INCOME-TAX.

HC Deb 21 April 1904 vol 133 cc856-911

Motion made, and Question proposed, "That income-tax shall be charged for the year beginning the 6th day of April, 1904. at the rate of one shilling."—(Mr. Chancellor of the Exchequer.)

MR. SYDNEY BUXTON (Tower Hamlets, Poplar)

On a point of order, Sir, I understand that there was an agreement come to last night that there should be a general discussion on this Resolution with regard to the Budget. May we take it that that is so?

* THE CHAIRMAN

Yes; I also understand there was a general agreement come to, and my assent was not withheld. Therefore, I presume that the discussion on the Income-Tax Resolution will be permitted to range over the whole subject of the Budget.

MR. SYDNEY BUXTON

said it seemed to him that there were three points in connection with the Budget, one of which was satisfactory, and the other two, he thought, were unsatisfactory. The satisfactory point was that the Chancellor of the Exchequer had announced his intention of maintaining the Sinking Fund. The unsatisfactory points were, the enormous expenditure for which the Budget provided and the methods by which the right hon. Gentleman proposed to meet the deficiency. Hon. Members particularly objected to the manner in which indirect taxation was being added to, and especially to the proposal to put an additional tax on tea. In making his arrangements for the coming year the Chancellor of the Exchequer had practically two deficiencies to provide for. He had to provide first for a realised deficiency of something like £5,500,000, and he also had to provide for an estimated deficiency in the coming year of £3,500,000, giving together a total deficiency of £9,000,000 for which he had to make provision in the coming year. He proposed to divide the deficiency into two parts. He practically borrowed the whole of the realised deficiency of last year, and he proposed further to meet the expenditure of the coming year by increased taxation. That was perhaps, a matter on which he might be congratulated. He (the speaker) confessed he was not exactly disappointed in finding that the Chancellor of the Exchequer did not intend to provide in any way, or, at any rate, only provided to a very small extent, for the realised deficiency of last year. As a matter of fact, the whole of that deficiency of over £5,000,000 had practically been taken from borrowings, and to that extent, of course, it had been added to the Debt, because the balances were reduced. He confessed it was a serious matter that, in a year in which there was a remission of taxation to the extent of £10,500,000, they should have to go back and borrow a sum of nearly £5,500,000. It was also a serious matter that in the first year in which the Sinking Fund had practically been reconstituted and put on a peace footing they should have to borrow a sum of £5,500,000. That certainly was not a good start for the new Sinking Fund. The right hon. Gentleman, he admitted, proposed to provide for a small portion of the deficiency by carrying over a somewhat larger estimated surplus than was usual. The customary surplus had been exceeded in this case by some £300,000 or £400,000, but he was bound to confess that he thought that in this case the right hon. Gentleman had shown himself somewhat sanguine. He had based his proposal on the supposition that the estimates of revenue for the year would certainly be realised, and he had also acted as though there were not likely to be any Supplementary Estimates during the coming year. The right hon. Gentleman, with the sanguineness of youth, pointed out in his speech several items of our financial and trade position which made them feel that he had put his estimates as high as they ought to be, and at the same time they were driven to the conclusion that he would not obtain the revenue which he had estimated. As regarded the Supplementary Estimates, undoubtedly the right hon. Gentleman had been over-sanguine, because during the last ten years there had not been a single year in which there had not been presented a Supplementary Estimate, and unfortunately these Supplementary Estimates had increased in proportion year by year. The last two years had been productive of the, largest Supplementary Estimates ever known, and he feared that the right hon. Gentleman the Chancellor of the Exchequer would find that his idea that there would be no Supplementary Estimates this year would come to grief. But they were interested more especially in the coming year than in the finances of the past, and he thought it must have come to the country at large as rather a shock that, after two years of peace, and when they might have fairly hoped for a considerable reduction of expenditure, it had been found necessary for the Chancellor of the Exchequer to come down to the House and ask for additional taxes to the extent of £5,000,000. That proved that our financial position was not so sound as it ought to be.

They would, of course, congratulate the Chancellor of the Exchequer on the fact that he had the courage, at all events, to propose sufficient taxation during the coining year to cover his estimated deficit. But then the question arose as to the proportions which should be obtained from direct and indirect taxation respectively. He approved of the proposal in regard to the income-tax, indeed he rather regretted that the right hon. Gentleman had not gone further in that direction. He had, too, no particular objection to the in creased taxation to be placed upon tobacco, but he was bound to say that they would have to consider very carefully in the course of the forthcoming debates one point in regard to that increase, because the additional duty on foreign cigarettes carried with it a certain whiff of protection. The part of the Chancellor of the Exchequer's proposals, however, to which he most strongly objected was that which related to indirect taxation—the proposal to place an additional duty on tea. His objection was that there was too large; a proportion of new indirect taxation as compared with new direct taxation, and that the indirect taxation was likely to prove excessively burdensome in the case of the poorest of the poor. In regard to the income-tax they had the remission of last year for which no one was particularly grateful and which had proved a mistake. Indeed, the right hon. Gentleman the Member for Croydon had himself admitted that he would not have taken 4d. off the income-tax had he anticipated that there would have been a fall in the revenue. He took off, in fact, a penny too much, and had that penny not been taken off he did not think it was likely that the smaller deficiency which would then have arisen would have been provided for by an addition to the duty on tea. Another point which was rather remarkable in connection with the income-tax was that in spite of the addition of a penny to the tax in the current year the burden on the income-tax payer was estimated by the Chancellor of the Exchequer at less for the coming year than it was for the past year. The Chancellor of the Exchequer last year received £30.800,000 from income-tax, and the amount estimated to be received this year from the income-tax payer was only £30,000,000, despite the fact that a penny was to be added to the tax. In regard to the tea duty the right hon. Gentleman had admitted that practically the whole burden would fall upon the consumer, and bearing in mind the fact that wages at the present moment were falling, that employment was scarcer, and that the general outlook was far from satisfactory, he did not think it was an auspicious time to put additional burdens upon the working classes in this way. He hoped that the Departmental Committee which was sitting in regard to the income-tax would enable those who were entitled to abatements to obtain them with greater facility than now, and that it would lead to an extension of the present system of graduation. With reference to the burden of indirect and direct taxation he had no hesitation in saying that he would have preferred to have seen an extra penny put on the income-tax rather than the additional duty of twopence upon tea. He was bound to say that he did not think the Chancellor of the Exchequer in his presentproposals was fairly apportioning the burden between direct and indirect taxation. Last year the duty on corn, representing £2,500,000, was taken off, while a remission of income-tax was made representing £10,500,000, and therefore he thought that indirect taxation this year should centainly have had the lesser addition made to it. Taking the figures for some years past he found that the gross annual burden of indirect taxation had been £61,000,000, while that of direct taxation had been only £57,250,000. The figures for the current year brought up the direct taxation to £59,750,000 and the indirect taxation to £63,500,000. These figures again proved that any change of taxation should have been in the direction of putting the addition on the direct taxation rather than the indirect.

He now came to another aspect of the financial question, and that was the present position of the National Debt and of the Sinking Fund. The Chancellor of the Exchequer had taken some credit to himself for maintaining the Sinking Fund during the present year, but he confessed that he did not himself see that the right hon. Gentleman had any alternative to doing that. It would have been a monstrous thing to have interfered with the Sinking Fund at the present moment when it had only just been restarted. During last year the reduction of the National Debt by the action of the Sinking Fund had not been so satisfactory as had been anticipated. The right hon. Gentleman the Member for Croydon, in introducing his Budget, said he anticipated that in the course of the twelve months the Debt would be reduced by £26,500,000—that was £6,500,000 through the operation of the Sinking Fund, £14,000,000 from the Transvaal, and £6,000,000 from the China Indemnity. Uufortunately, however, that anticipation had entirely failed. The Debt had been reduced by £8,000,000 only and of that sum £3,000,000 had come from the Transvaal and £5,000,000 from the Sinking Fund. He feared that at the present rate of progress the sanguine anticipations of the late Chancellor of the Exchequer with respect to the reduction of the National Debt would not be realised. All this showed that the question of the Sinking Fund required reconsideration. They could not expect the Chancellor of the Exchequer, in a year when indirect taxation bore £5,000,000 more of the burden than direct taxation, to reduce the Debt; but. taking into consideration the foundation on which the right hon. Gentleman the Member for Croydon based his £27,000,000 when Chancellor of the Exchequer, he (Mr. Buxton) thought that when the time arrived when there was a surplus, and reduction could take place, the reduction of the National Debt should have a prominent place in the right hon. Gentleman's consideration. The question of the reduction of the National Debt was very important indeed. The National Debt, before the war, amounted to something like £630,000,000, according to the Chancellor of the Exchequer it now, owing to the borrowings for war and other purposes, amounted to £798,000,000, showing an increase now of £168,000,000.

We had also increased our annual capital expenditure from £4,000,000 at the beginning of the war to £10,000,000 now, and the unfortunate thing about that expenditure was that it was not only the first step that cost. One programme involved another, and it was quite clear that more money would have to be borrowed to carry out the new programme. This added to the capital expenditure every year. It might be necessary expenditure, but it was certainly not remunerative, and he was surprised that the right hon. Gentleman on a previous occasion should have rather turned upon the local authorities and their borrowings. Corporations might make the old reply. "What faults you find in me try to shun." Of the whole of this £10,000,000 there was only £800,000 which could be called remunerative. Then there came a year when the Sinking Fund could not amount to more than £6,000,000, and the Government were going to borrow no less a sum than £10,000,000, so that at the end of the year we should be £4,000,000 to the bad. A good deal had been said about the weakness of Consols, and what the Sinking Fund was going to do to raise the price of them, but he failed to see what £6,000,000 would do if they were going to put £10,000,000 on the market in order to obtain it. He did not expect the right hon. Gentleman to do anything towards reducing the Debt charges in the present year, but he submitted that it was a matter for the consideration of the Committee. It was a very discreditable thing that we should have these enormous annual borrowings for capital expenditure. In the old days the ordinary increase and elasticity of the revenue was sufficient for the ordinary expenditure. Since 1895 there had been an extraordinary elasticity of revenue, something like £26,000,000 a year, and yet that was not sufficient to meet the expenditure of the year. Not only had that amount been taken from revenue, but a sum of £168,000,000 added to the Debt. He was rather sceptical as to whether there would be any saving on the Navy Votes, though that might be the ease with regard to the War Office. He was one of those who thought there ought to be a reduction in the current year's Estimates.

There was one other serious point with regard to the expenditure. For the first time for many years a Chancellor of the Exchequer had risen in this House and made certain suggestions without saying a single word as to economy. Much as he marvelled at the speech of the right hon. Gentleman the other night, he did expect to hear something about economy, but not a single observation did the right hon. Gentleman make with regard to it. The efforts made last year in that direction weren ot great, but such as they were they did tend to reduce the National Debt.

