INCOME TAX.

HC Deb 07 May 1913 vol 52 cc2107-46

"That—

1. (a) Income Tax shall be charged for the year beginning the sixth day of April, nineteen hundred and thirteen, at the rate of one shilling and two pence in the pound, and that the same Super-tax be charged for that year as was charged for the year beginning the sixth day of April, nineteen hundred and twelve; and
2. (b) the like provisions shall have effect with respect to the Income Tax so charged (including Super-tax), and the annual value of property, as had effect under Section five of the Finance Act, 1912, with respect to the Income Tax charged for the year beginning the sixth day of April, nineteen hundred and twelve, and the annual value of property during that year; and
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3. (c) it is declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913."

Mr. CASSEL

I beg to move, after the words "value of property during that year," at end of paragraph (b) to add the words "except that the separate income of a married women shall not be deemed to be income of her husband, but shall be treated as her separate income."

The object of this Amendment is to remove one of the striking anomalies in our Income Tax law. It has been brought before the House on previous occasions, but there are two special reasons why I think it is appropriate to call attention to it again at the earliest stage possible. The first reason arises out of the case of Mr. Wilkes which occurred last autumn—a case which if it be not quite the same as that of his famous namesake at an earlier time, appears to me to be more ridiculous than any connected with that time. Another reason for bringing it forward is that the House yesterday by a decisive majority negatived a proposal for giving the franchise to women. I think this will be an appropriate day on which to remedy an injustice which is strongly resented by women who are subject to the Income Tax. At present the position of the law is this. A husband is the only unit, subject to certain exceptions, so far as Income Tax is concerned. He has to make a return; he is liable for the tax, and he is liable even to the extent that, like Mr. Wilkes last year, he may be sent to prison if he does not pay the tax on his wife's income. Moreover, he alone can claim the exemptions and abatements, though it may be that the wife is entitled to these exemptions and abatements. The origin of this anomaly is explained by the fact that the Income Tax was imposed long before the passing of the Married Women's Property Act, and the Income Tax law has never been brought into harmony with the present conditions. At the time the Income Tax was passed the husband had really control over the wife's income. The wife's income was really part of the husband's income, and he had the management and control of it. That is not so now, but although you make the husband responsible, you do not compel the wife to make any statement as to what her income is, nor has he any right to take the tax out of her income at all. I do not think the position can be better explained than by quoting the words used by the Lord Chancellor on 14th October, 1912. He said:— In the case of Income Tax the law dates from a period when the position of married women was very different from what it is to-day, and legislation has become commonplace which would have been looked upon with the utmost disfavour half a century ago. To-day we treat the income of a married woman as nearly as possible as though it were the income of an unmarried person, and yet the machinery for enforcing the income Tax laws remains in a large measure what it was half a century ago. The result of that, of course, is hardship.

Mr. SPEAKER

So far as I understand, the effect of the proposal of the hon. Gentleman is, for the first time, to treat the incomes of married women in respect of Income Tax in the same way as the incomes of unmarried women. That is to impose an Income Tax for the first time on married women having separate incomes.

Mr. CASSEL

The tax would be enforced direct against them instead of being enforced through the husband.

Mr. SPEAKER

That would be what we call a charging Resolution. There are two objections to take to it now. First of all, we cannot do that on the Report stage, and we cannot do it at all without the consent of the Crown.

Mr. CASSEL

May I call attention to the fact that exactly a similar Amendment has been moved on previous occasions. There was one in 1910, which was moved by the hon. Member for Bury St. Edmunds, and it was stated then that on two or three previous occasions similar Resolutions had been moved.

Mr. SPEAKER

I would like, if the hon. Member would refer me to the volume of the Debates.

Mr. CASSEL

I have not the volume here, but it was moved in November, 1910.

Mr. SPEAKER

Does the hon. Member say that was done on the Report stage?

Mr. CASSEL

I think it was on the Bill in 1910, but in some previous cases the Resolutions were moved on the Report stage. With reference to the argument as to the consent of the Crown being necessary, I submit that it will be equally as necessary on the Bill as on the Report stage.

Mr. MASTERMAN

On the point of Order. I think the hon. Gentleman will find that any Amendment that was proposed was in respect of something that was proposed in Committee. I would suggest that any question which the hon. Member desires to raise would be appropriate—if it is ruled to be appropriate at all—on the Revenue Bill, and not on the Income Tax Resolution.

Mr. PRETYMAN

If this Amendment cannot be moved, may I ask whether the subject-matter of it could not be debated as part of the general consideration of the Income Tax Resolution?

Mr. SPEAKER

I will deal first of all with the case which the hon. Member cited. It was in Committee on the Bill. It was not even on the Resolution, and, therefore, that is not a parallel case. It seems to me quite clear that on the Report stage the House cannot impose a charge of this kind. If it is a charge, as presumably on the face of the Amendment it appears to be, it could not be imposed by the House on the Report stage of the Resolution passed in Committee. These things, if done at all, must be done in Committee. There is no objection to the hon. Member discussing the question, but certainly he could not raise a distinct issue of imposing a charge.

Mr. CASSEL

In accordance with your ruling I shall not move the Amendment or discuss it, but may I mention in case the matter arises again on the Bill, I would submit that it is a case where no recommendation from the Crown would be necessary.

Mr. SPEAKER

This is not, of course, the time to discuss that matter. Those questions should be discussed in Committee on the Bill, and not on the Report stage of the Resolution. The object of the Resolution is to enable the Bill to be brought in. When the Bill is before the Committee then will be the proper time to raise these objections and to move these Amendments. I protest against these matters being discussed on the Resolution, and I warn the House that they are endangering the old system of bringing in these Bills on Resolutions if they insist on discussing the Resolutions apart from the Bill.

