HC Deb 29 May 1905 vol 147 cc159-87

Considered in Committee.

(In the Committee.)

[Mr. JEFFREYS (Hampshire, N.) in the Chair.]

MR. ROBSON (South Shields)

moved to add the following clause:—"On and after July 1st, 1906, the duty on stripped tobacco imposed by Section 2 of the Finance Act, 1904, and the rebates allowed under this section shall cease and determine." He did not propose on the present occasion to go over the ground which was traversed last year when this duty was imposed, but since that time they had had a year's experience of the working of the tax, and the subject was of vital importance not only to the revenue and the tobacco trade but also upon, the wider grounds of fiscal policy. He considered that it was important to examine the results of this tax, because they afforded a striking example of the fiscal measures which were now approved by the Ministry. They showed that the interests of the revenue, of a great trade, and of the consumers had been deliberately sacrificed, with no other result than to put large sums of unearned profit into the pockets of fortunate individuals. They had in this tax the first fruits of this great negative principle upon which he understood that both the main wings of the Tory Party were now united, namely, that taxation was no longer to be imposed solely for the purposes of revenue, and this was certainly a tax of which it could not be said that it had been imposed for revenue purposes.

How far had the predictions of the Chancellor of the Exchequer been justified? That question particularly concerned the Gentlemen on the other side who supported free-trade opinions. If the grounds on which they voted for this tax had been falsified, it was now their duty to vote against it. Before the imposition of the tax, 77 per cent. of the tobacco imported was in the form of stripped leaf; and only 23 per cent. was in the whole leaf. The additional tax imposed on the stripped leaf was 3d. a pound, or very nearly 50 per cent. of its value. This was an enormous tax, especially as a differential impost. Yet the Chancellor of the Exchequer assured the House that it was having no effect at all upon prices.

Before the debate on the Budget was finished last year they had an opportunity of testing many of the arguments which had been used in favour of this tax. They had an opportunity of seeing how far the mere suggestion of this tax paralysed the import trade in stripped tobacco. And notwithstanding all these facts, the Chancellor of the Exchequer told them that a tax of 50 per cent. on this article had made no difference in the price. He thought that was an astounding statement to make. He did not know whether the Chancellor of the Exchequer was prepared to defend that statement, but he urged the Committee to consider the significance of such a statement from a Minister who had charge of the finances of the country, In effect, the tax operated as one on the process of stripping done abroad. The cost of conducting that process at home, they had been told by one of the hon. Members for Bristol who was largely concerned in this trade, was something like one halfpenny per pound, but when they added all the other small charges, like interest on capital and the coat of various technical matters connected with the process the cost was at the most 1d. per pound; so that the tax was three times the amount of the cost of the process. Yet the Chancellor of the Exchequer believed that the tax would continue to yield revenue, and that manufacturers would go on importing stripped leaf and paying three times as much for the stripping as they would if it were done in this country.

He wished to point out that this tax related to a far wider question. What was the fiscal state of mind of a Minister or a Chancellor of the Exchequer who believed that manufacturers would go on buying the raw material which had been taxed over 50 per cent. more than its substitutes, and moreover believed that those manufacturers would go on performing a process like stripping when in order to do it they must pay three times the cost of performing that process at home? That was the general ground of the principle upon which this tax was imposed and by which it had been defended. And now let the Committee look at the results. The Chancellor of the Exchequer introduced the tax in the perfect and happy confidence that he would get at least one year's revenue. Of course the Chancellor, owing to the conditions of the trade, was sure of getting one year's revenue, and perhaps two.

MR. AUSTEN CHAMBERLAIN

I have, and you told me that I should not get it.

MR. ROBSON

said that, on the contrary, he had pointed out to the right hon. Gentleman the hardship on the holders of stripped leaf in bond, and the certainty that the holders of whole leaf would make large fortunes. He felt sure that the Committee had not forgotten the personal incident which occurred last year on this point when he ventured to cast some doubt upon the standard of fiscal morals adopted by the Government, and which were then vigorously defended by the Chancellor of the Exchequer. On that occasion he showed to the right hon. Gentleman how twenty firms in the stripped tobacco trade stood to lose hundreds of thousands of pounds. How could all that sum be lost unless the tobacco was taken out of bond and the tax paid upon it? When the right hon. Gentleman desired to show that any prediction of his had been falsified he hopped in the future he would be a little more accurate in his facts. No doubt a certain amount of stripped tobacco would continue to be imported, because the contracts for the importation of stripped tobacco were not confined to a single year. It was, however, to the imports that they had to look in order to test the efficiency of the tax.

How had the imports been affected by this tax? There were two ways of testing it—one by comparing the imports for a series of years, and the other by comparing the imports for the first four months of each of the last three years. The latter was the better method, and taking the first four months of the last three years, the imports of stripped tobacco were:—In 1903, 14,951 casks; in 1904,15,323 casks; and in 1905 only 2,341 casks. More than that, he had been informed that the bulk of the 2,341 casks was imported to be worked in bond for export, so that it escaped the tax altogether. Did not that show that the tax had been virtually prohibitive, using the word in its practical commercial sense? It was a striking circumstance for those concerned for the maintenance of free-trade principles, but it would bring joy to the heart of those trade-killers who called themselves protectionists. The party of "Little Traders"—that organised body for the contraction and destruction of our foreign trade—would regard with intense satisfaction the fact that the free imports to which they so much objected had in the case of this particular commodity been reduced to such an extent. But how did it compare with the promises and statements of the Chancellor of the Exchequer, who, when he introduced the tax, said he was not departing from the old lines of fiscal policy?