SIR JOHN GORST (Cambridge University)

said that he had heard the Budget statement of the Chancellor of the Exchequer with grave concern. The right hon. Gentleman had admitted a realised deficiency of £5,500,000 and a prospective deficiency of nearly £4,000,000, and yet he had ventured to propose new taxation only to the extent of £4,500,000. Of last year's deficiency £1,500,000 was left entirely unprovided for. But that was not all. In the Sinking Fund we had an unostentatious means of paying off debt, but in that ingenious device represented by the Army and Navy Works Acts, we had a surreptitious means of putting on debt and of increasing the nation's liabilities without the attention of Parliament being specifically drawn to the fact. In spite of the fact that the Sinking Fund was not to be touched, at the end of the year the country would be deeper in debt than it was now. Would the Chancellor of the Exchequer say how much debt would be paid off under the operation of the Sinking Fund, and how much fresh debt would be incurred under the Naval and Military Works Acts? The House ought to seek some prompt, real, and earnest remedy for the very grave and serious position in which the finances of the country now were. What expedient had the Government for making the national income and expenditure balance? He was glad that the Chancellor of the Exchequer had not gone through the commonplace form of urging general economy. Year after year for forty years he had heard speeches recommending generally public economy, but he had never known any of those speeches to do the slightest good. It was no use recommending economy without pointing to some specific part of the public service in which economy might be effected. He would therefore refrain from any general recommendation of economy, and endeavour to direct attention to a particular branch of the public service where he believed economy was possible.

No great reduction could be made in any department of the Civil Service. Small economies could doubtless be effected, but nothing could there be done which would really affect the financial position of the country. The only branch of the Civil Service in which there was a large sum to operate upon was the Education Department, and although he had always said that a great deal of the money voted for education was wasted, what was wanted was not that the amount should be curtailed, but that it should be expended in a more efficient and useful manner. The only branches remaining were the Navy and the Army. Naval expenditure had always been popular, and he did not believe it was practical politics to attempt any great reduction therein. Possibly the Naval Department had been corrupted to some extent by the large expenditure on the Army during the late war, and in consequence had been more than ordinarily extravagant, so that the Chancellor of the Exchequer, by putting pressure on the Naval Department, might be able to secure a reduction of a million or two. But it would be nothing substantial. The one Department of the State in which a real reduction could be made was the Army. We maintained a very extravagant force on a very extravagant scale. We had a volunteer professional Army, and we carried on the citizen defensive Army on the same expensive scale. As compared with other European nations we enjoyed a singular advantage in the matter of preparation for war, in that we had a great British Army kept in India, and a large number of professional soldiers maintained in this country to replace those in India, all at the expense of the Indian revenue. Those men in case of emergency could be diverted from India to any other part of the world. Why should not they be treated as our striking force, and the civilian defensive Army be organised on a cheaper and more economical system? By that means a really substantial reduction in Army expenditure might be secured. By such a revolution in the kind of Army we maintained several millions of money might be saved and the finances of the country brought into a condition of solvency. The time had come when whatever Government was in power must seriously address itself to this question. Expenditure had gone up by leaps and bounds. The burdens imposed were as great as the people could conveniently bear. The increased tea duty would weigh very heavily on many poor people. The income-tax to some meant only the reduction of luxuries, but to a great number the extra penny would touch the actual necessaries of life. The Committee ought not, with a light heart, to impose these taxes, which could be borne only by the exercise of much patriotism and patience, without, as representatives of the people, setting themselves earnestly to work for the purpose of ascertaining the particular branches in which great reductions could be made. The Government could confidently rely on the support of all sections of the House in any attempt to lessen the expenditure of the country.

* MR. RITCHIE (Croydon)

I am sure everyone will agree with my right hon. friend as to the desirability of the Government directing their attention to the reduction of our enormously swollen Estimates. But the hon. Member for Poplar made an extraordinary observation. He upbraided the Chancellor of the Exchequer for not having indulged in the usual sermon on the subject of economy. I should be sorry if it became the practice for Chancellors of the Exchequer, in placing their estimates before the country, to refrain from expressing their own views as to the character and amount of the expenditure, because, although it may not have any immediate effect, I cannot help thinking that a forcible expression of opinion of that kind must have some influence upon those who are responsible for the Estimates. But what the hon. Member said was that it was the interest of the right hon. Gentleman to maintain expenditure. I have my own opinion as to some of the views held by my right hon. friend, but I should be attributing to him very unworthy motives if I suggested that he had any idea of bringing those views into practice by means of unnecessary increases of expenditure.

MR. SYDNEY BUXTON

said he did not intend to cast any reflection in that sense, and he was sorry if his remarks had been so understood.

THE CHANCELLOR OF THE EXCHEQUER (Mr. AUSTEN CHAMBERLAIN,) Worcestershire, E.

My interest in preventing waste is quite as great as that not only of any other Chancellor of the Exchequer, but of any Member in this House.

* MR. RITCHIE

I am sure any such declaration on the part of my right hon. friend is quite unnecessary. He would be unworthy of his high position if it were otherwise. Whatever views he may have on fiscal reform, I am satisfied that the main object of the Chancellor of the Exchequer is to reduce as far as he reasonably and properly can the burdens of the country. When my right hon. friend the Member for Cambridge University promised to point out a certain direction in which economy might be effected, I expected something novel, but I was disappointed. He simply stated what is obvious to all viz., that the main branch of expenditure in which economy ought to and can be effected is that connected with the Army. The economies in other Departments are extremely small as compared with what can be obtained in the expenditure upon the Army. We are obliged at a time of war to increase our forces, but somehow or other it seems impossible, after the emergency is over, to reduce the number of our Army to what it was before. No one expects that this reduction can take place immediately, but I have great hopes, from what has been said on the Front Ministerial Bench, that hon. Members will not be disappointed in the hope and expectation that reductions will be made, and speedily made, in the expenditure upon the Army.

The hon. Member for Poplar made some criticisms, which I have no doubt he will expect me to deal with. He has spoken about the inadequacy of the Sinking Fund. I justify the proposals which I made, as I justified them on more than one occasion last year, when I said that if my expectations were realised, not only would there be a large and substantial Sinking Fund at the end of the last financial year, but in the course of about five years we should have a Sinking Fund enormously greater than ever we did before in proportion to the Debt. As far as my expectation on the 31st of March last is concerned, I do not think it has failed of realisation. The amount I anticipated was £6.600,000, and it actually stands at £6,510,000. [An HON. MEMBER: What about fresh borrowings?] I am not talking about borrowings. The hon. Member opposite was talking about what my expectations were; and the particular point that I take up is the fact that my estimate on the 31st of March has been realised, with the exception of £90,000. That difference is accounted for by the fact that we did not obtain our first contribution from the Transvaal Loan. Is there an hon. Member who would suggest, or attempt to justify the launching of a £10,000,000 loan in the existing state of the money market? We have got something more than the mere obtaining of this money to consider. We have to consider, also, the position which the Transvaal would have occupied in the money market by endeavouring to borrow under the state of things which existed up to quite recently. It would have been most unfortunate if we had been compelled, in order to obtain this money, to go to the market and obtain upon very bad terms the first loan of the Transvaal. That would have been a very bad commencement for the new colony of the Transvaal. Remember what took place between my Budget estimate and the beginning of this year. Consols, which at the time of my Budget were 90, in January last had fallen to 86 and have fallen lower since, although they are much better now. It would have been simply monstrous and ruinous on our part to have attempted to obtain the first contribution from the Transvaal, having regard to the unfortunate change in the money market. It is a mere question of deferring, and I hope, having regard to the greatly improved state of the money market, that the time is not far distant when that loan will be raised, and we shall receive payment. It is a mere question of a few months here or there, and although the result is that we have been deprived of a certain small amount of interest, I am satisfied that all those who understand finance will agree that it would have been folly to put pressure upon the Transvaal to issue that loan. The hon. Member said we had obtained only £3,000,000 instead of the £4,000,000 from the Transvaal which I anticipated. I hope my right hon. friend the Chancellor of the Exchequer will not lose sight of that extra million, but bring pressure to bear upon the Transvaal Government to secure it. With regard to future prospects, it is true that I said if my proposals for the Sinking Fund were adopted and maintained they were sufficient to pay off the National Debt in fifty years, but I never said that the Debt would be paid off. I never anticipated any such millennium. While we are bound to maintain a very large Sinking Fund in proper proportion to the amount of the Debt, we ought not, at a time of high taxation, to make undue calls on the taxpayer in order to obtain an unnecessarily large Sinking Fund. Let us maintain the Sinking Fund at a proportion sufficiently large. The proportion which would be secured on my plan is much greater than any Sinking Fund has attained before, and I have no doubt that the provision I have made is one which is ample.

The hon. Member opposite was very severe upon us in regard to indirect taxation, and asserted in strong and definite language that the indirect taxpayer was being called upon for larger contributions than he ought to make to the taxation, and a much larger contribution than he had made before the war. Let us see how that is. I have no doubt that the hon. Gentleman has added the coal tax to indirect taxation.

MR. SYDNEY BUXTON

Certainly.

* MR. RITCHIE

I maintain that he ought not to have done anything of the kind. If the coal tax has had any effect at all upon the price of coal it has lowered it to the consumer in this country, because if the coal tax reduced our exports the home supply would be proportionately increased. Therefore if the coal tax has had any effect upon the taxpayer it is not the effect which the hon. Gentleman has stated. [An HON. MEMBER: It is indirect taxation.] Are we to understand that the hon. Gentleman does not mean the burden of indirect taxation upon the consumer? The whole argument has been the effect upon the indirect taxpayer and therefore I exclude the coal tax. I assert that it has always been the case that in regard to expenditure for war purposes the burden falls more heavily upon direct taxation. The income-tax is the first tax which is increased and drawn upon for war expenditure, and it has always been considered as a reserve; for war purposes. It is indeed, and has always been so considered, a special implement of war. It has been argued that the indirect taxpayer should not be left in a worse position then he was before the war. Let us compare the Budget estimates on this question rather than the produce of the estimates. I will compare the Budget estimates of 1899–1900 with 1903–4, which include the Budget estimates before the war and after. In 1899–1900 the amount of indirect taxation was £52,597,000, being 52.1 per cent.; the amount of direct taxation in the same year being £48,366,000, or equal to 47.9 per cent. In 1903–4 indirect taxation was £66,090,000, or 50.9 per cent., and direct taxation £63,730,000, or 49.1 per cent. Therefore the direct taxpayer before the war paid 47.9 per cent. and after the war 49.1 per cent., being 1.2 per cent more after the war than before the war. Now let us see how the indirect taxpayer stands. Before the war he paid 52.1, and after the war he has to pay 50.9 per cent., being 1.2 per cent. less. The total yield within the war period of indirect taxation was £14,000,000 less, and the direct taxation yielded a like sum more than in the period of the 1899–1900 Budget. The figures, therefore, of 1902–3 indicate that on direct taxation the taxpayer is entitled to special relief to a very considerable extent yet in order to bring it down to the level at which the proportionate relief of direct and indirect taxation ought to begin to operate. So far as the criticisms of the hon. Gentleman opposite is concerned, I think he will find, if he examines into the figures, that they were hardly justified by what had taken place, and that the indirect taxpayer is now in a more favourable position compared with the direct taxpayer than he was before the war.