Mr. CASSEL

I do not propose to proceed with my Amendment.

Mr. EVELYN CECIL

I would like to say a few words on the Income Tax, for I think we ought to register our protest on this side of the House on the continued fact that the Income Tax is 1s. 2d. in the £. We have repeatedly urged that that condition of things ought to be one only in time of war so far as possible. Instead of that, we now find ourselves face to face with an Income Tax of 1s. 2d. in the £ for several years in time of peace. I believe it starts from the date of the so-called "People's Budget." The Chancellor the other day seemed very much annoyed that we should refer to the Finance Act of 1909–10 as the "People's Budget," as if it were the only joke the Opposition could produce. He seems to forget that particular title originated with himself, and I would suggest to him that if he issues another edition of his book on the "People's Budget," he ought to amplify the statement, or make it more descriptive, as to what is within. He might call it the "People's Budget; or, the Conjuring Demagogue, by the author of Ninepence for Fourpence." I think that "People's Budget" is a farcical name, and that people have found out in a great degree the mischievous finance it contains, and what harm it is doing to the country. I noticed the sigh of relief when the Chancellor of the Exchequer announced that no further taxes, and no increase of the Income Tax, would be proposed this year. I trust his forecast is not too optimistic. I think he may be right in believing, according to the signs of the times, that we may have another year of booming trade, which will justify him in placing no increase on the Income Tax; but if we do have that trade boom, it will not be due to the Free Trade Government or the skill of the Chancellor of the Exchequer. It will be due to the universal conditions of the world and the general trade boom that exists throughout all countries.

6.0 P.M.

I hope we shall not go on persistently with this high rate of Income Tax in time of peace. The fact remains that we are living up to the limit of our income in time of peace, and if any emergency arose—for example, the emergency of war, or another emergency of some drastic and expensive social reform—it seems to me that we should very possibly have to draw upon the Income Tax, which is deleterious to the trade of the country. Therefore, if we agree to maintain the Income Tax at this high level, I think it ought to be with the distinct comment on the Report of this Resolution that we trust expenditure will be reduced, if no fresh war breaks out. Looking back on the history of the party now in office, we find that they have consistently urged that the Income Tax is too high. Sir Henry Fowler, afterwards Lord Wolverhampton, in 1901, moved a Resolution to the effect that £125,000,000 was an excessive peace expenditure. I am very much disposed to agree with him, yet in the interval that expenditure has risen to £198,815,000. When Sir Henry Fowler moved his Resolution the Prime Minister voted for it. I think we have a right to complain that the expenditure is going up far too much by leaps and bounds, and that that is one of the main causes of the necessity of this high level of Income Tax. The Prime Minister has said, and it has often been quoted in this House, that Income Tax ought not to be above 1s. in the £ in time of peace. I know that he subsequently explained that this meant the average Income Tax, but under the methods of the present Chancellor of the Exchequer we are going perilously near to paying no attention to the Prime Minister's advice. And even if we take it as an average matter that the Income Tax ought not to be above 1s. in the £ in time of peace, we shall find ourselves exceeding the limit if we are not very careful. I would like to warn the Government that on the Prime Minister's own showing that limit ought not to be increased, and we must be very careful, if we choose to maintain sound national finance, not to incur expenditure which is likely to bring the Income Tax above that figure.

Another point to which I may allude is the ratio of direct to indirect taxation. The original maxim accepted by Chancellors of the Exchequer, Liberal as well as Conservative, was that the total amount of taxation ought to be made up by about 50 per cent. of both one and the other. Sir William Harcourt, in 1903, laid down this as a maxim which he considered was always to be followed. He said:— Since the Finance Act of 1894 came into operation it has been the consistent policy of the Finance Minister of this country to reach to and maintain equality between direct and indirect taxation. I asked the Chancellor of the Exchequer a year ago what was the present ratio, and he informed me that the ratio then was, direct taxation 57.76, and indirect taxation 42.24. I do not suppose that the figures this year will be very different, as no alteration in taxation is being made. This is straying very far from the maxim of Sir William Harcourt and previous Chancellors of the Exchequer. I would urge that we ought, from that point of view, also to reduce the amount of Income Tax as a whole and increase the indirect taxation. That was the firm opinion of eminent finance Ministers in the past, and I would like to know why it has been overthrown by the present Chancellor of the Exchequer.

All this consistent disregard of the policy of former Chancellors of the Exchequer is a bad sign. It is not maintaining the high traditions of finance; it is not following up the experience that former Chancellors of the Exchequer have had in finance; it is revolutionising our financial system, and in so doing it is creating a general feeling of insecurity which is reflected in the general disturbance in many details which it occasions in trade. I cannot help saying that if this policy in finance is continued in a time when there is no trade boom, there is every prospect that public confidence will be shaken, and that the prudence which has been abandoned by the Chancellor of the Exchequer ought to be reverted to, otherwise a national calamity will ensue. I know that such matters as these are questions which people are not specially disposed to attend to in the middle of universal prosperity, but I think that the more cautious financiers cannot but regret, that what has been called Lloyd-Georgian finance is so much to the front at the present time; and as a necessary consequence, quite apart from any party view one way or the other, we should return to the more fixed, more experienced, and more successful financial methods of Mr. Gladstone, and even of Sir William Harcourt, and of Unionist Chancellors of the Exchequer.

Mr. JONATHAN SAMUEL

If the hon. Member who has just spoken were consistently to follow out his reasoning, he would have moved, or at least suggested, that we should increase our indirect taxation, but it is rather strange, I venture to say, that on the last occasion he voted against the Tea Duty, and voted against the Government, when they moved that the duty should be 5d. a pound.

Mr. CECIL

I did not vote.

