinion, to be paid by the nation. The chief objection he had to the proposals of the Chancellor of the Exchequer was, that they did not meet this principle. One-half of those who did not pay Income Tax did not smoke, and the consequence was, that to a national expenditure, demanded by the nation, nearly one-half of the nation would not contribute one single 6d. Thus, one of the great safeguards in favour of economy would be removed.

MR. H. SAMUELSON

thought that the tobacco manufacturer would, in order to recoup himself for the additional tax, be induced to resort more than before to adulteration, in the shape of the addition of a larger quantity of water. He could not help thinking that the Chancellor of the Exchequer had selected tobacco for taxation with the object of testing the sincerity of some of his warlike supporters in the lower ranks, who would thus have brought home to them the price they would have to pay for their ardour.

MR. D. DAVIES

, replying to an observation of another hon. Member (Mr. Orr-Ewing), said, he had never in his life seen a working man buy a pound of tobacco at a time. Usually an ounce only was bought at a time. He (Mr. Davies) thought that a 6d. tax would have been better than a 4d.

MAJOR NOLAN

agreed with the opinion that the tax would fall unfairly on the working classes. Already these classes paid more than their fair share of the public burdens. Besides, the tax was unfair, because those who did not smoke, would escape from contributing to the expenditure of the country.

THE CHANCELLOR OF THE EXCHEQUER

thought that a great part of the arguments they had just heard were scarcely consistent with what had been the staple objection urged to the Government proposals during the earlier part of the evening. In the earlier part of the evening they had been told that the Government were wrong in raising so large a portion of the taxation from the Income Tax, for that thus the higher and middle classes would be unfairly burdened. Now, the tobacco tax was condemned; because, under the tax, the poorer classes would be thereby too heavily charged. The remedy proposed for the inequality of the tobacco tax—that cigars should be taxed higher than unmanufactured tobacco—would leave the inequality still. The difference between the price of an Havannah cigar and cigars smoked among the lower classes was very great indeed; and so the inequality would remain, unless they resorted to the plan of an ad valorem duty. Objection had been taken to the selection by the Government of the particular sum of 4d.; but that figure had appeared to them a reasonable one, as it would come to an imposition of ¼d. an ounce, and so would not press very heavily. As to the other question—that precaution should be taken to distinguish between the manufactured cigar and the unmanufactured leaves—it was, of course, right that there should be a difference between the two, in order to put English on the same footing as foreign manufacturers. He very much doubted, however, whether a case had been made out against the present tax of 4d. per lb. as dealing unfairly with the native manufacturer. The way the case put itself to him was thus. An English manufacturer purchased, in the first place, 100 1bs. of unmanufactured tobacco. He then had to make as many cigars as he could out of it, and out of the residue a certain portion could be made into snuff; and upon that, if he chose to export it, he got a drawback. Were he not to get this drawback, he would certainly be, owing to the quantity of refuse in the tobacco, at a loss in his competition with the foreign manufacturer. It was necessary that the tax should be fixed sufficiently high to compensate the English manufacturer for the loss which he sustained in having paid duty on the refuse, and whatever else of the tobacco he had bought proved useless. The result was, that, after a great deal of very careful inquiry, he arrived at the conclusion that the increases should be as they now stood. He had gone over these calculations again, and had examined them with a Committee of experts, to ascertain the effect which the addition of 4d. per lb. would have upon the position of the English manufacturer. It appeared to him that the difference would be infinitesimal, and would not amount to more than ¾d. per lb. That would be too small to make it desirable to put a higher duty on cigars; for, if the duty upon them were raised more in proportion, a protection would be given to the English over the foreign manufacturer. His impression was, that, upon the whole, the English manufacturer was fully protected at present, and that it would be unwise to raise the duty upon cigars. But he would continue to investigate the question, as he did not wish to do any injustice; and if he found, upon further inquiry, that an alteration ought to be made, he would propose it. He thought, however, there would be great difficulty in introducing any new system. The House would, he hoped, maintain the decision at which it arrived the other night, for he was convinced that an increase of the tobacco duty was the best means of doing what they felt they ought to do—namely, to raise a certain amount of the increased expenditure by indirect taxation. As he had before stated, there was great doubt whether an addition to the spirit duties would be financially successful; and that fact, combined with the other reasons he had mentioned, would be sufficient justification for adopting the tax proposed. He thought their proposal was moderate and reasonable, and the best they could suggest under the circumstances.

Question put.

The House divided:—Ayes 164; Noes 31: Majority 133.—(Div. List, No. 102.)

Main Question put, and agreed to.

Bill read a second time, and committed for Monday next.