Some rather severe criticisms were made on the estimates for last year, and I think it is only due to those who advised me in the matter of the estimates which they submitted to me, and which I submitted to the House, to say that they were based on thoroughly sound and careful considerations. I hope the Committee will pardon me if I, for a few moments, detain them on that particular subject. It is only fair to those who have always been so extremely careful, and, as a rule, so very correct, that I should make the statement I have now to make. The Customs estimates for the year, as everyone knows, are based first of all on the payments into the Exchequer of the previous year. In 1902–3 there were certain circumstances which greatly affected our calculations for the following year. The revenue for 1902–3 was affected by anticipations and back-wardisations to the extent, it was estimated, of no less than £1,600,000, and there was also an allowance which had to be made for pre-Budget contracts for coal amounting to £100,000. The natural growth of the Customs revenue, instead of being taken for the year 1903–4 at the percentage of growth at which it was usually taken, 2½ per cent., was only taken at the moderate percentage of 1½ per cent. And so with regard to the Excise. The revenue from spirits came in very freely up to 31st December, 1902. It was adversely affected in the March quarter by delay in the clearances in the hope that the war 6d. might be taken off, and this, in the opinion of the Excise authorities, justified an increase in the spirit duty of £450,000. Beer had shown an increase for 1901–2 in three out of the four quarters of the year. It was only deficient in the September quarter, and that was attributed to the cold summer of 1902. This justified an increase of £150,000. The estimate for the death duties last year was £555,000 less than for the year 1902–3, and the reason for the reduction in the estimate was that there had been a special effort made in 1902–3 to get in outstanding duties. The death duties would unquestionably have realised the sum anticipated if it had not been for the very large fall in Consols, which dropped from 90 to 85–6, and in other securities. Stamps were estimated for at a small increase of £200.000. In my opinion that estimate was absolutely justified. We hoped there would be some revival in trade, but that hope was not realised. So that a consideration of all the circumstances, most of which took place in the last half of the financial year rather than throughout the whole of the year, could not have been foreseen and allowed for in the estimates. I said, on my responsibility, that I do not think either the Customs or the Inland Revenue authorities, on whose advice the Chancellor of the Exchequer must mainly depend, are to blame for being too sanguine. The after effects of the war might have had more allowance made for thorn, but it is very easy for us to be wise after the event. I am sure that, in bearing testimony to the extraordinary correctness, as a rule, of the estimates which are made by both the Customs and Excise authorities, I am only saying that with which every one who has any knowledge of the manner in which these estimates are framed will agree, that it is not wonderful that occasionally a miscalculation is made and that it is quite extraordinary that the calculations are so good as they are, as a rule. I am sure the Chancellor of the Exchequer, in presenting to the Committee the proposals he has made, ha6 acted upon sound and wise principles.

* SIR BRAMPTON GURDON (Norfolk, N.)

said he had on previous occasions urged the Chancellor of the Exchequer to place an additional tax on cigars, and he welcomed the proposal now made to tax cigarettes. He sincerely wished, however, that the right hon. Gentleman had not confined the tax to foreign cigarettes, not only on account of the flavour of protection which was thus given to it, but because the whole House wished to stop the pernicious practice of small boys smoking cheap cigarettes. The Chancellor of the Exchequer had suggested that these cigarettes already paid duty on the tobacco. He himself had very great doubt whether cigarettes which were sold at ten a penny paid any duty on tobacco at all. He did not believe that they: were made of proper tobacco, but of cigar ends which were picked up in the streets. He hoped the Chancellor of the Exchequer would remember that the tobacco revenue was a very delicate one, and that there was a point at which smuggling began. He could not make any objection to the extra penny on income-tax, because he was one of those who last year thought that the Chancellor of the Exchequer's estimates were over-sanguine and that the-penny ought never to have been taken off. He very much regretted that an additional duty had been laid on tea. As he believed tea was almost invariably sold in bond, he could not conceive that it passed the wit of the Inland Revenue to devise some means by which an ad valorem duty might be placed on this commodity. That would do away with one of the great objections to the tax. He commended the suggestion to the consideration of the Chancellor of the Exchequer. He thanked the right hon. Gentleman for having included in his statement a reference to the expenditure in connection with loans for works. He believed that system was initiated in the time of Lord Palmerston and that it was a very evil form of finance. They had already been told that what had been paid off the Sinking Fund had been counterbalanced by large loans. He hoped the Public Accounts Committee would have an opportunity of calling attention to this matter, and that the House would give it careful consideration, because he thought these loans were dealt with in a way which was altogether illusory, and that they deceived themselves as to paying off debt while they deceived the country as to the total expenditure of the nation. He believed the proper way to pay off debt was to take for that purpose the surpluses over expenditure. When he was a young man at the Treasury the Chancellor of the Exchequer always estimated income at the minimum, and, that being so, he generally got a surplus, which was applied to the reduction of debt.

The right hon. Gentleman the Member for Croydon had said with reference to the Transvaal payment that it was a mere question of deferring it. He could not allow for a moment that it was a matter of deferring it. If the Transvaal had paid it this year they would have been able to use it very advantageously in paying off debt. This was a question of taking money out of our pocket and putting it in to the pocket of the Transvaal, but as he never expected that we should receive a halfpenny of that money it did not make much difference one way or the other. It had always been said that if there were a great European war we would come out of it all right, because we held the purse. But that no longer held true. He found that since the year 1900 rates and taxes together had increased 50 per cent. He knew that country people were taxed and rated so high that they had hardly any income left. It followed that while it was impossible to raise more from taxation, more money could not be raised by way of loan except on almost impossible terms. It was no use for hon. Members to talk of economy in the abstract, while each was, on almost every subject, in favour of more expenditure affecting his own constituency. Hon. Members insisted that public servants should have £1 a week wages, while probably they were paying their own men only 15s. a week. He hoped that if the reaction in favour of economy spoken of by the right hon. Member for West Bristol were to come, it would come early.

MR. ELLIOT (Durham)

said they had all listened the other day to a singularly lucid statement from the Chancellor of the Exchequer—nothing could have been more lucid. Yet most credit was due to the right hon. Gentleman, he thought, not for the financial genius he showed, but for the morality. He praised the right hon. Gentleman's morals even more highly than he praised his financial genius; for after all, when the income-tax stood at 11d. there was no great difficulty in adding a 1d. and making it 1s., and when the tea duty stood at 6d., it required no singular ingenuity to add 2d. and ask the House of Commons to agree to an 8d. tax. Nothing could be simpler, and he was one of those who thought the Budget was all the better for being simple. What they wanted was not so much ingenuity as simple, straightforward honesty. The right hon. Gentleman had no doubt a difficult situation to deal with, and it was his duty to explain why it was the bill the country had to pay was such a heavy one, and why the revenue was so much smaller than was anticipated. The right hon. Gentleman did his best, but he felt that the speech was remarkable not alone for what it contained but for what it omitted. In the Budget Bill they found the collective fiscal mind of the Government at the present moment, and it had been usual for the Chancellor of the Exchequer, when he introduced a Budget Bill, to give some sort of oration as to the fiscal position in which the country found itself and as to remedies—to advise the country, in fact, as to the position in which it stood, and as to the direction in which the country ought to look to better its position. He found nothing of the kind either in the Bill or in the speech of the Chancellor of the Exchequer. In the Bill they had the right to look for the fiscal conclusions of the Government, and in the introductory speech they had the right to look for the reasons upon which those conclusions were based. Well, the Bill was a good free-trade Bill; it resembled in that respect the Bill of last year. The hon. Gentleman opposite had said, not inappropriately, that with regard to the tobacco duties there was a certain whiff of protection, but that ' whiff was so slight that the sternest of them could hardly be excited, it was a very small thin edge of the wedge. But was it right, when they considered the fiscal proposals of the Government and the Chancellor of the Exchequer, to exclude altogether from their attention views which had been put before the country of another kind?

There was the corn tax, for instance. There was a reference to that tax in the right hon. Gentleman's speech, but it was a very passing allusion. That tax had been advocated lately, and had been made the basis of a great agitation throughout the country it had been supported by one statesman of pre-eminent power and standing; it had had the most cordial and hearty support of the hon. Member for Sleaford; and it was notorious that the policy of renewing the corn tax had been adopted by Conservative caucus after caucus, and by a large number of Members on that side of the House. Well, the Chancellor of the Exchequer said nothing about the corn duty, and the Resolutions which were to be the foundation of the Budget Hill said nothing. The corn duty had gone and it had gone for ever, Whatever might have been thought possible when it was suggested as a mere registration duty, and fixed at a low sum which should not be altered—and he thought something was to be said for it then—it now occupied a new position in the eyes of the country, because it was the acknowledged first step which was to lead to a system of barefaced protection. His right hon. friend the Member for Sleaford, who was a keen and zealous supporter of the views which had been pressed forward in the country, and which supporters of the Government had professed their willingness to support, would, he hoped, frankly state the disappointment he and his friends must feel at the fact that neither in the speech of the Chancellor of the Exchequer, nor in the Resolutions, was there an atom of support given to the proposals which had been advocated so powerfully throughout the country. The position was a most extraordinary one. That House, after all, was the place where fscal proposals were best understood, considered, and debated, and it was the proper arena, if protectionism was to be resorted to, to increase the profits of our home producers.

He marked with interest that the Chancellor of the Exchequer, in tracing the causes of the diminished revenue, while he rightly referred to unfortunate seasons and to the depression in the City and its effect on stamps, death duties, and so forth, did not refer to that cause which in the country had been advanced as one of the principal causes of our sufferings—namely, the unlimited extent to which commodities had been poured into this country untaxed, which, it was said was ruining our native industries. Again, in that respect the free-traders had scored. It seemed that to arguments which were used in the country over and over again, although repeatedly shown up, the atmosphere of the House of Commons was somewhat uncongenial. Indeed, it was not an atmosphere, apparently, in which a protectionist found it very easy to breathe. The atmosphere was not likely to be any different six months or a year hence. The country was looking into these questions for itself, the different classes were looking into them, including the great working class. It was easy to understand that particular industries or trades might thrive by the exclusion of competition, but that was only the first and superficial view which struck the mind, and the public mind had now got beyond that. They were looking to the question how far, not this or that employment, but the community as a whole would be injured or benefited by these proposals to tax our imports. These arguments had been used again and again in this country, and that being so, he would like to hear these views expounded in the House of Commons.

* THE CHAIRMAN

The hon. Gentleman is not now discussing any of the matters contained in any of the Resolutions before the Committee. He is dealing with proposals that may or may not be contained in the Budget a year or two years hence. That opens up a very wide question, and I do not know how I am to restrict debate to the present general financial position of the country if the hon. Gentleman is going to roam at large over the possible fiscal system of the future.

MR. ELLIOT

said the introduction of the Budget had always been an occasion on which the Chancellor of the Exchequer not only took stock of the existing financial position of the country, but looked forward into the future. That was why he ventured to deal with the fiscal question. He thought, therefore, the Budget and the Budget speech were most important because they disclosed what was in truth the fiscal mind of His Majesty's Government. The Chancellor of the Exchequer had done well in very difficult circumstances, and had taken the right course in making his Budget simple and straightforward. Nothing was to be gained by making general complaint of extravagance. There was a good deal of language used in the House which seemed to indicate that a man felt he was a true economist by complaining when the time came for him to pay the bill. Years ago economy had real and staunch allies in the House of Commons. But his experience at the Treasury, short as it had been, strongly enforced the opinion which he had already held that the House of Commons was itself the cause of extravagance. Members who talked most about the necessity for economy were the very men who proposed or supported popular schemes for increasing the wages of Government servants or feeding school children out of public funds. These were admirable objects, and had a great deal to recommend them, but the continual enforcing of claims of this kind did not tend to economy. It seemed to be generally agreed that there should be a reduction in Army expenditure. That expenditure was undoubtedly very large, and he should be delighted if a sufficient and efficient Army were to be obtained at a decreased cost. But it was not so long ago since we had found that our Army was not at all too large or too powerful, and as he was not one of those economists who when the boot pinched said that the dangers of the South African War were unexampled and were not likely to arise again, he hoped that if what was called the standing strength of the Army were reduced it would still remain an Army capable of a rapid and wide increase of strength in times of emergency. He congratulated the Government mainly upon this, that at a period of great trouble, when fiscal doubts and difficulties were seething among politicians, they had come forward with an honest, straightforward free-trade Budget.