Mr. SAMUEL

There again he is inconsistent, because he has been arguing practically in favour of an increase in indirect taxes as compared with the direct taxes. I think that he is entirely wrong in his argument about Chancellors of the Exchequer and the ratio of direct to indirect taxation. I remember in the 1895 Parliament listening to a very eloquent speech by the then Chancellor of the Exchequer, the present Lord St. Aldwyn, in which he stated, and gloried in the fact, that there had been a general decrease in the proportion of indirect taxation, and I believe, if my memory serves me rightly, that he mentioned that before the repeal of the Corn Laws and before Mr. Gladstone began his great work of transferring the cost of taxes from indirect or direct taxes the proportion was seventy-three indirect to twenty-seven direct; and I remember that, speaking from that box, he indicated very strongly the policy of a radical reduction from one to the other. I believe that at that time they were about equal. I think for myself that direct taxes should bear a larger proportion of the taxation of this country than indirect, because the more indirect taxes you have the greater burden you put upon the poorer classes. The hon. Member talked about Lloyd-Georgian finance. It is unfair to say that the Income Tax is at present 1s. 2d. in the pound. It is well known that the Income Tax is 1s. 2d. only upon unearned incomes, and I should very much like myself to see that Income Tax reduced to at least 1s. for people who are receiving small incomes up to, say, £500. But, so far as the earned income is concerned, there is a large decrease in the proportion which the Income Tax payer is paying.

The fact is that under the finance of the present Chancellor of the Exchequer and his predecessor, the present Prime Minister, every man with an income, of £2,000 and under is paying less in taxes now upon earned income than he did in the year 1906. Take, for instance, the case of a man with £1,500 a year. In 1906 he paid 1s. in the £ upon his income, which came to £75. That has been reduced to 9d. in the £, and he is now paying £56 5s., which represents a reduction of £18 15s. per annum. That is the case of a man with £1,500 a year. But the man with under £500 a year has other exemptions as well. Take, for instance, the exemption of £10 allowed off the income of a man with a family for each child under sixteen years of age. That is equal to £700,000 per annum. That is a very serious and very welcome relief to the man with a large family. I contend that every man with £2,000 a year and under is now paying less in taxation than formerly. He is paying less in Income Tax, and he is paying less in indirect taxes, that is to say, upon his tea and his sugar, and it is wrong to give the impression to the public that the finance of the present Chancellor of the Exchequer is a burden upon the taxpayer, when in fact it has been a great relief to those who are earning their incomes as I have indicated, and to the poorer classes, and has placed the burden upon the shoulders that are best able to hear them. That is really the trouble, and the very contention of the hon. Member when he strongly advocated that we should revert to the system when indirect taxes bore a proportion equal to direct taxes, or even greater than direct taxes, would mean going back to the time when the poor paid the bulk of the taxes and the rich escaped.

There was one other contention of the hon. Member which I think was very inconsistent. He referred to the growing expenditure. I am quite with him in that respect, and there is one thing that the Members of this House must learn, and it is this, that when we are in Committee of Supply, if we demand that the Government should increase the expenditure, then we ought to be men enough to place the taxes upon the people to meet that expenditure. But the fact is anyone listening to the Debates when we are in Supply must see that if the Chancellor of the Exchequer were to concede all that is clamoured for by Members of this House, the expenditure of the country would go up by leaps and bounds. I ask the hon. Member opposite which part of the expenditure he would reduce? That is a practical question. Would he reduce the expenditure upon the Navy? That is a question which I also put to the hon. Baronet, the Member for the City of London (Sir F. Banbury). In 1905, in their last Budget the late Government reduced the Navy Estimates by £3,500,000. When the present Government came into power they followed the example of their predecessors by reducing the Navy Estimates by about a million or so. There was a great outcry, and a meeting was held in the City, at which they demanded increased expenditure. And to-day, again, what do we find in the City? We find that the City is clamouring for larger expenditure on aircraft and on naval appliances of war.

Mr. EVELYN CECIL

I have frequently urged in this House that we ought to cut our coat according to our cloth, and that, before so large an expenditure is incurred, we ought to be sure that we can meet it.

Mr. SPEAKER

This is not the proper time to discuss expenditure. Committee of Supply is the occasion for discussing expenditure. This is the time for discussing how you are going to meet the expenditure.

Mr. SAMUEL

I was endeavouring to point out that in time of peace we are expending large sums, and that if we vote in Committee of Supply in favour of this large expenditure, it is our duty to place on the taxpayer, however unpopular the process may be, the requisite taxes to meet that expenditure. What I complained of was that the hon. Member did not cite a single item of expenditure which he would reduce.

Mr. EVELYN CECIL

It would not be in order.

Mr. SAMUEL

If it is not in order I will not pursue it, but I understood the hon. Member to condemn the present expenditure of the country. I agree with him in that, and no one would be more gratified than I to see our expenditure greatly reduced, but the difficulty is in which direction to reduce. While the expenditure is being increased, it is the fact that men with under £2,000 a year are paying less Income Tax than they did in 1906, and it is a wise policy on the part of the Chancellor of the Exchequer to demand more from the men who earn large sums of money and that they should contribute to the State in proportion to their earnings.