The importation had virtually ceased, but there was one branch of the tobacco trade in which dealers could not do without the stripped tobacco, the trade in the 3d. an ounce tobacco. This was a commodity so firmly established that it was extremely difficult for traders to alter the price; the trader was almost compelled to lower the quality rather than raise the price when the cost was increased. The manufacturer of this tobacco was obliged to work very close to the 32 per cent. limit of moisture, and importing the dry stripped he could easily calculate the amount of moisture it contained, and he knew exactly how much he might safely add. But under the regime of the Chancellor of the Exchequer he would import the whole leaf and strip it here, and he was unable to tell exactly in stripping the stalk from the leaf how much moisture he had brought with it. The stripped leaf also was not uniform in moisture, consequently there was great difficulty in testing it, and it was by no means easy to impregnate it with exactly the right quantity of moisture. His dilemma was in knowing how much to add. If he added too little he made a loss; if he added too much he became liable to penalties. The larger manufacturers had means and appliances to meet the difficulty, but the smaller manufacturers were being squeezed out of the trade by the operation of the tax. There had been many failures recently. No one could tell exactly to what they were to be attributed, but all agreed that the difficulties put in the way of their business by the Chancellor of the Exchequer had had a substantial share in bringing about their losses and bankruptcy. He had been told that the small manufacturers when squeezed out would probably become agents for great trusts. He had always understood, however, that one of the services to be rendered by the new fiscal theories was to be the very reverse—namely, to counteract trusts. This, then, was not a very happy result for the first essay in protectionist legislation.

The right hon. Gentleman, in order to convince the House that it was not a protectionist tax, stated that it would, give no advantage to the foreign stripper, but that it would simply put the stripper at home and the stripper abroad on a footing of equality. That was not altogether consistent with another part of his argument in which he stated that the tax would result in more employment at home, because it could result in more employment at home only if the foreign stripper was placed at a disadvantage. But in all protectionist arguments it was necessary in stating one half of the case to keep the other half out of one's mind. Thus the right hon. Gentleman stated— I am not attempting to place home stemming in any privileged position, but to place it in a position of equality in competition with the imported article, While later on he stated:— The differentiation made between whole leaf and strips by the duty of 3d. on strips is only enough to put the whole leaf and strips on an equal footing, and it is entirely the convenience of the manufacturer whether he will work with whole leaf or with strips. Before the tax "the convenience of the manufacturer" had been to import 77 per cent. of his raw material in the form of strips, but now he imported none for home consumption. That was the result of the right hon. Gentleman's honest and conscientious, though unfortunately protectionist, effort to put the two on a footing of absolute equality! What had happened to the foreign stripper? In America they were closing down that branch of their business to a large extent, and the stalk was being brought over here. To that extent the Chancellor of the Exchequer's argument had been borne out by the result, and he was entitled to the credit.

The right hon. Gentleman had promised more employment under the new arrangements. But what sort of employment was it? Stalk constituted from 20 to 25 per cent. of the total weight of the leaf. That meant that one-fourth or one-fifth of the raw material which we brought over from America was discarded. Thus 20 per cent. additional weight had to be packed in America and placed on the railways; then 20 per cent. additional tonnage was put on board ship and carried 3,000 miles across the Atlantic. When at last it reached the manufacturer here he had to strip it, and then demand his drawback on the stalks. Before the drawback was paid, however, the rubbish had to be subjected to an elaborate process; it was necessary for the stalks to be dried, ground, analysed, and tested, before the manufacturer received back the duty he had paid plus something for the trouble to which he had been put. Thus the revenue lost by the stalks. He believed that some ingenious person had discovered that the stalks could be used as a kind of insect powder in conservatories, so that the right hon. Gentleman had gone to all this trouble, and caused 20 or 25 per cent. of the material to be brought 3,000 miles at endless cost, simply to kill some bugs. This was the Chancellor of the Exchequer's first little infant step in scientific taxation. No excuses could blind the House and the country to the fact that one branch of our free import trade was gone, and yet they were being told continually, that in the course of this Parliament nothing would be done to touch or prejudice our system of free imports, troglodyte though it was said to be.

To convince his supporters that the tax was not excessive—notwithstanding the fact that it was 50 per cent. on the value of the commodity, and 300 par cent. on the cost of the process—the Chancellor of the Exchequer had recourse to percentages, and in the whole history of the fallacy of percentages there never was a more delightful example. He stated that whole leaf tobacco cost 5d. a pound, on which there was a tax of 3s., or at the rate of 720 per cent. The Chancellor of the Exchequer was wrong even there, because he failed to take into account the fact that one-fifth of the weight consisted of stalk on which a rebate was paid. He then went on to say that the cost of stripped leaf was 6½d. a pound, so that the tax of 3s. 3d. which he proposed to impose represented only 600 per cent. as against 720 per cent. in the case of whole leaf. But the right hon. Gentleman overlooked the simple and easy canon of taxation, that whether or not a tax was excessive depended upon the intensity or strength of the desire for the article. The desire for tobacco was with some people an insatiable craving, and even though the tax were 1,000 per cent. they would still pay it. Those who, like himself, had given up the habit of smoking knew that often they would have given £5 or £10 for a cigar if it had been merely a matter of money. There was scarcely any limit except that of the consumer's means to the amount he would pay for the thing he desired. But that was a very different thing from a tax on a process. The tax which differentiated against stripped tobacco was a tax on a process. Nobody "craved" for stripping abroad rather than stripping at home, so that in considering the excessiveness or otherwise of the tax one had to take into account not the force of the appetite but simply how much more the stripping process would cost in one place than in another. That being so it was conceivable that a tax of even 5 per cent. might kill a particular process, while a tax of 300 per cent. was almost certain to do so. That had been the case in this instance. There was no comparison between the percentage of a tax on a process and its percentage on an appetite. The two things were absolutely distinct, and their connection involved an elementary fallacy which should have been self-evident.