MR. BUOADHURST (Leicester)

said he was simply astonished that afternoon to hear the statement of the right hon. Gentleman the Member for Croydon as to the proportion of the remission of taxation between the direct taxpayer and the indirect taxpayer. The right hon. Gentleman made a speech at Croydon recently, in which he showed the direct opposite, and urged that the indirect taxpayer, by the remission, was something like £7,000,000 to the bad as against the direct taxpayer. With regard to the Committee appointed to deal with further adjustments and exemptions from income-tax, the ex-Chancellor made a promise last year that there should be a Committee appointed to inquire amongst other things as to further abatements of taxation on incomes under £400, £500, and £700. When the Chancellor of the Exchequer was making his speech the other day, he understood that that would be a part of the reference to the Committee which he was about to appoint. But the ex-Chancellor of the Exchequer also made a further remark of great importance to that class of the community who paid income-tax on their little incomes in the form of dividend deduction, made before the money reached them. People with an income of £10 or £20 a year from that source had sums deducted from their cheques, and they had no ready and direct means of obtaining the repayment.

MR. AUSTEN CHAMBERLAIN

said this matter was mentioned by him the other day as one of the points included in the reference made to the Committee.

MR. BROADHURST

was very pleased that this was so. As a further suggestion he said he would like to see some scheme initiated by which any person who was clearly entitled to that restitution should be able to obtain a form at the nearest post office, which would be easily intelligible to the meanest understanding, and to swear before the nearest magistrates the truth of his declaration, and post it in a supplied envelope direct to the Inland Revenue Commissioners, and thus get the money back speedily, and without much trouble. The present system was most cumbrous and technical, and there were very few but professional people who could really master the difficulties of filling in the forms before the regular declaration could be made for the return of the money. He understood the Chancellor to state that there was no precautionary measure against the issue of loans applied for by a local authority. On inquiry the right hon. Gentleman would find that precautions in this respect did exist. The Local Government Board made special inquiries and ascertained the feeling of the ratepayers of the locality before they gave their sanction. But he could not see why large places, such as Manchester. Glasgow and Birmingham were to be exempt from the suggested precautions.

MR. AUSTEN CHAMBERLAIN

I said I was considering whether the granting of loans by the Public Works Loan Board that was using the credit of the State might not be further restricted—not restricted to the big towns, but to the smaller places which had less means of their own to secure credit.

MR. BROADHURST

considered the large authorities were in as much danger in this matter as the smaller authorities. Birmingham, Manchester, and Glasgow, could go into the open market and raise their own loans.

MR. AUSTEN CHAMBERLAIN

That is what I want them to do.

MR. BROADHURST

said it was impossible for a town of 25,000 people to go into the market and raise a loan, and yet these small places stood as much in need of aid from the Public Works Loan Commissioners as large places. The money these small places spent generally went in procuring a better water supply and open spaces, and this was for the welfare and betterment of the State because it improved the health of the people and increased their wage-earning capacity. He thought he read in the Chancellor's warning, an indirect attack upon municipal trading, which was such a bugbear to a certain class of professional people. If municipal trading was to be attacked let it be done openly, and let it apply in equal proportion to all communities, whether large or small. He thought the taxation on cigars and cigarettes would be received with considerable favour. He presented a petition some time since to the Chancellor asking him to deal with cigars as he had done. He did not endorse the prayer of the petition, but it was signed largely and influentially, and he certainly could not undertake to vote against the Chancellor's proposals. But he doubted whether the tax on stripped leaf tobacco was wise. He had received a telegram from an expert in the tobacco trade in Leicester pointing out that the sixpenny Havanna cigar paid only 15 per cent. duty on its cost, whereas shag tobacco paid 600 per cent. Obviously, this was unjust to the labourer who smoked shag tobacco. Some years ago The hon. Member for West Bristol promised to consider some scheme for taxing tobacco and tea ad valorem and certainly it was an unjust tax when levied on weight, as it was now. The argument that applied to the taxation of the better class of tobacco equally applied to tea. Although the case presented by the Irish representatives might be quite true, he doubted whether there were not thousands of agricultural labourers in this country and casual workers in our streets who relied upon tea as an article of consumption and an encouragement to appetite, as did the Irish labourers. Tea and tobacco should be taxed according to their value, and if that were done, a considerable cause of justifiable complaint with regard to those two taxes would be removed. He hoped that the Chancellor of the Exchequer, after this Budget had been passed, would go thoroughly into these subjects, and that next year he would bring his genius and originality to bear upon them.

* MR. GIBSON BOWLES (Lynn Regis)

as an earnest student of finance, congratulated the Chancellor of the Exchequer both on the manner and on the matter of his speech. The Budget had the great merit of being simple—probably the old man who smoked, and the old woman who drank tea, would say it was not only simple but brutal. BUT it was simple, and also orthodox. There was no trace of scientific taxation about it, for the little matter of the tobacco stem was so trifling as to be unworthy of attention. The right hon. Gentleman had had a difficult task to perform, for he had a realised deficit to meet from last year. He might remind his right hon. friend the Member for Croydon that last year he warned him that he was overestimating his revenue. So it had turned out. though it might be urged in excuse that it was becoming increasingly difficult to estimate revenue with the accuracy of former years—in the first place because the revenue was larger and the margin of error therefore greater, and, in the second place, because there were certain dangerously high taxes which in case of a fall in consumption or in price of securities meant very large differences. The difficulties of the Chancellor of the Exchequer had been further added to by the practice of introducing large Supplementary Estimates in which this Government had been a great and regular offender. Those Supplementary Estimates for the expired year were no less than £7,800,000, although by good luck they had been relieved to the extent of £3,500,000—relieved, not really but only as regards the nominal sum voted by the accidental excess of the Appropriations in aid. There was no way by which a realised deficit could be dealt with, except that of taking it out of the balances or of adding it to Debt. The right hon. Gentleman appeared to have adopted both methods. As far as he understood the position, there was a balance from overborrowing for the late war of £2,888,000, which enabled the Chancellor of the Exchequer to advance £3,000,000 to the Transvaal and the Orange River Colony. But that was borrowed money, and when repaid by the colonies it still remained borrowed money, and being overborrowed should find its way back to the Debt. The right hon. Gentleman further proposed to replete his balances by £1,000,000 derived from unclaimed dividends. With regard to the remaining £1,500,000 of deficit, the Chancellor of the Exchequer expected to get £730,000 surplus on his Budget, and the remaining £770,000 he left unprovided for. Now the £3,000,000 was admittedly Debt money, and he contended that so also was the £1,000,000 from unclaimed dividends. The nature of the Funded Debt was that the State bound itself to pay nothing except the interest; they were not bound to return the principal to the creditor; all they undertook was to pay him a perpetual annuity of a certain amount. Therefore, if by negligence or death the Exchequer were relieved from the payments of interest, that relief was a relief of, and should go as part of, the Debt. He submitted therefore, that if £1,000,000 were taken from unclaimed dividends—a perfectly fair thing to do—a corresponding amount of debt should be extinguished; the Exchequer had no right to treat that money as revenue. As to whether or not the whole of the diminution in Treasury balances was debt he was not so sure. In a sense, if one's balance at the bank increased one's debt diminished, because there was a larger asset against it, and vice versa. But only in a sense. A Treasury balance was a most strange, evanescent, and uncertain thing; it had no certain foundation; it received additions from the most diverse sources; it was depleted for the most diverse purposes; it was always varying; and sometimes, quite accidentally, and, so to speak, momentarily, as at this moment, it was £1.000,000 or £2,000,000 short of what it should be. Therefore, he thought. it was hardly sound finance to say that every addition to the balance represented a diminution of the debt, or that every diminution of the balance meant an increase of the debt. It could not be denied, however, that £4,000,000 of the £5,500,000 of realised deficit were provided for by intercepting moneys due to the Debt, and therefore by what was practically an increase of the Debt, that £730 000 of it was provided for by expectation of the present year's revenue, and that a sum of £770,000 was left unprovided for in any way whatever. Moreover, he would remind the right hon. Gentleman that the balances were really too low at present. In 1898 they amounted to £10,900,000. in 1899 to £9,000,000, in 1900 to £3,500,000, in 1901 to £5,500,000, in 1902 to £8,500,000, and in 1903 to £6,600,000, but now they were only £4,200,000. Therefore, considering the large increase of revenue and expenditure and the consequent larger area over which the balances had to be used, the amount was too low.

Then there was the prospective deficit. The Exchequer expenditure of £142,800,000, with which the Chancellor naturally dealt, was not the whole of the expenditure. There was in addition the expenditure for local taxation intercepted and not paid into the Exchequer, or out of it. amounting to £10,000,000, and another £10,000,000 for Appropriations in aid, both of which items were really expenditure. The real total expenditure was therefore in all £162,800,000. But he would take the right hon. Gentleman's figure of £142,800,000. That left him with an estimated deficit for 1904–5 of £3,800,000. He congratulated the Chancellor of the Exchequer on having resisted the temptation to suspend the Sinking Fund, though he held that that was not enough, and that it ought to be increased. And now as to the new taxes. The addition of a penny to the income-tax was one for which almost everybody must have been prepared. The income-tax payer was a patient, burden-bearing creature, who would not say anything, so there would be no trouble on that score. It was true that he, wrote letters, but they need not be answered. He had mentioned the income-tax mainly for the purpose of protesting against a shocking doctrine and fallacy suggested by the right hon. Gentleman the Member for West Bristol, who had suggested that the income-tax might be graduated. Graduation was impossible, and both the right hon. Gentleman and the Chancellor of the, Exchequer knew it. One enormous advantage of the tax was that, with regard to the greater part of it, it practically levied itself, because it was deducted from all dividends before they were paid. But a graduated income-tax could not be so levied. For that would involve different rates for different incomes instead of all deductions being made at one rate as at present. It would be impossible to continue the present system of deduction if before the tax was levied the income of the investor had to be ascertained. He was prepared, moreover, to contend that it would be grossly unjust to graduate the income-tax, if for no other reason than this, that the estate, duties were professedly and avowedly put on because of the impracticability of such a proposal. The graduation was brought in at the man's death, because it could not be arranged during his life. Further, such graduation would be contrary to public policy. In his opinion the income-tax should be generalised, and it could then be reduced. At present, in consequence of exemptions and abatements, less than one-half of the incomes of the country were rated. If all were taxed the income-tax rate might be halved and produce the same revenue. The exemption for, or abatement on, some incomes meant shifting the burden on to the others. He did not believe any taxpayers in the country wished that; he believed the poor as well as the rich were ready to pay their fair share. It was merely a question of devising a convenient method of levy to reconcile all to it. Moreover, a generalised income-tax would enable us to relieve those who paid it of other and far heavier burdens. For the income-tax cost very little to levy, whereas other taxes cost a great deal, and the cost of levy had to be added to the tax and paid by the taxpayer. The increase of 30 per cent. on the tea duty brought that duty up to over 100 per cent. ad valorem, and that, would no doubt fall hardly on the old woman who drank tea. He thought tobacco was a more risky venture on the part of the Chancellor of the Exchequer, and he was not sure that before he had done with this Budget he might not find it advisable to modify the proposals he had made with regard to it. He must here ask a question as to a matter which seemed to have escaped attention. The Resolution proposed dealt only with the permanent duty imposed by the Act of 1898, but there were temporary duties imposed by the Finance Act of 1900. Did the right hon. Gentleman intend to leave the additional duties he had imposed as temporary and annual duties, or did he propose to make them permanent. If he intended to make them permanent he should object, because he had the strongest objections to putting in the hands of the Government as permanent duties those duties which had hitherto been only temporary. The average value of cigars per lb. brought into this country was 11½d., and a duty of 6s. on that amounted to 600 per cent. Therefore, whenever an average man smoked an average cigar, he would in future have practically to give six cigars to the Chancellor of the Exchequer. That was dangerously high, and must act as an encouragement to the smuggler. Smuggling was still regarded by many as a sport, and to this day many called it by its old smuggling name of free trade. After a political meeting in the New Forest near the Beaulieu River, an ancient labourer said to him. "I'm glad you are for free trade, sir. I have been for free trade all my life—many's the cargo of tubs of French brandy I've run up this very river."