Sir PHILIP SASSOON

A great writer with a deep insight into human nature has laid it down that rien n'est plus désagréable que d'être pendu obscurément. I do not wish it to be supposed for a moment that at my age I am in any immediate danger of incurring the supreme sanction of the law. The phrase I have quoted expresses a broad truth which extends beyond the death penalty, and in its wider and more general significance is peculiarly applicable to me and to all other Income Tax payers. Income Tax payers have now for a long time occupied the unenviable position of being the handiest victims of a necessitous Exchequer—ready and waiting to be done to death, financially speaking, in a corner, with the least possible fuss, whenever the Treasury executioner is out of practice or athirst for blood. They get no sympathy, for the public takes their sacrifices for granted. They are denied even the doubtful recompense of notoriety. They are neither praised nor greatly blamed, yet once a year they suffer agonies. Theirs is a martyrdom without a halo. The British Empire has been well said to be one on which the sun never sets, and in which the taxgatherer never goes to bed. The activities of the collector of Income Tax are the more continuous and relentless in that they are supposed to affect only the wealthiest section of the community. It is this belief that the tax falls upon the persons most able to bear it—that it is a just tax—that supplies the reason for its popularity among those who have not got to pay it, and is responsible for the small amount of consideration accorded to the occasional complaints of those who have. The general view is that a man is lucky to be in a position to pay Income Tax, and any person who is reasonably well off is placed in an invidious position the moment he mentions the words "Income Tax." I do not expect to escape criticism of this kind any more than I can hope that, under existing circumstances, the noose will be slackened from the necks of unfortunate Income Tax payers as a result of my efforts; but I count such criticism a small thing if I can draw attention to the fact that they are being, strangled, and suggest that they are really more serviceable to the State alive than dead.

When the then Chancellor of the Exchequer (Sir Michael Hicks-Beach) was introducing the Budget of 1900 he declared that the Income Tax had always been considered a tax that might properly be augmented on the occasion of a war, for the obvious reason that it could be dealt with either by way of raising it when required for a war or by way of lowering it when the war was over without any practical disturbance either of trade or commerce In those words he enunciated a principle which, till to-day, was common both to practical statesmen and students of political economics—a principle which, till the period of office of the present Administration, has always been given effect to by the Governments of this country. At the beginning of the Crimean war, to go no further back, the rate of income Tax was 7d. in the £, and during the course of the war it rose to 1s. 4d. in the £. When Mr. Gladstone returned to office in 1880 he found the Income Tax at 5d. It is not perhaps surprising that thenceforward the rate of Income Tax showed a tendency to rise, especially under Liberal Governments, but prior to the South African war it had not exceeded 8d. In the height of that war the rate was not increased beyond 1s. 3d. in the £, and when the Conservative Government went out of power in 1906 it had been reduced to 1s. It would have been reasonable to expect that, as the effects of the war diminished, so the rate of Income Tax would have been reduced. Instead we find that, in spite of limited concessions in favour of earned incomes, the normal rate has been so increased that the average represents an advance upon that paid during the early part of the Boer war. The tax has changed in character. It is now a tax which is always increased in time of war and never decreased in time of peace.

How do the proposals of the present Budget square with the statement of the Prime Minister, when Chancellor of the Exchequer—a statement oft quoted, but not yet explained away, that in regard to Income Tax he did not hesitate to associate himself with the declarations of more than one of his predecessors that an Income Tax of a uniform rate of 1s. in the £ at a time of peace was impossible to justify. I maintain that whatever may be the case with the practice, the principle of the tax has not changed. The principle and justification of the tax is that it should be maintained during peace at a figure which gives room for expansion in time of war or unexpected crisis. Again, in the words of the Prime Minister, the maintenance of Income Tax at an excessive rate in time of peace is open to the same objection as the continuance at an abnormal figure of the floating debt, namely, that it tends to destroy, or, at any rate, to contract, a most readily available reserve on which the State can draw in any sudden and unforeseen emergency. The reasons against a high rate of Income Tax are many. By indirect taxation it is possible to ensure that a man's surplusage alone is hit. You may increase the tax to its economic limit, being certain that if a man pays it, he does so because he wants a luxury and thinks he can afford it. By indirect taxation you can to some extent tax expenditure instead of revenue, and so achieve a method of taxation which is economically sound. Income Tax, on the other hand, is in many cases either a tax on savings or a tax on the necessaries of life. It is a direct deterrent to thrift and an encouragement of evasion and extravagance. The higher you place the rate, and the more you discriminate between earned and unearned incomes, the greater that encouragement becomes.