The truth was that the country had now got men controlling its finances who knew nothing of economic science, and who apparently boasted that they knew nothing about it. They applied every epithet of abuse to the great masters of that science, Cobden and Mill, who brought greater intellects to the service of mankind than the protectionist Party Was ever likely to possess, and he suggested that that Party, instead of abusing the great masters of political economy, should read their works.

The question then arose—Who gained by this tax? It was not the revenue, nor the consumer, nor the trade, generally. But somebody was gaining by the tax, and in order to find out who it was it was necessary to ask who had advised the tax. He thought the Committee was entitled to know that. Under the old free-trade system the country was not afraid to allow its Chancellor of the Exchequer to meet and collogue with the representatives of different trades, because, after all, taxation was on a basis so narrow that few advantages could be given to any particular trade by public burdens. But now a different system prevailed. Public burdens were held out to different trades as sources of private profit at the public expense. Under these circumstances the Committee ought to be informed who advised the tax, and then they might continue their inquiry a step further and find out who gained by it. It would probably be found that the two classes were coterminous and identical. The tobacco section of the Liverpool Chamber of Commerce had challenged the Chancellor of the Exchequer to say who the manufacturers were who advised him, and he ignored the challenge, and he took it that he would do the same that night. Those Liverpool tobacco manufacturers had asked the right hon. Gentleman to put them into communication with those who had made representations to him in favour of this tax, because they declared that it was inconceivable how any manufacturer could make such representations. These manufacturers were not political opponents of the Government, but they were Conservatives and protectionists until this tax was imposed. They were finding salvation now, and it was like a revival amongst them in the tobacco trade. The right hon. Gentleman had taken no notice of that challenge. He would not complain of that, but let them know where they stood with regard to the fiscal morals of the future. What was the standard of fiscal propriety approved by the Government? Did they think it right, defensible, meritorious, that certain men engaged in a trade should be at liberty to approach the Chancellor of the Exchequer's advisers—he did not suppose they approached him personally—

MR. AUSTEN CHAMBERLAIN

I think if the right hon. Gentleman means to suggest dishonesty he had better make the charge directly against me. [OPPOSITION cries of "Order" and "Who said dishonesty?"] The charge should be made against the Chancellor of the Exchequer rather than against his advisers, for whose action he is responsible and desires to take absolute responsibility.

MR. ROBSON

said anything more unworthy, anything more discreditable on the part of a Minister of the Crown than the interruption to which he had just listened he thought he had never heard. Was he to understand that the right hon. Gentleman—a protectionist—considered it dishonest on the part of members of a trade to go and recommend to his advisers a tax that would benefit that trade? That was what he suggested had been done, and he suggested that on the best authority. Last year he read the view communicated to a newspaper of one eminent manufacturer, who said he had been for some time advocating the principle on which this tax had been founded. Was that dishonest? If so, what was the honesty of the Tariff Commission? According to the construction the Chancellor of the Exchequer put upon the facts the Tariff Commission must be a gang of predatory scoundrels. ["Order!"]

THE DEPUTY-CHAIRMAN

The hon. Member must not introduce the Tariff Commission. [Cries of "Why not?"] It has no connection with the Amendment.

AN HON. MEMBER

Really.

MR. ROBSON

said he had no desire to introduce the Tariff Commission or anything like the Tariff Commission to the House, but he was bound to answer the interruption of the Chancellor of the Exchequer; and as he had raised the question and endeavoured to give it a personal application, he would say that the same interruption last year enabled apparently those representing the Treasury to ignore all explanations of the remarkable increase in imports of the whole leaf just before the Budget. The right hon. Gentleman would not succeed in drawing the discussion on to improper lines by any such interruption. He should have thought the Chancellor of the Exchequer would not have been so ready to suppose that any hon. Member knowing him would have dreamt of charging dishonesty against him. He must know that no one would dream, either, of charging the officials of the Custom-house with dishonesty. There was no man who entertained a higher opinion than he did of the honour and probity of the Departmental officials. Nothing would induce him to suggest a word that might seem to cast the slightest slur on a body of officials of whom the country might well be proud. But when he was dealing with secret and unnamed persons who tried to get public burdens imposed for the sake of private and individual profit, then he should ask, "Is that the standard of fiscal morals which is to reign henceforth in this country?" Obviously it was. He asked hon. Gentlemen who voted for this tax last year, upon what had turned out to be a set of wholly mistaken ideas, to reverse that vote now. He made no charges of misrepresentation—charges which were freely and falsely levied against hon. Gentlemen on that side—he only said that mistakes were then made which were natural to the protectionist state of mind; but if those mistakes were persisted in, in spite of knowledge, they became misrepresentations and something worse.

He thought the Committee were now in a position to judge of the working of this tax. The tobacco trade demanded that it should be free from this meddling and muddling, not for the purposes of revenue, but in order to attempt to create additional employment in this country. When hon. Members thought of this kind of policy being applied to every trade in the country they would realise what it meant to have a Ministry in power which had systematically defended the policy of muddling through. It would not, however, do to allow any Ministry to apply the policy of muddling through to the trade of this country, and Ministers had better keep their hands off trade altogether if they could not deal with it better than they had done in the case of the tobacco tax. In this case they had had an illustration of fatuous fiscal folly.

New clause (Repeal of duty on stripped tobacco)—(Mr. Robson) brought up and read the first time.

Motion made, and Question proposed, "That the clause be read a second time."