And now as to the Debt and the Sinking Fund. The right hon. Gentleman the Member for Croydon said truly that the whole of the amount by which the Debt was reduced this year was £6,500,000, which very nearly approached to his estimate of £6,600,000, but he forgot that the only part he was responsible for, or could claim any merit for, was that which was represented by the new Sinking Fund, and that was less than £1,500,000. That was the only part in which the right hon. Gentleman the Member for Croydon had had any share. The present fixed charge was £27,000,000, which meant about 3½ per cent. of the dead weight debt of £760,000,000, but that was not enough, and it should be at least 3¾ per cent., or £28,500,000, or even 4 per cent., which would make the fixed charge over £30,000,000. Out of this fixed charge they had to pay, before they got their new Sinking Fund, out of the fixed charge of £27,000,000, the interest on the permanent debt, the floating debt, the terminable annuities and the management of the Debt, and that left but little for the new Sinking Fund. The. Debt was so increased, and was so much increasing, and the expenditure and liabilities of the State were also increasing so fast, that he earnestly pressed upon the Committee the necessity of reconsidering the fixed charge which was originally £28,000,000, out which had been pared down by successive Chancellors of the Exchequer to £27,000,000. He hoped they would shortly increase that charge to at least £28,000,000.

Then there were what were called charges on capital account, but really there was no such thing as capital account. These so-called capital charges were debt-unfunded or floating debt and hiving their own sinking fund, but still debt. It meant that whenever they wanted to buy telephones or telegraphs, to set up a railway in Uganda, new railway works, or even to build a land registry office they set up a new debt. In 1895 that debt only amounted to £3,000,000, but last year it had increased to £32,000,000. This year another £10,000,000 was to be added, and it would now reach £42,000,000. That was an enormous sum practically added to the National Debt, added, he admitted, under more favourable circumstances which would extinguish this portion in a comparatively short period, but nevertheless it was a very serious addition to the public Debt. He was sorry the Chancellor of the Exchequer had to avow-that he intended to make so large an addition as £10,000,000 to what he considered was a particularly obnoxious form of debt. It pledged them to the particular works for which it was raised. It was true that there was a statement put before them every year, but if they once agreed to the Bills which embodied these £42,000,000 they could not touch the subject again or reduce the expenditure, or even get proper accounts, and that was why he said that this was a most obnoxious form of debt.

Now he came to the moral, and he urged the Committee not to agree to any more of these Bills. When the House ance sanctioned expenditure, either by these Bills or by voting Estimates, the mischief was done. After that, complaint was idle. It was no use blaming the Chancellor of the Exchequer, who was only the victim, who must find the money. All they could then do was to criticise his method of dealing with the Sinking Fund or his method of raising the money, but it was absurd to complain as though the right hon. Gentleman himself was responsible. The Prime Minister was responsible, his policy was responsible, above all, the House itself was responsible. Their financial position was gradually becoming more serious. There was the public Debt, and this other debt of £42,000,000, and there were other liabilities coming upon them in the near future, besides the local debt. All this meant increased taxation, and increased local rates which were becoming almost unbearable. He sympathised with his hon. friend who said it was useless to make speeches on financial purity, and then when the Estimates came up to vote for them. There was only one way in which the House could assert itself, and that was by voting against Loans for Works, by voting against Vote A for the Army, which was the Vote for the men, and by voting against the men for the Navy and the shipbuilding programme when the House thought this course was justifiable. If the House did not think that this course was justifiable, it was useless to complain of the Chancellor of the Exchequer when he called upon them to pay the bills. This House had largely lost control of the Estimates through the new Rules, the effect of which was that the Government did not mind how long they took over a set of Estimates, because they knew that what were left undiscussed would be voted automatically under the guillotine. The result was that there was no longer that wholesome method by which he used to make secret bargains with the Chancellor of the Excheqer to let him have certain Votes if he would grant him certain privileges. They were now bound hand and foot to the Government of the day, and very often under the guillotine some Votes which urgently required discussion and the control of the House were closured.

He had made certain suggestions with a view in some degree to restore the control of the House over the Estimates, and which would be, he thought, of public advantage. One of those suggestions was that there should be an Estimates Committee; another, that a day should be appointed for discussion of the Public Accounts Committee Report. Something was needed. The most audacious schemes were afoot. It had been seriously suggested that there should be placed at the disposal of the Government of the day, whoever they might be, £10,000,000 for the Army, and £10,000,000 for the Navy, to be spent without any reference whatever to Parliament. A more revolutionary proposal he had never heard of, nor one more certain to lead in the direction of a military despotism. His right hon. friend below the Gangway had given the House some extremely good advice with regard to the Estimates on which reductions could be made. The right hon. Gentleman thought that the expenditure on the Army might be reduced. He himself was convinced from conversations he had had with experts that many millions might be saved on the Army. He was thoroughly convinced that £2,000,000 could be saved on the Navy, and he would be very much surprised if a similar amount could not be saved on the Civil Service. He asked the Committee to be prepared to go into these details, to attend when the Estimates were being discussed, and not to leave the discussion of them to a few in an almost empty House. If they thought a case was made out against any particular expenditure they should not be afraid to vote for a reduction. Strict, detailed, jealous economy was necessary. Parsimony had now become a duty, Magnum est vectigal parsimonia. Some Members of the Committee might think that to reduce Estimates presented by the Government was to vote a want of confidence in the Government. No doubt there had been squeamish Governments, who. if their Estimates were reduced by the Committee, would take that as implying want of confidence, and would resign. But this Government were not so tender as that. They accepted a reduction of £100 on a Vote the other day, and if other reductions were carried he had no doubt they would accept them. Whether or not, the time had come when the House should begin to redeem its own faults. The departmental representatives seemed to get more extravagant as they went along, and the only way to check expenditure was for Members to come to the House, examine the Estimates, debate them, move reductions, and carry them if they were justified. Once that course was taken it would be a warning to the Government to keep down the Estimates—and they would do it.

* MR. RUNCIMAN (Dewsbury)

said he was sure that if the Government carried out the recommendations of the previous speaker there would be in many Departments of State great reductions. The hon. Member particularly called their attention to the Works Acts of which he complained. During the last few sessions those Works Acts had been introduced so late in the session that it was impossible to have full discussions on them. The Chancellor of the Exchequer had been commended because in his Budget speech he did not preach economy. Well, the objection they took on the Opposition side of the House was that the Government neither preached nor practised economy. The only solution suggested was that they should broaden the basis of taxation, and not that they should adopt greater economy. Only a few days before the Chancellor asked what they were prepared to give up on the Army? The Government had already given up much on the Army, and he hoped it would give up a great deal more. By giving up the Army Corps hon. Members hoped they were giving up much on the Army. Then the Chancellor of the Exchequer remarked, "Think of reducing the naval expenditure !" Everyone knew that what, on the Opposition side, they had complained of was that the Admiralty had not given them a definite statement as to the standard to which they were working. The expenditure must be relative, just as naval strength was relative: but that seemed to be lost sight of by these who had brought forward the Estimates. If they had dropped one battleship out of the Estimates it would have diminished the expenditure next year, and the year following, not only as to the cost of the battleship but of the additional expenses which must cluster around all additions to the Fleet. He thought this year's programme should not have been greater than that of last year, but that the pace should have been slackened rather than hastened.

He would turn to the Budget itself. The hon. Member for King's Lynn in explaining the way in which the deficit of last year had been disposed of had, he thought, misapprehended the way in which the £5,500,000 had been met. His reading of the case was that the £5,500,000 had been met first by £2,880,000 from previously issued loans, and also by the £3,000,000 returned from South Africa. He would turn particularly to the extent to which the Chancellor of the Exchequer stated that the Budget Debt and Funded Debt had been wiped off during last year. He said in his statement that £5,449,000 had been wiped off during the past twelve months; but the amount spent on capital works was £7,300,000. They found that so far from having reduced the total Debt by £5,000,000 they were somethinglike£1,000,000 to the bad. They must make allowances for the amount wiped off in the Annuities. He thought they mightassume roughly that the amount wiped off, in respect of the Works Acts on capital account, amounted to something like £1,000,000. So, on the whole, so far as the total debt of the country went, they were at least £1,000,000 to the bad. Various calculations were made in Committee from time to time with regard to our total debt, and the Chancellor of the Exchequer naturally put the best construction on the position But would he kindly clear up a point on which there was some obscurity. He stated in the course of his speech that our liability in respect of sums borrowed for works of permanent improvement had increased in the course of the year by £4,298,000. He desired to ask him whether that was an increase over and above the net amount arrived at after the deduction had been made for capital returned in respect of the Works Acts?

MR. AUSTEN CHAMBERLAIN

That is the net amount by which the liability has been reduced. Perhaps the hon. Member will put a Question.