The man who must save, to whom thrift is all important as a provision for his family or his old age, is the man who is hit hardest. So long ago as 1859, Mr. Bright declared the Income Tax to be odious and hateful because it was unjust. It is still unjust, and the higher the rate is fixed the more unjust and the more immoral it becomes. It is obvious that the higher the rate is fixed the greater the inducement to take the risks of evasion. But I do not wish to state the case unfairly, or to overlook arguments on the other side. As the rate of Income Tax has grown, so the inquisitional nature of the tax has increased, so that many people now have to make a complete return of their incomes, and I have recently seen it suggested that it is time that such a condition of affairs became universal. Of course, it would be an excellent thing if we all knew each other's incomes. I do not say this on my own authority, I quote from an authority which will be well known and readily accepted by hon. Members opposite, John Stuart Mill:— One of the social evils of this country is the practice, amounting to a custom, of maintaining, or attempting to maintain, the appearance to the world of a larger income than it possessed; and it would be far better for the interests of those who yield to this weakness, if the extent of their means were universally and exactly known and the temptation removed, to expend more than they can afford. But the same authority has other remarks upon the Income Tax which I venture to think outweigh this prime advantage. He points out that on whatever principle of equality it may be imposed, it is in practice unequal in one of the worst ways, falling heaviest on the most conscientious, and that this tax, while apparently the most just of all modes of raising a revenue, is in effect more unjust than many others which are primâ facie more objectionable. The Income Tax is, of course, a permanent institution in this country. It is only fit and proper that it should be graduated so that the heaviest burden should fall upon the broadest shoulders. I think that there are few people that pay Super-tax to-day who have any complaint to make so far as they personally are concerned; but the influence of an excessive average rate of Income Tax in time of peace, as I submit the present average rate is excessive, is not personal or peculiar to them. "It is," and again I quote the Prime Minister, "a burden on the trade of the country which in the long run affects not only profits but wages." The question involved is not the luxuries of the wealthy few, but the general welfare of the many. Because a man does not pay Income Tax directly, it does not follow that he does not feel its burden. An excessive Income Tax is a tax on profits, and a tax on profits, to refer once more to the economic apostle of Free Trade, "is, in a state of capital and accumulation like that in England, extremely detrimental to the national wealth." And this effect is not confined to the case of a peculiar and therefore intrinsically unjust tax on profits. The mere fact that profits have to bear their share of a heavy general taxation, tends, in the same manner as a peculiar tax, to drive capital abroad, to stimulate imprudent speculations by diminishing safe gains, to discourage further accumulation, and to accelerate the attainment of the stationary state; all of which things are bad for the community as a whole, and must lead eventually to a state of things in which "a part of the burden will be thrown off the capitalist upon the labourer or the landlord." I, of course, appreciate that money has to be found somewhere and by some means. To one who has not had time to become accustomed by insidious degrees to the growing liabilities of the State, the addition of nearly £50,000,000 to the National Expenditure in the course of a dozen years, is a fact of almost overwhelming significance. There seems no immediate probability of material reduction in this stupendous rate of increase. Where is the money to be found? If it cannot be found except by maintaining the Income Tax at a rate in time of peace which is injurious to every class in the community, and a danger to our financial ability to withstand the shock of war, we have a right to claim that the present economic system is a failure. There are those on this side of the House who could find a way to get the money; but hon. Gentlemen opposite are like a former Member of the House, of whom Sir Robert Peel once said, that— The right hon. Gentleman never felt half the indignation at the financial difficulties of the country that he exhibited at the imposition of a differential duty upon Colonial asses as compared to foreign asses. There are means, if the Government would but adopt them, by which money could be found for the needs of our country without piling up Income Tax, and without infringing that "soundest principle of Liberalism," the free breakfast-table. But if the fetish of Free Trade still holds them, I conclude in the words of Mr. Bright, I hold that, whatever be our taxes, let us have £50,000,000, or £70,000,000, or £100,000,000 a year, and I know not but we may live to see taxation grow up to £100,000,000 a year as heedlessly as we have seen it grow up to £70,000,000—whatever the amount of our taxes, let us endeavour to do honestly by our countrymen, not pressing the poor, whether our taxes be heavy or light in the main, laying them with ft stronger and noire resolute hand upon property, hut in dealing with Property dealing just as honestly with its owners, as we should deal with the poorest subjects of the realm.

Mr. JOHN WARD

In this part of the Debate we have had two very interesting speeches from hon. Members opposite, and, comparing them with the speech by the hon. Member on this side, one sees now fairly well at least one point on which there is a real difference between parties in this House. Occasionally one outside imagines that there is a great deal of sham fighting here between the two sides, but that cannot be applied to the question of the raising of the revenue to carry on the business of the country I venture to say, so far as the poor men are concerned, that there is no possible chance of them hesitating as to which of the two sides they ought to support. The speeches of the two hon. Members opposite, and especially that we have just listened to, are declarations, as far as I understand them, in favour of a system of raising taxation which I understood was antiquated and had been discarded, not only by this side of the House but also by the leading men of the Opposition, and that is a glorification of indirect taxation. Why should a system of indirect taxation be so much more advantageous in the opinion of hon. Gentlemen opposite? It seems to me that of all the taxes there are which can be justified by experience and by common sense and by economic law, it is the tax which we are now discussing. It is the fairest and most just system of taxation that one could possibly imagine. It seems to me that the idea suggested by the hon. Member for Aston (Mr. E. Cecil) and the hon. Member for Hythe (Sir P. Sassoon), that a man should pay for the service of the State without knowing what he was paying or the exact amount as compared with what other citizens were paying, is a principle which is unjust and unfair, and which could only possibly have been asserted and supported in a Parliament controlled almost entirely by aristocratic influences. The hon. Member for Aston surely will agree with me that it is more honest for the State to say to a man, "The expenses of the country are so much, and according to your resources this is the amount you have to pay." I am bound to say that one of the great advantages of the great discussion that took place some years ago on what the hon. Member for Aston referred to as the "People's Budget," was not so much that it secured the money, but that the people of the country did at last discuss closely the principles upon which taxation rests.

I feel certain that the majority of the people are in favour of a direct system of taxation, as illustrated by the tax we are now discussing, rather than any indirect system, and that if a plebiscite were taken they would express that view, especially in view of the speeches that we occasionally hear even on this side of the House. There are, for instance, advocates of a simple system of taxation known as the Single Tax, who say that it would be much fairer to pay one tax and one alone from which you should derive all the revenue required for the purpose of government. If we were to decide finally upon the necessity of simplifying our taxation by the adoption of a single tax, I should imagine that it would not be a tax upon land or upon any other kind of property, but that the most sensible and most scientific and fairest and most honest way would be to tax the incomes of the citizens. I am delighted at last to be an Income Tax payer, but I am only paying it, as is well known, even yet on a very small scale. I should like to pay it on a higher scale—I should indeed! It is one of the ambitions of my life first of all to pay 1s. 2d. in the £, and then eventually to pay the Super-tax on £5,000, instead of coming down here to grumble and suggesting a system of indirect taxation, so that the people who paid would not know what they were paying, and instead of pretending that that is the fairest system by which you could get the revenue of the country. That is a policy that might have been accepted years ago, but it is antiquated and out of date, and I believe that no Chancellor of the Exchequer, Liberal or Tory, is ever likely to adopt it again. There is the definite answer of honesty and fairness to those who claim that taxes should be imposed in this indirect fashion. I understand that in the case of incomes of over £2,000 the Income Tax on unearned income is 1s. 2d. in the £. [An HON. MEMBER: "It is that on all unearned income."] Then what are you grumbling at?