MR. CHARLES McARTHUR (Liverpool, Exchange)

said that although he had an Amendment in his own name lower down on the Order Paper, many of the arguments that he could adduce in favour of that Amendment—which he still hoped to move—might be more effectually put forward on the Motion now before the Committee. He admitted that, although the tobacco trade were prepared to accept a compromise in the matter, the most logical way to deal with it would be to adopt the Motion at present before the Committee. He regretted that the hon. and learned Member for South Shields had connected the subject so much with the fiscal question, and he regretted still more the innuendoes which the hon. Gentleman opposite had made, reflecting on some person or persons unnamed. He believed these suspicions were altogether unfounded, and they were disowned by the tobacco trade He was familiar with all the arguments put forward by the tobacco trade against this differentiation, but he had never heard a syllable of suspicion uttered against any individual. On the contrary, he was confident that the trade believed that, this tax was prompted by the best and purest motives.

He recalled the circumstances under which the tax originated last year. He had upon the Paper a new clause proposing that 1½d. should be substituted for 3d. as the increase in the duty on stripped tobacco, but he thought it would be better to discuss the question on the present Motion. The duty on stripped tobacco had put a stop to the trade in stripped tobacco, and the revenue derived from it had been the result, not of an import tax, but of an embargo, because stripped tobacco could not come into the country in the face of the duty. It was quite possible for the Government to lay their hands upon an article and say they would not part with it until a certain amount of money had been paid upon it, but that was not a tax. The hon. and learned Member for South Shields had explained that without this tax of 3d. stripped and leaf tobacco would be upon an equality, but this tax penalised strips to the extent of something like 300 per cent. An uneconomic industry in stemming had been created in this country, but it was of trifling value, entailing large incidental expense, and the game was not worth the candle. Another disadvantage was the possibility of the deterioration of the article by the grinding up of the stems in the tobacco. Figures had been given showing that, whereas a very large amount of tobacco leaf had been imported, a very small amount of stem had been returned for drawback. What had become of that stem? The probability was that the great bulk of it had been ground up with the tobacco, so that people were smoking not only tobacco but a good deal of wood as well.

He could not help feeling himself that this was a tax which was contrary to the promise that no change would be made in the fiscal policy of the country during the present Parliament. It was not a revenue tax, could only be protective, and was deprecated by the trade. The tobacco manufacturers of Liverpool asked the Chancellor of the Exchequer to reconsider his decision in regard to this tax. They asked that it should be equalised, and if the right hon. Gentleman could not see his way to do that they desired that it should be reduced to such an extent that strips would be admitted. He trusted the right hon. Gentleman would not be too rigid in this matter. During the time he had been in Parliament he had seen Chancellors of the Exchequer make a great many proposals affecting trade and commerce, but they had generally been made in an experimental way, and when it had been shown that such taxes were acting injuriously they had been withdrawn. The Chancellor of the Exchequer did not profess to have the same intimate knowledge of the conditions of a trade as those engaged in it. This tax had been imposed in good faith by the Chancellor of the Exchequer after he had taken the best advice he could obtain, but it had been found by the trade to be unworkable, and they respectfully asked that it should not be retained any longer. He trusted that the Chancellor of the Exchequer would say that these representations had not been altogether without effect. If the right hon. Gentleman would intimate that he was going to make some reasonable concession he would certainly not support the Amendment, but if such an announcement was not made he would be obliged to support it.

MR. AUSTEN CHAMBERLAIN

said that the hon. Member opposite, when this tax was under consideration last year, thought it proper to suggest that it had been suggested to him through the Customs authorities by a gentleman who, concealing his own interest in the imposition of the tax. had recommended it for the adoption of the Exchequer.

MR. ROBSON

I made no such allegation. [Cries of "Quote."]

MR. AUSTEN CHAMBERLAIN

said that the hon. Member introduced in the the debates of last year the name of a manufacturer who, he alleged, had indirectly suggested this tax when he stood to profit by the imposition of the tax.

MR. ROBSON

What I did was to read what that manufacturer himself had said.

MR. AUSTEN CHAMBERLAIN

said that what the hon. Member did was to attach his own insinuations. [Cries of "Quote."] He had told the Committee then that he had no communication from that gentleman before the tax was imposed and that he had only one communication afterwards, and that was through the chairman of the Board of Inland Revenue to whom this gentleman had written, stating that the Chancellor of the Exchequer had made a great mistake in proposing this tax and that it had better be withdrawn. In spite of that fact the hon. Member, while asserting that he made no charges against anyone, sought once again, to create an atmosphere of suspicion and distrust without a word of apology to the gentleman whom he had wronged. He certainly did not think that in this method of conducting a public controversy it was necessary for him to make a further reply. He desired, however, to say a few words on the merits of the tax itself.

The first allegation made against it, last year, and repeated to-night by his hon. friend, was that it would produce no revenue. He might say, in passing, that the hon. Member for South Shields declared upon that assumption that this was the first instance in our fiscal system of a tax which was not imposed purely for revenue. The hon. Member forgot the spirit duty. A Chancellor of the Exchequer on his own side of the House had said that the rule with regard to the spirit duty should be to make it as high as they could without actually destroying the revenue. It was evident that in laying down that rule he had in view other considerations than those of a purely fiscal nature. He himself disputed altogether the allegation that this tax on stripped tobacco was not a revenue tax. His primary reason for the action he had taken was to obtain revenue; and in the twelve months, in spite of the concession which he made last year in the duty, the Exchequer had received £400,000 from this tax. It was also alleged that the tax had stopped altogether the sale of strips. [An HON. MEMBER: No, the importation.] He would treat of the importation presently. He thought some hon. Gentlemen knew more now about the trade and the tax than hey did last year, and that they should be more careful in making assertions. Let them see whether the consumption of strips had stopped altogether, as was alleged to be the case.

MR. CHARLES McARTHUR

said he did not say that the sale of strips was stopped. What he said was that the Chancellor of the Exchequer's income from this source had been entirely, or almost entirely, derived from strips imported before the Budget of last year was brought forward.

