§ I come next to tobacco. Tobacco has done well during the past year, but it is already heavily taxed, and I am advised that to attempt to raise the whole of the sum I require from tobacco alone would involve so great an increase in the duty as would seriously check consumption and destroy the purposes for which it was imposed. I do not, therefore, propose to make any general alteration in the rates of the tobacco duty. But there are some changes and adjustments which I think it would be desirable to introduce. The tobacco duties are an interesting study. They comprise a series of rates on the raw material and on various manufactured products, and, although the rates have been several times varied, the proportion which these rates now bear to one another is practically the same as that at which it was fixed by Mr. Gladstone in 1863. There is no doubt what was his object at that time. He intended to throw open the tobacco trade to foreign competition as other trades had then recently been thrown open; and he explained that he allowed the difference between the rates on manufactured and on raw tobacco as a full and fair equivalent for all charges—both the direct and the indirect charges—to which the British manufacturer was subject, and "in order that the labourers who were employed in the manufacture, amongst whom were women and children, might be well looked after." What has been the result? In the first place. I think it is 563 demonstrable that there was an error in the calculations on which Mr. Gladstone worked. He himself, indeed, subsequently corrected the error, but he did not alter the rates which he had proposed, and the result is that the home manufacturer, making for home consumption, has a larger measure of—shall I say compensation?—than Mr. Gladstone had intended. The anomalies do not end here. There are separate rates for cigars, cigarettes, cavendish, snuff, and other manufactured tobaccos, and for raw leaf.
§ The basis of the whole is the duty on raw leaf, which at the time of Mr. Gladstone's changes was fixed at 3s. 1 4–5d., soon after raised to 3s. 2d., and which now stands at 3s. I do not propose to alter that rate. But the principle of the scale being that there should be a rate for raw tobacco, with a correlative but increased rate for each form of the manufactured article, it has always been an anomaly that the first process of manufacture or treatment which the leaf goes through is marked by no corresponding rate in our scale. That process is the process of stemming or stripping the leaf—that is, separating the less valuable stalk from the more valuable portion of the leaf—and the omission to mark that stage by a separate rate of duty, coupled with the unsatisfactory condition of our drawbacks, as to which I will say something later, has resulted in the transference of a great portion of this work from this country to other places. In the five years, 1860–1864, only 43 per cent. of the tobacco that entered this country-was stripped before importation. Last year no less than 77 per cent. had undergone this process before it was brought into this country. That is to say that by our Customs regulations we have actually driven employment away from our shores. Now, I do not know what degree of acceptance Mr. Gladstone's | proviso that we should allow something. in order to enable workpeople engaged in the trade to receive fair treatment would meet in this Committee to-day, but I imagine that nowhere would there be any desire that our Customs duties should go out of their way to penalise and discourage the employment of British labour and to force manufacturers, contrary to 564 the natural course of trade, to carry on part of their processes of manufacture elsewhere. But if this failure to have a separate rata for tobacco which has undergone this process of treatment has been injurious to labour, it is also injurious to the revenue. In the first place, the revenue loses the additional sum which it might gain if this part of our tobacco duties were framed in accordance with the rest of them. In the second place, the stalk is the moistest part of the leaf; and, as the duty is assessed upon the total weight, including any natural moisture of the leaf, it is decidedly to the disadvantage of the revenue to discourage the importation of the stalk. It is clear that the stripped leaf has a definite and distinct value differing from that which the whole leaf enjoys. It is not right that this separate value, this process of manufacture which the leaf has undergone, should not, like all other processes of manufacture which add to the value, be marked on our scale and find its reflection in the appropriate way. I propose, therefore, to remove this anomaly. I leave the rate on the raw leaf at 3s., and I introduce a new rate of 3s. 3d. on tobacco stripped before importation—that is. a rate of 3d. in excess of the rate on the raw material.
§ Next, Sir, I come to cigars. In 1898, when my right hon. friend the Member for West Bristol reduced the duties on tobacco generally, he left the cigar duty unchanged. He treated foreign cigars as an article of luxury which might very fairly pay a luxury duty in excess of that paid on tobacco. The luxury tax at that time was 6d., and was exactly comparable to the special tax which Lord Goschen, when Chancellor of the Exchequer, imposed upon sparkling wines in addition to the ordinary wine duty calculated on the alcoholic strength, to which they were also subject. I do not think that any complaint has been made of the luxury duty of 6d. When the duties were further altered in 190') that 6d. wa3 increased to 8d. I now propose to add an additional 6d.to the duty on foreign cigars, and, at the same time, I propose to put a similar luxury tax of 1s. on foreign cigarettes. These rates, I ought to have said, arc per lb. in both cases. There 565 are two other changes which I must explain to the Committee as briefly as I can. In 1887 the limit of moisture allowed in tobacco was fixed at 35 per cent. In 1898, in connection with the reduction of the duties, it was reduced to 30 per cent. Well, Sir, in practice it has been found that it is not possible, especially for the smaller manufacturers, to work up to the full limit allowed them for fear that they may accidentally exceed it in some portion of their production, and so incur the very heavy penalties which are contingent upon such an offence. Practically, with a nominal limit of 30 per cent., they can very little exceed 28 per cent. I think it has been proved that it is desirable, as it certainly was the intention that in certain kinds of tobacco they should actually be able to work up to the full limit of 30 per cent. I propose, therefore, now to raise the moisture limit to 32 per cent. in order to give them a little latitude.
§ Lastly, Sir, there is the question of drawbacks on which, also, I must say a few words. It has long been a complaint of the trade that the present rate of drawback is insufficient, unequal, and unfair; and, I think if any hon. Member likes to follow the calculations which were presented to the House in 1863 he will see that that must be so. But since that time there has been a change in the nature of the tobacco imported which aggravates the injustice. The public taste has changed. It now requires a lighter tobacco, which can only be grown on light and sandy soils; and tobacco grown on these soils contains a greater amount of inorganic matter than was the case with the tobacco of old days. The whole subject is very technical, and I will not enter into it in detail now. But I may say that a Joint Committee of the Customs and Inland Revenue authorities has been carefully examining this subject; and they have laid before me proposals which I am prepared substantially to accept, subject to such alterations as are necessitated by the changes in the duty which I have announced to-day. I shall be able to tell the Committee exactly what is proposed before we get to the Second Reading of the Finance Bill. But I may say at once that in place of one rate we shall propose to introduce four or five different 566 rates of drawback; and I am not without hope that one result of this change may be to lead to a considerable increase in our export trade of manufactured tobacco, and more particularly of cigars, especially to our Colonies. I am told that at the present day the Colonies are supplied to a very large extent from Hamburg and from Holland, not in consequence of any superiority of the manufactures of those countries, but because the insufficiency of our drawback acts as a penalty on export. The net result of these changes, after making allowance for the increase in the limit of moisture, will be a gain to the revenue which I estimate will this year amount to £550,000. What the yield will be in future years must of course depend upon the proportion which the importation of stripped leaf bears to whole leaf in each year. I do not myself anticipate any marked or sudden change in this respect, and, if I am right, this change which I propose will continue to give us an additional revenue in future years, whilst, in any case, we shall remove an anomaly and an injustice in our scale of Customs. By these means I obtain an additional revenue of £2,550,000. I still require a sum of something like £2,000,000.