I know the hon. Baronet the Member for the City of London (Sir F. Banbury) thinks in money and represents money, and thinks that there is not any other interest in the world worth considering, only money. The Income Tax of 1s. 2d. is a terrible thing to him, but it is a glorious thing to me and to those I represent, because it shows quite clearly that we are getting the money from the people who can afford to pay, and that we are gradually reducing the burden on those who can ill afford to pay. Is there any hope that this form of taxation is likely to be superseded, or that States generally are going to adopt the indirect system in preference to the direct system of taxing incomes? We had an illustration in the recent election in the United States, and there is not much doubt among other things that the success of the democratic candidate was largely due to the fact that he advocated a more direct system of taxation for that country in the future than it had previously had. Taxation upon incomes, such as the tax we are now discussing, is in future to be part of the revenue producing organisation of the United States. I do not dispute that there may be grievances as to the method of collection and the inquisition involved in the present system. I dare say there are many personal grievances and wrongs that ought to be ventilated; but that the direct system of taxation is wrong in principle I for one do not think it is possible to maintain. The speech of the hon. Member for Aston was to the effect that the present Chancellor of the Exchequer had departed from the well-establshed rule that the revenue should be derived as nearly as possible equally from direct and indirect taxation. If there is any glory attaching to the present Chancellor of the Exchequer's financial policy, it is that he has gradually reduced the proportion of indirect taxation and increased the proportion of direct taxation. Instead of going hack to an equilibrium between the two, I think the tendency of all Chancellors of the Exchequer ought to be to obliterate indirect taxation from the financial arrangements of the country. Income Tax is the fairest tax if it is imposed upon a man in proportion to his ability to pay and is on his clear income. The whole object of my observations is to show that a direct system, as represented by the Income Tax, proceeds upon the fairest principle, although, as I say, there may be room for discussion whether it is properly applied. I do not see why it should not be graduated down to lower scales of income. I would prefer that the head of a working-class family should pay his taxation in a direct form, and know exactly for what he was paying.

One of the finest things about the Income Tax paper at the present time is that for the first time in the history of the Exchequer it sets out some of the items upon which the money is to be expended. In the case of municipal councils, it is stated on the rate papers that so much in the pound is for different items, so that the ratepayer knows exactly the kind of institution he is supporting and the business for which he is paying. The Chancellor of the Exchequer has begun that practice in connection with the Income Tax. Why should he not carry it a little further and give the whole of the items? If the head of a family has to pay £1 of indirect taxation—I am not saying that it is £1; the amount is immaterial to my argument—I say that that is an unfair way of raising the money. It would be infinitely better that he should know that he was paying £1, and that the attention of the family should be drawn to the fact. That would constitute as good a curb on extravagant expen- diture as could possibly be secured. If it were known every year, when the demand for the tax was made, that so much was for the Navy, so much for the Army, so much for old age pensions, and so forth, the citizen would look very closely at the paper and would want to know from the Government the why and the wherefor if there was an increase in any of the items. You would have a natural check upon the possible extravagance of any Government. For these and other reasons I certainly would not support the suggestion that we should glorify a system of indirect taxation at the expense of direct taxation.

Mr. PRETYMAN

I wish to say a word or two upon the excellent and clear speech by the hon. Member for Stoke in regard to the relation of direct taxation to the general taxation of the country. I think he hardly did justice to my hon. Friends when he suggested that they had objected on principle to direct taxation, represented by Income Tax, as against indirect taxation. That was not the intention of their remarks at all. They were dealing with the existing situation. I agree absolutely with the hon. Member for Stoke, that of all taxes that can ever be imposed, theoretically and ideally, an Income Tax is the fairest. I go further, and say that every other tax, as far as I know, whether indirect or direct, is really intended as a substitute for an Income Tax. Exactly the same remark applies to rates. On what principle are rates levied? On what any property may reasonably be expected to let at from year to year. What is that but the income which that property may be expected to produce? If the principle could be absolutely fairly applied to the raising of local rates, it would be an Income Tax. I take it that the hon. Member would agree that, if it were possible to have an indirect tax which fell upon people in proportion to income, there would be no injustice in it. I agree that it would not meet his suggestion, to which much weight should be attached, that in connection with indirect taxation people do not know what they are paying, and that there is no tendency to curb extravagance. An indirect tax is less galling; it is not felt so much directly by those who pay it; it is more convenient to impose; it does not arouse so much opposition; and, if it produces the same revenue in as fair a way, it is a very desirable tax. I admit that in so far as it departs from the principle of being a fair tax upon income in the widest sense of the word, it is unjust. Ideally, what we desire is that the whole of the taxation of the country should be levied according to ability to pay. But there is no given measure of ability to pay in fact, there is no other measure of ability to pay than the income, in the widest sense of the word, which every man possesses. But income has many forms and is derived from many kinds of property. I believe it to be an unattainable ideal that you should be able to impose by a mere rate of tax upon income a tax which will really fall evenly upon the true income, either real or potential, of every individual in the State. I do not think that the hon. Member would carry his objection to indirect taxation so far as to object to the taxes on beer and spirits.

Mr. JOHN WARD

I was merely supporting the principle of direct taxation.