MR. AUSTEN CHAMBERLAIN

said they were all agreed that at any rate the sale of strips was not stopped. There had, however, been a very considerable falling off in the importation of strips, as was proved by the fact that in 1903–4 there were 53,000,000 lbs. imported, and in 1904–5 only 22,000,000 lbs., a falling off of 31,000,000 lbs. There was an even more extraordinary falling off the year before, when this tax had not been thought of, for the quantity of strips imported fell off from 100,000,000 lbs. in 1902–3 to 53,000,000 lbs. in 1903–4. a falling off of 47,000,000 lbs. But that was not all. He must recall to the Committee that it had always been part of his argument for the tax that the old basis of taxation unfairly favoured strips to the detriment of the whole leaf, that was to say, that the proportion in which strips and whole leaf were imported before his alteration was not natural, and that whether his alteration was justifiable or not, which was a distinct question, it could be proved to demonstration that the old system was not fair and that was practically conceded by his hon. friend, who did not ask them to go back, as hon. Gentlemen opposite did, to the old system, but asked that the differentiation between the two should be confined to the smaller amount which attached to strips in bond before the new tax was imposed. If, then, the argument on which he based the tax was sound at all and if he had done no more than remedy that injustice which caused strips to be imported out of due proportion to the natural course of trade, owing to existing fiscal arrangements, it was obvious that to put the tax on a fair level as between, the two would cause a larger import of whole leaf and a smaller import of strips. There were in bond at the time when the new tax was imposed 142,000,000 lbs. of strips in this country, while in the course of the passage of the Finance Bill last year, in deference to representations made to him, he put those strips then in bond or which were actually on the sea a the date when the Resolution was passed in a privileged position—they came in half-way between the duty on the whole leaf and the duty on any new strips that might be imported. Any strips imported after that date had to compete not merely with the whole leaf, but they had to compete with the strips which were privileged, because they were already in bond to the extent of 1½d. He ventured to say to the Committee that they could not fairly state the working of this tax until they had a fresh import of strips face to face with a fresh import of whole leaf.

Before he proposed this tax neither directly nor indirectly did he consult or did he receive any advice from any member of the trade. That in itself had been made a cause of complaint by some members of the trade. A Chancellor of the Exchequer could not consult the trade in an article upon which he thought of imposing a duty without giving rise to suspicions of his intentions, which might be embarrassing to the gentleman whose advice he sought and place both in a most invidious position with regard to the rest of the trade. He was, therefore, obliged to make his proposal on such knowledge as he could command from the long experience which was naturally at his disposal. He did not claim that experience himself, but he was dealing with an article which had always been dutiable and formed the subject of revenue inspection, and to a certain extent of revenue control.

After he proposed the tax a great number of representations reached him, and more than one member of the trade told him that under the scheme of differentiation he proposed he would fail to obtain what they thought was his principal object—namely, the establishment of stripping in this country. That was certainly not his primary object in making the proposal. He did think that he should enable to be carried on in this country a process which on account, of the previous unfair distribution of the tax it had been almost impossible to carry on here. He could not see that he had done any injury to the country or to the trade by the imposition of such a tax. The fact of the matter was that there was a great difference of opinion last year, and there was now, among members of the trade as to what exactly would be a fair differentiation between whole leaf and strip. That some differentiation was reasonable and just he thought any hon. Member would see. It was clear that a person carrying on a process of manufacture in this country with a duty-paid article was at a disadvantage as compared with the person carrying on the same manufacture elsewhere who was able to work on a non-duty-paying article. The system existed in regard to the tobacco duties at every stage except this one, and in regard to other Custom duties, and that some differentiation was right was, he thought, undeniable by any hon. Gentleman who would take the trouble to look fairly into the question. The differentiation he proposed was not the exact measure of extra cost caused by manufacture in this country; that he did not think he had ever pretended, because necessarily the cost varied in different cases according to the nature of the tobacco used, but that it was a fair average percentage was his view at the time he proposed it, and he did not think they had yet been in a position to test fairly or completely whether he was right or not. And he did not think they could test it until they had got rid of the privileged strips which existed in this country before the new duty was imposed.

The hon. Gentleman opposite proposed the total abolition of the whole differentiated duty of last year; that was a suggestion for which he thought there was nothing to be said, and certainly he was not prepared to accept the proposal in any shape or form. His hon. friend behind him suggested a reduction in the amount of the differentiation, and spoke on behalf of the tobacco section of the Liverpool Chamber of Commerce, who had been taking an active interest in this matter. That body were the first representatives of the trade outside the House to wait upon him after the announcement of the change in the duty last year; they were an important body, but although they were entitled to say that they represented the importers and brokers, at the same time they by no means represented, he thought, the whole of the trade or of the interests concerned in the trade. They stated that they had circularised 175 firms, but he would point out that there were 380 licensed manufacturers in the country, and also that in the tobacco section of the chamber itself the memorial was adopted by a very small majority—he thought the majority was two votes—showing that there was some difference of opinion even there as to the wisdom of the exact form in which their proposals were to be put forward. When the deputation from this body waited upon him, so far from objecting to the principle of differentiation, they approved of it; their object was that the strips of which they and others were already the holders in bond should not be the subject of the tax, but provided those strips were fairly dealt with they did not object to the principle of the differentiation. If he accepted the clause before the Committee he should obviously destroy the principle with which these gentlemen were in sympathy; if he accepted the alternative proposal of his hon. friend, he should deprive the strips which had been imported beforehand, without the knowledge of his intention to propose this tax, of the privileged position they now occupied, an action which would be met, he thought, with considerable outcry from those who suffered in consequence.