* MR. RUNCIMAN

said he would put two Questions now. By how much did the right hon. Gentleman expect the total Debt to decrease in the coming year, excluding the operation of the special Acts? By how much did he expert that the operations of these Acts would in crease OUT liabilities during the coming year? It was only by getting clear answers to these questions that they would be likely to arrive at any accurate estimate as to what the liabilities would be in 1904–5 One could not review the financial position of the country without seeing that at present the Sinking Fund was entirely Illusory. We were now in a little worse position than last year. The right hon. Gentleman the Member for Croydon had given his version of the anticipations of last year in dealing with the Sinking Fund, which certainly explained, although it did not excuse the estimates then made. The right hon. Gentleman looked forward with pleasure to the time when £9,000,000 would be our Sinking Fund. We were nominally £1,500,000 short of that still, and he was afraid that we should be still that amount short of it five years hence. The £10,000,000, which the Chancellor of the Exchequer expected from the mine-owners, and which was to save us £300,000 a year, had not yet arrived, and no man knew when the two further instalments of £10,000,000 each would be received. By the time the £30,000,000 were repaid. we should have a Sinking Fund of close on £9,000,000, which, he Took it, was the standard up ot which we ought to work. In the period 1883–1887 the national income was £1,400,000,000 per annum. In the period 1898–1902 it was just under £2,000,000,000. Rut the national expenditure had increased by 40 per cent. not over a period of twenty years, but of eight years. The total expenditure in 1903–4 was £146,961,000. To that had to be added expenditure under the Works Act £7,305,000, less £1,100,000, repayment of capital charged in Votes—or in all £6,205,000, giving the actual total expenditure for the year £153,166,000. Of that amount, only £141,266,000 was paid for by taxation, and something approaching £12,000,000 of last year's expenditure was paid for by loans. With regard to direct and indirect taxation, what he would like to see would be a system of taxation which would press less hardly upon those of smaller incomes, whether they came within the purview of the Income-Tax Commissioners or not. That was certainly a principle which was not borne out by the new taxation. As to tea, the taxation on that commodity had already shown a very marked effect on its consumption. The consumption per head of the population in 1900 was 6.07 lbs.; in 1901, 6.16 lbs.; in 1902, 6.06 lbs.; and in this last year 602 lbs.; and if the tendency to diminution continued, the new taxation would largely reduce [the productiveness of the duty. Remembering that the national income had increased in twenty years by just under 40 per cent., and the national expenditure had increased by 40 per cent., not over a period of twenty years, but of eight years, no one who considered the enormous amount which was taken out of the national income at the present time could view the great increase in taxation with anything but alarm. The only one cure for this state of things was not any broadening of the basis of taxation or attempting to adopt illusory methods of tapping the foreigner, but the reduction of an expenditure which at present passed the bounds of prudence.

MR. AUSTEN CHAMBERLAIN

The discussion in which we have been engaged has roamed over a large number of points, but has been mainly confined to the broader aspects of national finance. It is true that some hon. Members have alluded in passing to individual proposals in connection with taxation, just as the hon. Member who has resumed his seat spoke about the tea duty. I will only say in passing, in reference to the tea duty, that I cannot imagine a more deceptive method of dealing with statistics, or one more fatal to the truth, than to take the clearances of a dutiable article like tea in an individual year such as those which we have just gone through, when there have been great disturbances owing to anticipations of an increased duty or of a decreased duty and treat them as if they were the measure of the actual consumption of tea.

* MR. RUNCIMAN

said that what he alluded to was the general tendency to decline since the new taxation was placed on tea.

MR. AUSTEN CHAMBERLAIN

And what I was alluding to was the figures which the hon. Gentleman used in order to prove that. I do not wish to go into that at the present time. I think it would be more desirable that we should discuss that when we come to the tea duty rather than to interpolate details into a general discussion. I only venture to say that the method he has employed is extremely deceptive, and that if he will take the averages over a series of years he will find that it does not accurately represent the gross consumption of tea. The hon. Member for Poplar, who opened the discussion, joined issue at once with the proposals which I have laid before the House, and was frank enough to state to the Committee what he would have done if he had been in my place. What was the hon. Gentleman's proposal? It was that all the deficit was to be put on the income-tax payer, except the tobacco duty, to which the hon. Member was good enough to promise his support. Let me say a word or two on this question of direct and indirect taxation. The hon. Gentleman who has just sat down was perfectly right in saying that there is no scientific basis for the division of our taxation into exactly such and such a percentage of direct and such and such a percentage of indirect taxation. We have been accustomed to compare the growth of direct and indirect taxation. Upon the whole they have grown hand in hand, though direct taxation has steadily increased over a series of years at a faster rate than indirect taxation. The hon. Member for Poplar would have me this year place the whole burden of the new taxation upon the direct taxpayer. How hard it is for any of us to be consistent on fiscal questions. Let me remind the Committee of what the hon. Gentleman himself said only a year ago. "We are all agreed on this side of the House," he said, "that, when you have a war expenditure of this sort, and more especially an increased peace expenditure, we must extend and alter our system of taxation, and must raise a certain proportion of that taxation not only from direct, but from indirect taxation." It would not be consistent with that very sound declaration to place the whole of this burden on the income-tax payer.

MR. SYDNEY BUXTON

said he entirely agreed with what the right hon. Gentleman said, that they must put the burden on both; but his argument was that, when remissions took place, there had been too great a relief given to direct as compared with indirect taxation.

MR. AUSTEN CHAMBERLAIN

I do not follow the hon. Member's calculation. What are the proper proportions between direct and indirect taxation? The actual percentage, I have calculated, if and after my proposals for this year are approved by the House, will be 48.2 for direct taxation and 51.8 for indirect taxation. That is for the whole of the taxation.

MR. MCCRAB (Edinburgh, E.)

Does that include the coal duty?

MR. AUSTEN CHAMBERLAIN

Coal is not included; it never has been in these calculations, for reasons which must be obvious to the hon. Gentleman. Now, it is a curious coincidence, and I frankly admit that it is nothing more, that those are the exact proportions which prevailed in the year before the war broke out. Instead, therefore, of having altered the incidence of taxation to the detriment of the indirect taxpayer, we stand now exactly where we did in the year before the war broke out. I say frankly it is a pure coincidence. I did not first work out the percentages for 1898–99 and then devise taxation so as exactly to produce those percentages; I took the taxes which I thought were most suitable for raising money, and for raising it most fairly and with the least inconvenience to the public, and it so happens that I have produced exactly the same result as we had in 1898–99.

MR. HERBERT SAMUEL (Yorkshire, Cleveland)

Does that include the Post Office?

MR. AUSTEN CHAMBERLAIN

Does the hon. Gentleman call Post Office revenue direct or indirect taxation? It may be interesting to the Committee to go one step further and see how this taxation is raised. Of our total tax revenue, including the local taxation revenue, but excluding the coal tax, we raised from taxes on transactions i.e., stamps, Post Office services, and licences—21.5 per cent.; we raised from taxes on alcohol and tobacco 34.5 per cent.; we raised from taxes on other articles of consumption, such as sugar and tea, 10.4 per cent.; and we raised from the direct taxes, estate duty, house duty, land tax, and income-tax, 33.6 per cent. If you look at those articles of consumption which can alone be called absolute necessaries of life—that is to say, excluding alcohol and tobacco—it will be seen that the proportion of our revenue raised from them is only 10.4 of the whole, and that is the whole of the taxation which necessarily falls upon consumers, to which consumers of the poorer class necessarily contribute. Of course many of them contribute both to the beer or spirit duties and to the tobacco duties, but that is a contribution which they can make greater or less by the sacrifice of comforts or luxuries; it is not a contribution which they are unable to avoid except by the sacrifice of something in the nature of a necessity. The total taxation when divided works out for direct taxes at £1 9s. per head of the population, and for indirect taxes £1 11s. 2d., a sum which is made up of £1 3s. 11d. for alcohol and tobacco and 7s. 3d. for all other indirect taxes. The increase both of direct and indirect taxation in the year is exactly 5s.4d. per head. Of course this is a very large expenditure to have to provide for, and I have been criticised in some quarters for not having indulged in what I may almost call the usual warnings to the Committee about the magnitude of our expenditure. Well, I think I am sufficiently excused for not doing that by those hon. Gentlemen on both sides of the House who have pointed to the fact that these warnings addressed by Chancellors of the Exchequer to the House have generally been accompanied by a great increase in their demands. I shall certainly study economy; but I do not think I shall advance economy by a general lecture to the House upon the subject. But, after all, I would venture to urge the Committee, even at the risk of incurring the censure of the hon. Member for Poplar, who is prompt to see underground motives in regard to my conduct, not to magnify unreasonably the burden which we have to bear. It is a very heavy burden; we are raising a huge sum; but, after all, as the hon. Gentleman who has just sat down very truly said, what you have to consider is not merely the increase in the burden, but how much stronger our shoulders have grown to bear it.

Let me compare the expenditure now with the expenditure of forty years ago, in the halcyon days of the early sixties, when there were no fiscal heresies, when economy was in the ascendant, when Estimates were modest, and armaments had not reached the huge figures to which they have since mounted. Our expenditure has been more than doubled since that time—I am dealing with the expenditure as given in the Return which is known to the House as Sir Henry Fowler's Return, and the population has increased by about 45 per cent. What has happened in the meantime to the national income? The national income has about doubled also, and the ratio of expenditure to national income is therefore no higher now than it was forty years ago. Of course calculations of income are to some extent a matter of guesswork, and are open to a great deal of criticism. I have roughly calculated it, as a good many inquirers have done before, from Income-Tax Re- turns. I have excluded from the income-tax the revenue from Government securities, partly because, in the first place, that is not an increase of the total national wealth—it would be to take from one pocket and put into another—and partly because by so doing I have excluded, at any rate, a very large proportion of capital which is owned abroad, and the income of which goes abroad, and does not enter into our national wealth. In 1864–5 the gross assessment to income-tax was £338,000,000, and the calculation of the national wealth has been reckoned as probably somewhere about twice the amount of property assessed to income-tax, so that the national income would then have been about £700,000,000. The gross assessment of income-tax now, after the deduction which I have already explained, is £870,000,000, and taking roughly double that figure I may put the total income of the country at £1,750,000,000. If those figures are, as I believe, roughly approximate to the truth, then our wealth has increased something like 150 per cent., while our expenditure has increased in the same period about 125 per cent. The increase of our wealth has therefore been greater than the increase of our expenditure. In 1864–5 our expenditure was 8.6 of the aggregate income of the country, while in the present year I calculate it at 7.8 of the aggregate income of the country. And it must be remembered that, while we have a larger population from which to draw our revenue, we have more people to care for, a larger Empire to protect, and that many of the objects to which the resources of the Government are necessarily devoted are far more costly to-day than they were forty years ago. Ships, guns, the matériel of war are far more expensive now than in those days, wages are also far more expensive now; and though this may be a very cheap country to live in, as is often alleged, it is not a cheap country to govern. If the cost of living grows less the cost of the government which the country desires grows greater.