7.0 P.M.

Mr. PRETYMAN

But the hon. Member would not desire to levy more direct taxation than was necessary. There may be methods by which the State could obtain considerable revenue by indirect taxation without doing any harm to the community. You do not come to the necessity for Income Tax until those indirect means have been exhausted. When you have passed that point, I agree that the fairest way of levying taxation is by means of an Income Tax. Up till now it has not been practicable to levy Income Tax over the whole community directly. We there come to a point which the hon. Member did not directly mention. He will doubtless agree that it would never be possible for any Government to levy the entire taxation upon a minority of the population, allowing a majority of the population, while paying nothing, to decide what the expenditure should be. The whole trend of the hon. Member's speech was that Income Tax ought to be levied, not only according to ability to pay, but on every class of the community. He then went on to reinforce the suggestion recently made by the hon. Member for Halifax that the working classes whom he represents would be willing to pay an Income Tax. That suggestion could only properly come from that quarter of the House. I do not think that it could be proposed by anyone except the working classes themselves. If, as education advances, as the working classes become more capable of understanding the nature of the necessity for particular expenditure, and of forming opinions upon the relative merits of different taxes, they arrive at the point of desiring to realise their own responsibilities and are willing to pay a direct Income Tax if it is levied upon them, I do not think that this House would resist that suggestion for one moment, provided it came from the working classes themselves, and was not forced upon them by another class. I do not know whether the hon. Member was present in the House an hour or two ago when another of his colleagues on the Labour Benches, the hon. Member for Bradford, expressed a contrary opinion. He said that the hon. Member for Halifax must not be taken to be expressing the opinion of his colleagues on the matter.

Mr. J. WARD

I must not be taken as expressing the opinion of anyone except myself; from my own knowledge of discussions that take place amongst the people among whom I move.

Mr. PRETYMAN

I quite understand that. I do not put it a bit further than that. The thing is at present in a somewhat embryonic state. It is nothing more than a suggestion made by hon. Members who have taken a great interest in the question of taxation here, and who have discussed that matter amongst their colleagues at home, and they have begun to think it conceivable and possible that the time may come when the working classes will desire to show that they are responsible, and that according to the ability they are willing to pay in the form of direct taxation. They do not put it further than that. There is no general statement from the Labour Benches in that direction. But I do think we are entitled to comment upon that fact that the subject has been mentioned from those benches twice in the course of the present Budget Debate. I think it is a very important suggestion, and I hope it may bear fruit in the future. I have one further remark to make, and that is that I do think it is unfortunate that on a subject like this, where I am sure every party in the House is absolutely agreed that taxes must be levied, and that this is on the whole the fairest tax—although there are many what I may call local injustices in the tax, as the hon. Member admitted, and which both sides desire to put right—I do very strongly deprecate a spirit of antagonism on either side of the House. I think nothing could be more unfortunate or do more to prevent the House arriving at a wise conclusion in this matter than that it should be thrown from that side of the House to this that all taxation ought to be thrown upon the rich, and that it should be suggested that if they had their way the poor would pay no taxes at all; that in the case of those, for instance, who died leaving large sums behind them it proved that the whole burden could easily be borne upon their shoulders.

That is not what the hon. Member who has just sat down says. He takes an exactly opposite view. Still, that kind of suggestion is made. On the other hand, on this side of the House, too often perhaps, we have heard the suggestion that the working classes demand constant expenditure, very little of which will fall upon themselves. I deprecate all that when we are discussing general questions of this character, for I think that both sides of the House do really desire to levy this fairest of all taxes according to ability to pay. There is another unfortunate fact I would comment upon: that is that this kind of spirit, and this kind of attack really defeats its own object. May I add this, too, that if you approach a man of large means and say, "There is national expenditure to be met; we do not desire to impose undue burdens upon you; we only desire to tax you according to your ability to pay, the representatives in this House of the very poorest classes only ask for that, and are willing to bear their own share according to their ability to pay, although it may be very small," I say that if you approach men of means in that spirit and ask them to contribute their fair share of the burden of taxation, I do not think there is one of them who would refuse the appeal. I think that any man to whom that appeal is made and who attempts to evade that taxation is a disgrace to his country. But when statements are made of a threatening character, when it is said that people who are well off are the enemies of the State; that attempts are to be made to tax them out of existence—statements of that character have a directly contrary effect to the first, and the people concerned then feel justified—and it is the worst of them that take the step first—in placing their money beyond the reach of any taxes imposed by the Chancellor of the Exchequer. If we approach this question of the Income Tax in the spirit of the speech that has been delivered by the hon. Member below the Gangway I think it would yield more than it does, there would be a chance of it being extended to other classes of the community, and that direct taxation might be still further diminished, and next year the revenue prospects would be very considerably improved.

The FINANCIAL SECRETARY to the TREASURY (Mr. Masterman)

I hope the House will come to a decision upon this particular Resolution, especially as the Debate has been largely, I readily acknowledge, uncontroversial, or not bitterly controversial, and also because I think the House will desire to obtain the Resolution dealing with the general amendment of the law. I may say in respect of that Resolution that it is put in, not in the interests of the Government merely, but in the general interest following, as I understand, the precedent set by Lord St. Aldwyn when he was Chancellor of the Exchequer, in order to enable the Opposition on the general financial position, or any private Member of the House, to propose any reduction in the taxation which cannot be covered by the Income Tax and the Tea Duty Resolution as embodied in the Budget.

Mr. JAMES HOPE

I do not want to interrupt the right hon. Gentleman, but can he say whether the amended Resolution is necessary for the Finance Bill, or only necessary for the future revenue.