He ventured to say it was not a good thing for the trade that a change of this, kind should be introduced last year only to be expunged this year. There was evidence that at any rate some members of the trade took that view, while in the journals which dealt with this subject he found that the mere suggestion that this memorial was to be presented, and that accordingly the whole question would come under review and possibly be subject to change again at the present time, caused a disturbance in the trade, and business suffered considerably in consequence. It was objected when he imposed the tax last year that by imposing it and leaving it uncertain what were to be the relations between the two tobaccos in the future, he was rendering the business more speculative and making it more difficult for importers and traders to conduct their affairs. He said then that he was conscious how serious would be the effect on the trade of uncertainty of this kind, and it was for that reason he asked the Committee to embody the tax as part of the permanent scale of tobacco duty. It would be almost a breach of faith on his part if now, when the matter first came under review, he were to forget the declarations publicly made in that House and were to propose such an alteration as his hon. friend suggested. He would say, however, that while he thought the new scale of duties had not received, and could not receive, a fair test at the present time, it must be open to any Chancellor of the Exchequer to revise that scale when such a fair test had been taken, and when they saw how the balance was held between strips and whole leaf, when what he had called the stock of privileged strips had been exhausted. That the fair differentiation between the two was greater than was alleged by some of his critics was, he thought, conclusively proved by what had since transpired. That he might have over-estimated the amount that that differentiation should attain was possible, but was not proved. He hoped, however, he should have the courage to admit an error if he thought an error were proved, or to modify a proposal, even though it had sprung from his own brain, if he thought the facts proved that it required modification. He did not think that was the case at present, but he did not exclude the reconsideration of the exact measure of the differentiation, when they were in possession of full experience of what occurred in the competition between strips and whole leaf when the new duty was working on its merits and without any restriction or interference caused by a large body of strips being in this country on privileged terms.

MR. HELME (Lancashire, Lancaster)

said that the result of the statement of the Chancellor of the Exchequer seemed to be that in his opinion the case that the tax was not justified was not proven; but if the right hon. Gentleman would continue his studies and give effect to the information which would be supplied to him before this Bill became law, he was sure that the right hon. Gentleman would accept the reduction of the duty to a penny. He ventured to put in a plea on behalf of the small manufacturers who made what was known as "twist" tobacco. It was impossible for small manufacturers to develop the twist tobacco trade in competition with such large firms as what was known as the "Combine," because the Combine could take the whole leaf, strip it, and use the stalks for certain purposes which were not available for small manufacturers. The tax was ruinous to the small manufacturers in the small towns, and really struck at one of our home industries. He hoped the Chancellor of the Exchequer, when he came to look at the very small amount of revenue which the country derived from this increased tax, would reduce the duty to a differential charge of a penny per lb., and thus save from extinction a large number of small manufacturers in the country.

MR. RITCHIE (Croydon)

) said the task set to the Chancellor of the Exchequer last year was a very difficult one. He was quite satisfied that if in the working of this tax it was found that the allegations that had been made on the other side were justified his right hon, friend would reconsider his position. He wished to ask his right hon. friend whether he would consider the propriety of appointing a small Departmental Committee to inquire into the operation of the tax, and, if the allegations against it were found to be justified, whether he would be prepared to make proposals which would remedy what was considered to be unfair in the incidence of the tax.

MR. MCKENNA (Monmouthshire, N.)

said that everything that had been fore told last year as to the effect of this tax had come to pass; and it was too late now to offer a small Departmental Committee. The only revenue which had been derived from strips had been obtained from persons who held large stocks in bond or which were held on order in America before the imposition of the tax. He contended that the difference in duty on whole leaf and strips could not possibly be more than three-eighths of a penny; whereas the right hon. Gentleman had put a duty of three pence on strips, which was out of all proportion to the real value. Last year he had pointed out to the Chancellor of the Exchequer that, owing to the anticipation that a tax on strips would be introduced, the importation of strips had fallen very heavily and the importation of whole leaf had increased equally heavily; and the right hon. Gentleman would find that when the existing stocks of strips were exhausted, he would get no revenue from this increased tax on strips. He appealed to the right hon. Gentleman to accept the very reasonable proposal made by the hon. Member for Liverpool, and after that let him appoint a Departmental Committee to inquire into the whole subject. He himself was satisfied that the Report of such a Committee would be against differentiation altogether.

MR. AUSTEN CHAMBERLAIN

said he did not think the time had yet come for such an inquiry as his right hon. friend the Member for Croydon suggested. When the time did come, when we were nearer the point of the exhaustion of the stock of privileged strips, he would consider the suggestion which the right hon. Gentleman had made. He saw no insuperable objection to acting upon such a proposal.

MR. AUSTIN TAYLOR (Liverpool, East Toxteth)

said he accepted without any hesitation the statement of the right hon. Gentleman that in imposing this duty he had no idea of diverging from the free-trade system of this country which he supported in the House, but which outside the House of Commons the right hon. Gentleman denounced as an antiquated system. He thought that the result of this experiment of differentiating between whole leaf and stripped tobacco proved that the incidence of the tax was of a purely protective character. Taking the right hon. Gentleman to be sincere in his original intention, he would be well advised at the earliest possible moment to purge himself of the virus of protection. He was very much struck with the argument of the right hon. Gentleman that hasty changes were undesirable. That was a valid argument last year when this duty was imposed, but it was not a valid argument now. If a mistake had been made, now was the time to rectify it before the trade had become habituated to the new arrangement when a change would be more difficult. The right hon. Gentleman had attacked the memorial from the Liverpool Chamber of Commerce and said it was not of a sufficiently representative character, but he would point out that memorial was sent to all the known manufacturers in Great Britain, although there might be some small manufacturers not known to the Liverpool Chamber of Commerce who did not get a copy. The overwhelming majority of the trade endorsed the memorial presented to the right hon. Gentleman.