After all, do we stand alone in the matter of increased expenditure? Turn to the Budgets of foreign countries and you will find the growth almost universal. It is, of course, extremely difficult to compare the expenditure of different States, because they divide their expenditure differently, what is local expenditure in one country being central expenditure in another, and vice versa. But it is a well-known fact that the expenditure of all the Great Powers has enormously increased for very much the same reason that our expenditure has increased. It is notorious that in private life it is difficult to reduce your expenses if those among whom you reside live at a higher or faster rate. It is the same with nations. We cannot indulge in economy when other nations are spending more and more on their armies. And, after all, our Army expenditure has not been so great. In 1864–65 it was 3.4 per cent. of our gross income. To-day it is only 3.7 per cent. There are increases in othernational expenditure which are much more remarkable. The expenditure on education, for instance, in 1864–65 was £942,000. This year it is £14,577,000. an increase of 1,500 per cent. [OPPOSITION cheers.] I do not suggest that it is not money well spent; but I do say it is a little illogical that hon. Gentlemen who applaud this increase, who possibly would double it to-morrow, should complain of the increase in our national expenditure without allowing for the fact that if we spend more now than we spent in 1864–65 it is because we have larger ideals and because in 1864–65 national interests were grossly neglected. Again, we spend a great deal more in relief of local burdens. In 1864–65 we contributed from the Imperial Exchequer £1,745,000 for this purpose. Now we contribute £14,440,000. Hon. Gentlemen are in favour of restricting expenditure in the abstract, but they have no sympathy with economy in a Chancellor of the Exchequer when they want relief from local taxation that appeals to their interest or support. We have to look, not merely to the growth of expenditure but to the nature of the expenditure, to the services on which it is employed, and to the relative growth of expenditure in other countries, and, let me add, in private commercial concerns also. Is not railway management a great deal more expensive now than it was forty years ago? And, of course, all the causes which have raised the cost of railway work in this country have also affected us, who are the greatest employers of labour. Another thing I would point out is that if you set against our increased burden of taxation our increased capacity to bear it, you will find that, heavy as we feel that burden now to be, it is relatively no greater than the burden of those who lived in the halcyon days of the sixties, when hon. Gentlemen opposite seem to think all things went well.

Questions have been asked me with regard to the deficit of last year and with regard to the National Debt. If, in considering the question of the deficit of last year hon. Gentlemen opposite had put out of their minds the £3,000,000 that was a loan to the Transvaal, and that was repaid by the Transvaal, they would have saved themselves from the confusion which was apparent in their speeches. That transaction was complete in itself. It does not affect the deficit of last year, or the way in which I propose to deal with it. The deficit was £5,400,000, It so happened that the Exchequer balances were abnormally swollen by a sum of £2,288,000, which was raised by loan during the war for the purposes of the war up to 31st March of last year. The money was not required for the purposes of the war, and so it lay in the balances and helped to swell those balances. In the course of last year we had to meet considerable war charges: those war charges formed part of the deficit, and to meet them I propose to use the balances to the extent of £2.288,000, or, in other words, I propose to apply that sum to the purposes of the war, for which it was originally raised. I propose to provide for another £1,000,000 from unclaimed dividends account. There remains a sum of £1,500.000. To meet it, I budget for a surplus in the current year in excess of anything that should have been if there had not been that realised deficit. I estimate the surplus at £730,000, and after having provided for such contingencies as may arise in the course of the year, I hope to make further provision for the restoration of the balances out of the resources of the year.

MR. RUNCIMAN

asked whether the surplus estimated by the right hon. Gentleman allowed for Supplementary Estimates.

MR. AUSTEN CHAMBERLAIN

Of course, out of the surplus any contingencies not provided for in the original Estimates must be met. I now come to the Sinking Fund. The hon. Member for Poplar estimated the Sinking Fund for the current year at £6,000,000. I do not know how ho got that figure. I estimate it at £7,119,000. The question has been raised as to whether that is a sufficient provision to make for the Sinking Fund. Undoubtedly, there is a great deal to be said for making a better provision if we were in more affluent circumstances. But I do not think anyone will contend that in a time like the present I should further increase taxation in order to add to the Sinking Fund, and, assuming I get nothing in the course of the year from the Transvaal, if the Sinking Fund realises my anticipation it will be 92 per cent. of the National Debt. Now let me quote the figures of the highest years in recent times. In 1877–78 it was .64, in 1888–89 it was .71, in 1898–99 it was 1T9. It will be seen that the provision we are now making is higher than in any of those years except one, when it reached the very high figure of 1.19. I think that is certainly not an unfair provision to make in a year like the present, and I do not think we are open to severe strictures for not having increased it. It is perfectly true that besides this Sinking Fund, which is devoted to the repayment of the "dead-weight" debt, we have another debt, raised by terminable annuities, for military and naval works, public buildings, telephones, and so on. My right hon. friend the Member for Cambridge University said that if we were a company we should be in an insolvent condition. I think that a company which tried to provide the whole of its capital expenditure on works out of revenue would very soon find itself unable to carry out its intentions. It seems to me to be a reasonable and proper thing, when we are making expenditure which has a capital value and will have a value for many years to come, that we should not necessarily burden the current year with the whole of the charge, but should spread it over a period of years, provided that the period is reasonable and that we take care to have such a sinking fund as will redeem the debt well within the life of the works for which it has been incurred. That is what we do. To speak of that debt as being on all fours with the "deadweight" debt is really misleading. It is a debt for which we have something tangible; which carries its own sinking fund with it, and which, within the limited period Parliament has laid down, will be redeemed by the action of its own sinking fund—which is in addition to, and wholly outside, the fixed Debt charge of the ordinary Sinking Fund. I have not given the specific figures for which the hon. Member for Dewsbury asked. I interrupted his speech to suggest that he should place a Question on the Paper. I think he misunderstood my intention. I intended no discourtesy, but I have not the exact figures which he wants. If he will put a Question on the Paper I should be happy to supply the information at the earliest moment. I think that is all I need say at the present stage of the discussion. I will reserve for subsequent stages the consideration of the individual duties, and I hope that on this particular Resolution, as to which there is very little disagreement, the Committee will come to a decision before adjournment for dinner.

* MR. CHANNING (Northamptonshire, E.)

said that so far as the income-tax was concerned, the Committee could, undoubtedly, meet the view just expressed by the Chancellor of the Exchequer, but inasmuch as the general policy of the Budget was by agreement open for discussion on this Resolution, it was only appropriate that the debate should be continued. The right hon. Gentleman appeared as though he, too, had been on the "illimitable veldt," for there was hardly any limit to the conceptions he had formed of the enormous increase of the national wealth and income during the last forty years. Again and again, in the course of the last few months, they had been told the doleful tale of national depression and ruin, and now the Chancellor of the Exchequer came forward with this magnificent picture of inexhaustible national resources which could be ladled out by the hundred millions for extravagant naval and military expenditure. At any rate he congratulated the right hon. Gentleman on having emancipated himself from the gloomy, heartbreaking visions put forward at Glasgow, Cardiff, and other places during therecess. In one of his ablest and most interesting speeches, the right hon. Gentleman the Member for West Bristol in 1898 went back for a period of twenty years, analysing the main sources of revenue and their natural growth, and showed that while the natural increment of those national resources amounted to from 15to 19per cent., the increase in national expenditure was no less than 68 per cent. He was inclined to place more reliance on the investigations of that right hon. Gentleman than on the illimitable visions of the growth of national prosperity put forward by the Chancellor of the Exchequer.

The chief interest of the present discussion was not so much in canvassing the comparatively unimportant details of the various expedients by which a bad national balance sheet was made to look like a good one, as in analysing the motives of the policy underlying the Budget as a whole. The essential point was that we were now in the second year of peace, but were farther off than ever from getting either expenditure or revenue placed on a peace footing. Last year the right hon. Gentleman the Member for Croydon, who would not be the last free - trade conservative Chancellor to keep up the traditions of Peel and Northcote, made an honest attempt to follow the example set after the Crimean War by alleviating to some extent the burdens of the people. Why was all hope of a continuation of that policy denied? Why was increased taxation imposed? It was obviously because of the deliberate intention of the Government to continue the expansion of naval and military expenditure on an unexampled scale. Practical schemes of economy and retrenchment had been put forward in this House and in The Times newspaper, but the Government had continued in their policy of measureless extravagance. Another cause was that the extravagant and illusory dreams of the right hon. Gentleman the Member for West Birmingham of the enormous prosperity to be developed in the Transvaal had been exposed, revealing the sordid reality of a wrecked and ruined South Africa, where Englishmen had no future as farmers or miners, and were not even welcomed to share in such labour as was available. There had also been the withdrawal of the £30,000,000 solemnly promised by the Johannesburg ring of financiers towards the war charges. The right hon. Gentleman said that he was not responsible for the increase of expenditure and he confined his responsibility to the purchase of the Chilian warships. The Chancellor of the Exchequer, however, must be treated not as an individual but as part of the Government, because in accepting office he accepted responsibility for the policy of the Government. The right hon. Gentleman had in his speeches avowed in the most unmistakable terms his approval of this policy of enormous and continuous expenditure in this country.

He had listened with some surprise to the comments applied to this Budget as a free-trade Budget, but he thought they were light-hearted and somewhat feather-headed compliments to the Government. This Budget was a protectionist Budget ! both in spirit and intention, because the ! whole policy on which it was based was ! to move towards protection. The tactics were the same as the protectionist policy in the United States of America. This Budget in some of its details was frankly protectionist—he referred more particularly to the tobacco duties. The Government had increased the duties on imported cigars and cigarettes, and why had they not placed an equivalent Excise duty on cigars and cigarettes manufactured in this country? Such a duty ought to have been imposed if only upon social and physiological grounds, because there was no greater evil at the present time than the growth of the habit of cigarette-smoking amongst schoolboys and in the street everywhere. The right hon. Gentleman might have kept in mind the searching and sagacious words of Lord Salisbury in which he said— The real cause of the increased protective duties is the establishment of those gigantic military forces which constitute a permanent' drain on the resources of industry, a permanent danger to the interests of commerce, and which impose upon Governments the necessity of finding money in some way which shall not too heavily goad the interests and susceptibilities of their peoples. Some interesting questions had occupied the public mind during the last few months, and some people had begun to wonder whether there really was the astuteness and strategy behind the proceedings of the Tariff Reform League which some of their friends claimed. It was not, in his opinion, attributing to them a very high degree of sagacity or astuteness if he thought they could not be so simple as not to have learned a few lessons from the great trusts in America. The tactics of the engineers of Protection in America had always been to make it more and more difficult to cut down expenditure and to make it more and more inevitable that expenditure should expand in geometric proportion. And their second string was to make the ordinary orthodox measures of taxation in the attempt to fill the ravening, insatiable maw of new demands more and more odious and detestable, so that at last the taxpayer and the consumer might be deluded into giving themselves over to those who in the aspect of friends, said. "Give us protective duties and all your burdens will disappear." He regarded the whole of this policy of a wanton increase of expenditure in the second year of peace as pointing towards a policy of protection in the future. Some people had been declaring that a general election might take place shortly, and that a free-trade Ministry would come into power. If there was a Liberal Ministry in power he would take no share in either putting or keeping them there if they attempted to meet this question of national expenditure in a spirit of flabby temporising with the great issue now before the country. No Liberal Ministry was worth putting into power which would not fearlessly lay the axe of retrenchment at the root of this up as tree of wanton expenditure which was dragging the country to ruin without hesitation and fear of temporary unpopularity. They had to show the fearless courage of the surgeon whe went right to the root of the malady and did not shrink from any operation which he considered absolutely necessary.