He did not wish to dwell on the argument of his hon. friend that the existing stock of strips being in a privileged position prevented the introduction of strips from America. He was told that the contrary was the case. He contended that the statistics proved that instead of the stemming industry being a transplanted industry, the manufacturers of this country were using the stems with the leaf in making a deleterious mixture which was sold for smoking in pipes in this country. That might seem a small matter to those who did not smoke a pipe, but he could assure the Committee that it was a very serious matter to thousands of smokers. The Chancellor of the Exchequer was no doubt innocent as to this deleterious custom, but the Committee were entitled to some information as to what became of the stems unaccounted for. [The hon. Member here produced a large tobacco leaf and illustrated the operation of stripping.] The leaf which he had just stripped was not moist as it would be if he were stripping it in America, and he was not so expert at the process as the negro ladies who did it in the United States.

Some question had been raised as to the actual cost of the process of stripping. He had demonstrated to the Committee that nothing could be more simple, and that anyone, with practice, could become an expert in the profession. The hon. Member for North Bristol said last year that tobacco could be stripped in England at a cost of one Halfpenny per pound, and that a girl at that rate could earn a good wage. He believed that that figure was well within the mark. Threepence per pound, therefore, was and must be a protective duty. He believed the right hon. Gentleman made a mistake in imposing this differential duty, because it was protective, and because he would not derive any addition to the revenue from it except from the stocks already in existence. He hoped that the right hon. Gentleman, who was a conditional free-trader, during the lifetime of the present Parliament, at all events, would purge himself of the slight stain that had fallen upon his free-trade reputation owing to the imposition of this tax.

MR. DALZIEL (Kirkcaldy Burghs)

said that before the debate closed he would ask the right hon. Gentleman the Chancellor of the Exchequer if he proposed to go further with the Bill that night.

MR. AUSTEN CHAMBERLAIN

said he did not propose to proceed further after this subject was disposed of, but the proceedings of the Committee would be resumed as the first order on Tuesday. It would be remembered that his right hon. friend the Patronage Secretary, in announcing the alterations in business arrangements owing to the unfortunate indisposition of the Prime Minister, stated that if the Budget was not finished at that sitting it would be taken as the first order at the next. If the Committee stage were finished, as he hoped it would be, by half-past seven, the Report of the Navy Vote would be taken at the evening sitting.

Question put.

The Committee divided:—Ayes, 109; Noes, 137. (Division List No. 185)