There were some other comments he should like to make upon this Budget beyond the broad issue which he had challenged. He had heard with deep regret the statement of the right hon. Gentleman that he thought the only remedy for the sufferings of the poorer class of income-tax payers was to wait till the rate of the income-tax could be reduced, and that he could not consider, as other Chancellors had considered, the question of further abatements and exemptions. During a portion of this debate he had heard the right hon. Gentleman the Member for Croydon say, to his great surprise, that he thought the indirect taxpayer was better off now than he was before the war. He ventured to say that the history of Conservative and Unionist finance, ever since the Unionst Party came into power, had been a record of the progressive transfer of burdens from the rich to the poor and from direct to indirect taxation. The right hon. Gentleman the Member for West Bristol talked about widening the basis of taxation, "and he did not forget that phrase until last year when the corn duty had become so unpopular that it was thought advisable to remove it. The blot on last year's Budget was that the relief given went to direct taxation and wholly inadequate relief was given to indirect taxation. He would only say now that he was quite ready to contend and demonstrate that the position of the indirect taxpayer before the war was relatively much worse than that of the direct taxpayer. Assuming that the contention of the right hon. Gentleman the Member for Croydon was true, what was the position? The income-tax payer had a war tax of 7d. in the £. To find the results of the indirect war taxes on the workers he had obtained a very large number of budgets from families in his own Division by the help of co-operators and others, and taking seventy of those budgets he found that the war taxes imposed upon those people by the corn tax, the extra tea duty, and the sugar duty in 1902 amounted to from 6½d. to 9d. in the £. If they went back to the Board of Trade figures in the returns of working men's expenditure in 1889, they would find that the burden of those taxes upon the family budgets given in that return represented over 8d. in the £. The great blot in the Budget of last year was that while 4d. I was taken off the rich man's income-tax, the wage earner was relieved only of his corn tax, which meant from about 1d., on the artisan with 30s., up to 2½d. in the £ on the poorest agricultural labourer. Those were figures which could not be challenged, and which anybody could verify. The present Budget placed on the rich 1d. on the income-tax, but the burdens which it added to the poor were over 3d. in the £. They took off last year, practically, four times more of the burdens from the rich than they took from the poor, and this year they placed three times the burden on the poor that they placed on the rich, in order to meet this policy of extravagance. In conclusion he wished to say that this policy of transferring burdens from the rich to the poor and from direct to indirect taxation was the motive and the very essence of a protectionist policy. A very serious responsibility rested upon the present Government for continuing this vast expenditure in time of peace which had brought upon them so many additional burdens. This policy was a discredit to the Government, and he for one unhesitatingly declared that this policy was being pursued for the purpose of those who favoured protection in this country.

* MR. J. F. HOPE (Sheffield, Brightside)

said he noticed that there was an assumption which ran through all the speeches of hon. Gentlemen opposite that if they had a deficiency in one year they ought to make it good out of the revenue of the next year. He did not under-stand how that doctrine was to be maintained. It was quite opposed to the practice of hon. Members in their private affairs. He was rather surprised at the moderation of his right hon. friend, and why he had not taken more off borrowed money. There should not be very much objection to doing that so long as the right hon. Gentleman took precautions for new revenue, or for economy in the future. The Chancellor of the Exchequer had done both. He fully admitted that there was every need for vigilance, but at the same time he did protest against the unduly pessimistic view taken of the financial position of the country by some hon. Members. The hon. Gentleman the Member for Exeter in his speech two days ago, said with regard to our credit that it was worse now than it had been for twenty years. That really was not the fact. Just before the conversion of Consols in 1837 the highest point they touched was 103⅝. They were then 3 per cents. Having been converted to 2i per cents the equivalent price was about eighty-six. If they studied the Funds they would find that Consols were higher now, and presumably our credit was better than it had been at any time up to the conversion of Consols by Lord Goschen. He was rather surprised at the argument used by his hon. friend the Member for Exeter when he said that our credit was relatively worse than that of foreign nations. Some hon. Members had pointed with apprehension to the growth of the general prosperity of foreign nations, which had come about very largely at our expense, but they had been told that this was only natural and inevitable and that we should not grudge them their increased prosperity. It was said that foreign countries started from a lower level and that we must not expect to maintain our relative superiority. If that was true of trade in general it was equally true of credit, and he took the argument as one which came strangely from the hon. Member for Exeter, who held such orthodox views on the question of fiscal policy. He thought the hon. and learned Mem for Haddingtonshire in referring to our credit made some very misleading comparisons. It could not be denied that Consols had fallen from 114 in 1897 to 86, which was lately their price, but surely the right hon. and learned Gentleman did not regard the price of Consols in 1897 as in any way normal. He himself would say that it was not desirable that Consols should stand at such a price as in 1897. Consols at such a price made the establishment of the Sinking Fund absolutely mischievous, and interfered greatly with the working of the Post Office Savings Bank, causing an actual loss on the working of that institution. Then when they talked of the credit of the country they must also look at it from the point of view of trustees and beneficiaries. Let them take the case of a man who made his will in 1870. Suppose he died and his estate had to be realised and divided in 1897. The position was infinitely worse of those who had to invest under the new conditions than the testator could possibly have imagined. The price the hon. and learned Gentleman took represented an absolutely abnormal position which never occurred before, and he did not think it was ever likely to occur again. The hon. and learned Gentleman in referring to the great growth of national income and expenditure instanced the year 1874. Here, again, he was not making a fair comparison, because undoubtedly the circumstances in that year were quite abnormal, and could not be expected to recur. The greats tatistician. Sir Robert Giffen, maintained that that was a period when armaments in this and other countries were much lighter and when trade and commerce were buoyant. It was not a true comparison to compare our present position with the very unusual conditions which then prevailed. Sir Robert Giffen went on to say— Hence, it follows that the old way of discussion about national expenditure must be changed. Having been placed by good fortune outside the pale of common humanity for many years, we have now come inside the pale and can no longer play tricks and neglect the Army and Navy if we please. The question, what Army and Navy we should have, must be discussed on its merits, and other branches of Government expenditure in a like manner yet nothing is contrary to the ways and habits of our politicians. The recent increase of expenditure is submitted to with an accompaniment of groans, merely because it has increased, and without any reference at all to the reasons for it. In another letter, written two years ago, he expressed the conviction that it was necessary for national purposes to spend, roughly speaking, even in these times, not less than £40,000,000 for the Army and Navy. That might be an extravagant assumption, but Sir Robert went on to prove that even that expenditure would not be greater in proportion than our expenditure forty years ago. He was exceedingly glad that the general preaching of economy of which they heard so much two days ago was not repeated to the same degree to day. It was perfectly useless to talk about economy unless they could point to some items on which they could make economies. He listened with great interest to the speech of the right hon.

Gentleman the Member for Cambridge University, but if his proposal was to come about, it was necessarily bound up with compulsion for home service, and he was afraid Cambridge University was one of the few constituencies to which no Member would go to advocate that as a serious part of his political programme. It was easy to quote examples of the inconsistency of hon Members. If the Shipowners' Light Due Bill which was before the House last session had been passed it would have cost the country £500,000 per annum. He did not find on that occasion that any of the great exponents of economy took the trouble to come and vote against that Bill. There was a proposal made by some hon. Members that the cost of training colleges should be put entirely on the National Exchequer. Except in the one concrete proposal of the right hon. Gentleman the Member for Cambridge University, he had not yet found any statement of what they could safely economise upon. He admitted that there had possibly been undue expenditure on the military and naval services from the fact that the exact function of each in the defence of the Empire had not been assigned, and that the two services had not been properly correlated. That, he hoped, would be put right by the labours of the Committee of National Defence, and he also hoped, as a result of these services working more harmoniously together, to see some reduction in each without any loss of efficiency.

In regard to the question of the naval works and the military works which were objected to as obscuring the simplicity of our Budgets, the Chancellor of the Exchequer had said that obviously we could not put these on one year; and one reason was the antiquated and pedantic system of surrender of balances. He wished that that system of surrender of balances could be done away with altogether, and then we should see from year to year how we stood; and the objections taken to the military and naval works as obscuring the Budget would be removed. This was actually done in Germany. He confessed he did not like the new tea duty. He had voted for it with the greatest reluctance, but he saw that in the present situation of the country and with the present fiscal system there was no help for it. He regarded this tea duty as the reductio ad ahsurdum of the present fiscal system. Here was an article of practically universal consumption and we taxed it 100 per cent. and we were thought by financial purists like the late Chancellor of the Exchequer to be doing nothing wrong from the fiscal point of view. But if one took some other article which was made at home and put 7½ per cent. on it, one was denounced as a fiscal heretic. He wished the income-tax could be graduated, but he gathered that it was impossible to do that, because we must take the income at its source. But if we could not do that, he thought we might, and ought, to have a further graduation in the death duties. He thought they ought to be increased [MINISTERIAL cries of "Oh," and OPPOSITION cheers], but not upon realty. He would not relieve realty, but he would graduate the death duties severely against large accumulations of personalty. It might be that in practice because of evasions we could not do this, but as a matter of principle, he did think that the millionaire estate got off very cheaply by paying 8 per cent.; and that a larger sum ought to be surrendered to the State in return for the protection in which that millionaire had basked.

There was another source of taxation which he thought undoubtedly ought to be tapped. It would be a very easy tiling, without hitting the consumer or increasing the cost of the necessities of life, to raise £8,000,000 or £10,000,000 a year by very low duties on imported goods coming into this country, and he was quite sure something of this kind must follow, because the means of raising revenue under the present system was becoming archaic. As to the income-tax, he did not believe that people who had got over £5,000 a year cared much whether it was 9d. or a shilling—[Cries of "Oh, oh"!] But undoubtedly it was a very hard and heavy burden upon small taxpayers, and he was convinced we could not make it press much more heavily upon them. He had said two years ago that a change in our fiscal system was desirable from the point of view of trade and revenue, and that the latter point should come first. He was of the same opinion to-day, and he hoped, before another two years had passed, to see a larger revenue drawn from foreign services, which would add greatly to the wealth and strength of the country and would impose no burden on our poorer consumers.

* MR. JOSEPH WALTON (Yorkshire, W.R., Barnsley)

said that the increase of the national expenditure last year compared to the previous year had been computed at £9,000,000, and now it was found that that had been underestimated by £3,000,000. An alarming financial condition had therefore arisen. The expenditure for the next financial year was only going to be reduced by £1,500,000. In a time of peace the normal national expenditure was to be £10,500,000 more than two years ago. The Chancellor of the Exchequer made light of the burdens which were seriously hindering the commercial development of the country. They were told that we were bearing these burdens without any strain. Bat the right hon. Gentleman had forgotten that Consols—the premier security of the world—had gone down in recent years from 112 to 85. That showed conclusively that the creation of £160,000,000 of additional Consols had had its effect on the market; and that the financial resources of the country were by no means inexhaustible. Last year the expenditure was underestimated by £3,000,000; and the revenue overestimated by £2,750,000. Last year he ventured, during the debate on the Budget, to express the fear that the then Chancellor of the Exchequer had been much too sanguine in his estimate? of revenue from Customs and Excise; and he was only too sorry that, having regard to that time and the evidence which was before those who were engaged in commerce that we had a cycle of depression before us, his prophesy had been too well-founded, and that the revenue was £2,750,000 less than the estimate. The Chancellor of the Exchequer had very properly drawn attention to the large increase of expenditure and outstanding liabilities in the matter of local indebtedness. The Imperial expenditure during the next year, including grants in aid, and capital expenditure for military and naval works, was£164,000,000; but in addition to that they were confronted with £110,000,000 of local expenditure, or a gigantic total of nearly £275,000,000.

And, it being half-past Seven of the clock, the Chairman left the Chair to make his Report to the House.

Committee report Progress; to sit again this evening.