AYES.
Abraham, William (Cork, N.E.) Helme, Norval Watson Pease, J. A (Saffron Walden)
Ainsworth, John Stirling Henderson, Arthur (Durham) Power, Patrick Joseph
Atherley-Jones, L. Holland, Sir William Henry Rea, Russell
Barry, E. (Cork, S.) Hutchinson, Dr. Charles Fredk. Reddy, M.
Beaumont, Wentworth C. B Johnson, John Rickett, J. Compton
Brigg, John Jones, Leif (Appleby) Roche, John
Bright, Allan Heywood Joyce, Michael Runciman, Walter
Brown, George. M. (Edinburgh) Kennedy, Vincent P. (Cavan, W. Samuel, Herbert L. (Cleveland)
Buchanan, Thomas Ryburn Kilbride, Denis Samuel, S. M. (Whitechapel)
Burke, E. Haviland Lamont, Norman Shackleton, David James
Buxton, Sydney Charles Law, Hugh Alex (Donegal, W.) Sheehan, Daniel Daniel
Caldwell, James Lawson, Sir Wilfrid (Cornwall) Shipman, Dr. John G.
Campbell, John (Armagh, S.) Layland-Barratt, Francis Sinclair, John (Forfarshire)
Causton, Richard Knight Leese, Sir Joseph F. (Accrington Soares, Ernest J.
Cawley, Frederick Leigh, Sir Joseph Spencer, Rt.Hn C. R. (Northants
Channing, Francis Allston Levy, Maurice Strachey, Sir Edward
Cremer, William Randal Lundon, W. Sullivan, Donal
Crombie, John William Lyell, Charles Henry Taylor, Austin (East Toxteth)
Cross, Alexander (Glasgow) MacNeill, John Gordon Swift Thomas, David Alfred (Merthyr
Dalziel, James Henry MacVeagh, Jeremiah Thomas, J A (Glamorgan, Gower
Delany, William M'Arthur, Charles (Liverpool) Toulmin, George
Dilke, Rt. Hon. Sir Charles M'Arthur, William (Cornwall) Trevelyan, Charles Philips
Doogan, P. C. MCrae, George Villiers, Ernest Amherst
Douglas, Charles M. (Lanark) M'Hugh, Patrick A. Walton, Joseph (Barnsley)
Edwards, Frank Mansfield, Horace Rendall Wason, Eugene (Clackmannan)
Evans, Samuel T. (Glamorgan) Mooney, John J. Whitley, J. H. (Halifax)
Eve, Harry Trelawney Murphy, John Whittaker, Thomas Palmer
Fenwick, Charles Nannetti, Joseph P. Williams, Osmond (Merioneth
Field, William Nolan, Joseph (Louth, South) Wills. Arthur Walters (N. Dorset
Findlay, Alexander (Lanark NE O'Brien, Kendal (Tipperary Mid Wilson, Henry J. (York, W.R.)
Flavin, Michael Joseph O'Brien, Patrick (Kilkenny) Wilson, John (Durham Mid.)
Gilhooly, James O'Connor, John (Kildare, N.) Woodhouse, Sir. J. T (Huddersf'd
Gladstone, Rt.Hn Herbert John O'Donnell, John (Mayo, S.) Young, Samuel
Grey, Rt.Hon. Sir E. (Berwick) O'Dowd, John
Gurdon, Sir W. Brampton O'Malley, William TELLERS FOR THE AYES—
Hammond, John O'Mara, James Mr. Robson and Mr.
Hardie,J Keir (Merthyr Tydvil) O'Shaughnessy, P. J. M'Kenna.
Hayden, John Patrick Partington, Oswald
NOES.
Agg-Gardner, James Tynte Cautley, Henry Strother Fitaroy, Hon. Edw. Algernon
Allhusen, Augustus HenryEden Cavendish, V. C. W. (Derbyshire Galloway, William Johnson
Anson, Sir William Reynell Chamberlain, Rt. Hn.J A. (Wore. Gardner, Ernest
Arnold-Forster, Rt. Hn. Hugh O. Chaplin, Rt. Hon. Henry Godson, Sir Augustus Fredk.)
Atkinson, Rt. Hon. John Chapman, Edward Gordon, J. (Londonderry, S.)
Baird, John George Alexander Clive, Captain Percy A. Gordon, Maj. Evans (T'r H' mlete
Balcarres, Lord Cochrane, Hon. Thos. H. A. E. Gore, Hon. S. F. Ormsby
Balfour, Rt. Hn Gerald W (Leeds Colston, Chas. Edw. H. Athole Goulding, Edward Alfred
Balfour, Kenneth R. (Christeh. Corbett. A. Cameron (Glasgow) Gray, Ernest (West Ham)
Banbury, Sir Frederick George Craig, Charles Curtis (Antrim, S. Greene, W. Raymond (Cambs.
Banner, John S. Harmood- Dalkeith, Earl of Gretton, John
Bhownaggree, Sir M. M. Dalrymple, Sir Charles Greville, Hon. Ronald
Bignold, Sir Arthur Davenport, William Bromley Hambro, Charles Erie
Bill, Charles Dickson, Charles Scott Hardy, Laurence (Kent, Ashford
Bingham, Lord Doughty, Sir George Hare, Thomas Leigh
Blundell, Colonel Henry Douglas; Rt. Hon. A. Akers- Hay, Hon. Claude George
Bond, Edward Doxford, Sir William Theodore Heath, Sir James (Staffords NW
Brassey, Albert Dyke, Rt. Hon.Sir William Hart Henderson, Sir A. (Stafford, W.)
Brodrick, Rt. Hon. St. John Faber, George Denison (York) Hope, J.F. (Sheffield, Brightside
Brymer, William Ernest Fellowes, Rt. Hn Ailwyn Edward Hoult, Joseph
Campbell, J. H. M. (Dublin Univ. Finch, Rt. Hon. George H. Hozier, Hon.James HenryCecil
Carlile, William Walter Finlay, Sir R B (Inv'rn'ssB'ghs Hunt, Rowland
Carson, Rt. Hon. Sir Edw. H. Fisher, William Hayes Jessel, Captain Herbert Merton
Kennaway, Rt. Hon. Sir John H. Morrell, George Herbert Stanley, Rt. Hon. Lord (Lancs.)
Kenyon-Slaney, Rt. Hon. Col W. Mount, William Arthur Stewart, Sir Mark J. M'Taggart
Keswick, William Murray, Charles J. (Coventry) Stock, James Henry
Law, Andrew Bonar (Glasgow) O'Neill, Hon. Robert Thomas Strutt, Hon. Charles Hedley
Lawrence, Wm. F. (Liverpool) Parkes, Ebenezer Thornton, Percy M.
Lawson, Hn. H. L. W. (Mile End) Percy, Earl Tollemache, Henry James
Lawson, John Grant (Yorks. NR Plummer, Sir Walter R. Tomlinson, Sir Wm. Edw. M.
Lee, Arthur H. (Hants. Fareham Pretyman, Ernest George Tuff, Charles
Legge, Col. Hon. Heneage Pryce-Jones, Lt.-Col, Edward Tuke, Sir John Batty
Leveson-Gower, Frederick N.S. Purvis, Robert Walker, Col. William Hall
Long, Col. Charles W. (Evesham Rankin, Sir James Walrond, Rt. Hn. Sir William H.
Long, Rt. Hn. Walter (Bristol, S) Reid, James (Greenock) Welby, Sir Charles G. E. (Notts.)
Lyttelton, Rt. Hon. Alfred Ritchie, Rt. Hn. Chas. Thomson Wharton, Rt. Hon. John Lloyd
Macdona, John Cumming Roberts, Samuel (Sheffield) Whitmore, Charles Algernon
M'Killop, James (Stirlingshire) Robertson, Herbert (Hackney) Willoughby de Eresby, Lord
Malcolm, Ian Round, Rt. Hon. James Wilson, A. Stanley (York, E. R.
Manners, Lord Cecil Rutherford, John (Lancashire) Wilson, John (Glasgow)
Marks, Harry Hananel Rutherford, W. W. (Liverpool) Wortley, Rt. Hon. C. B. Stuart
Martin, Richard Biddulph Sackville, Col. S. G. Stopford
Maxwell, W J H (Dumfriesshire Sandys, Lieut.-Col. Thos Myles TELLERS FOR THE NOES—
Melville, Beresford Valentine Sharpe, William Edward T. Sir Alexander Acland-
Mildmay, Francis Bingham Skewes-Cox, Thomas Hood and Mr. Henry
Milvain, Thomas Smith, Abel H. (Hertford, East) Forster.
Morgan, David J. (Walthamstow Smith, HC. (North'mb Tyneside
Morpeth, Viscount Smith, Rt. Hn. J. Parker (Lanarks

Question put, and agreed to.

Committee report Progress; to sit again to-morrow.