Mr. MASTERMAN

It is not at all necessary for the Finance Bill, but is in order to enable the widest possible discussion not only in the suggestion of new laws, but in the suggestion of a desire for a reduction of the present permanent taxation. Therefore, I think, every one in the House would wish to see the Resolution passed. So far as the Government is concerned we could introduce the Revenue Bill without the Resolution at all. As to the statement made by the hon. and gallant Gentleman opposite (Mr. Pretyman) let me readily reciprocate the opinion he has stated of the desirability of discussing such a subject as this without introducing any party heat or acrimony into the matter. There are one or two statements that I wish to refer to mainly in connection with the speech of the hon. Member for Aston Manor (Mr. Evelyn Cecil). Apart from those statements, I have no wish to raise anything in the nature of party controversy. I agree with the hon. and gallant Gentleman that the main principle which must govern taxation—I think it is common to all parties in this House—is ability to pay. I do not think that is probably the only principle, for you must also introduce some considerations as to the advantages attained in the taxation. I think you must also introduce into the general scheme some consideration of questions as to how far special monopolies created by the State or by nature should contribute to the State or to national taxation. Apart from those reservations, I agree with the general statement. With that I turn to the speech of the hon. Member for Aston Manor. I find there some statements to which I am compelled to take exception. We have the habitual sneer in connection with the "People's Budget" which now must be the accompaniment of any debate on the Finance Bill. Someone made the jest on the opposite side, and it has been like the sacred torch that was passed from hand to hand, it has gone from mouth to mouth.

Mr. PRETYMAN

I must protest against that. The origin of the phrase is a book published by the Chancellor of the Exchequer, with his portrait largely emblazoned on the front, and the "People's Budget" written over the top.

Mr. MASTERMAN

If the hon. and gallant Member had done me the honour to wait for one more sentence he would see that I was going to refer to that particularly.

Mr. PRETYMAN

Where is the joke, then?

Mr. MASTERMAN

The difference is this. You are referring to the expression, the "People's Budget," with a sneer of contempt. People outside this House refer to the "People's Budget" with a smile of gratitude. [Laughter.] Certainly there are some millions who are doing that at the present moment. If I went into any of those cottage homes where the People's Budget is understood, after hearing the gratitude expressed there, I do not think it would be very difficult for me to endure the sneer of the hon. Member. The second point the hon. Member made was the statement, which is again and again affirmed, that we are groaning under the Income Tax of 1s. 2d. in the £. The hon. Member knows that nothing less resembles the actual truth. It does not in the least degree resemble the truth. Income Tax payers are not paying 1s. 2d. in the pound or anything like it. But for the fact that a certain amount of income in the usual way is collected from investments at the source of the income, there would be no question of what is stated. If the taxes were collected by affirmations instead of deductions, you would have an aggregated Income Tax of a totally different nature altogether. What are the actual facts of the case?

Mr. EVELYN CECIL

I was careful to refer to the statement of the Prime Minister that 1s. 2d. in the pound was not the average rate.

Mr. MASTERMAN

I know what the hon. Member says, but he makes comparisons with former years and with what former Chancellors of the Exchequer have said, and it goes out on his high financial authority that we are groaning under an Income Tax of 1s. 2d. in the pound, and his newspapers comment upon that absurd assertion! What are the actual facts? There are 1,100,000 Income Tax payers. Of these 820,000, to begin with, receive abatement under the ordinary system—that is they have incomes of under £700 a year—and they pay 1s 0½s., some of them, and the rest something like 6d., 7d., or 9d. Then there are 130,000 in addition who receive deductions on their earned income—deductions which have been given by this present Government. That leaves out of the 1,100,000 Income Tax paying persons probably less than 150,000 persons, or 13½ per cent. who are paying Income Tax of 1s. 2d. in the pound. That means that 86½ per cent. of Income Tax payers are paying much less than 1s. 2d. in the pound—the overwhelming majority infinitely less than 1s. 2d. in the pound. Under those conditions it is—I do not want to say anything distasteful to the hon. Member—but he will understand that I do say that it is an utterly misleading statement to repeat the statement that we are now suffering from an Income Tax of 1s. 2d. in the pound. What was the next point made by the hon. Member? He said that it had always been a financial tradition that half of the taxes should be got from indirect taxation, and the other half from direct taxation. I have tried to trace that financial dogma to any reasonable source, but after the investigation of financial statements of past years, I must honestly confess to the House that I have not been able to find it.

Mr. CECIL

I quoted Sir William Harcourt.

Mr. MASTERMAN

Certainly. The hon. Member goes on to quote statements, but I never heard from him or other hon. Members in this House a reasoned argument on the point. I think every tax ought to be treated on its merits, and ought to be justified on its merits. I have not heard a reasonable argument why it is erroneous for any Government to increase the proportion of direct taxation and to reduce the proportion of indirect taxation, as has been done by this Government; and I remain unconvinced by any statement of financial dogma on the subject. I will point out to the hon. Gentleman—he stands here in a much less satisfactory position than the hon Baronet the Member for the City of London.

Sir F. BANBURY

How is that?

Mr. MASTERMAN

I was going to pay a high tribute to the hon. Baronet. Quite apart from the question whether taxes should be imposed or not, or whether we are paying too much, the hon. Gentleman made the very definite point that we ought to have kept to the system of half direct and half indirect taxes, and, therefore, that if we are spending more money it ought to be by raising indirect taxation and not direct taxation. What happened this afternoon? There was a proposal, as I understand, to abolish the Tea Tax, amounting to something like £6,000,000. That would mean a very substantial reduction in indirect taxation, and we could have met it by direct taxes; we might have a fair balance between the two. What did the hon. Baronet do? We had the honour of having him as a comrade with us in our Lobby. He contends that to reduce Income Tax or to reduce the Supertax or the Death Duties would be all right, but he would not reduce the Sugar Tax or the Tea Tax. What did the hon. Member for Aston (Mr. Evelyn Cecil) do when the Division came on? He ran away.

Mr. EVELYN CECIL

No, but I thought you could very well take care of yourselves.

Mr. MASTERMAN

May I suggest that there are two classes of persons who are concerned. One the class that pays the Tea and other indirect duties, and the other the class that pays Income Tax, and the hon. Member was extremely reluctant to tell the people who paid the Tea Duties that he would vote for the retention of that tax, while at the same time he tries to make a case why the Income Tax should be reduced. I have more political respect for Gentlemen who try to carry their principles to their logical conclusion than those who try to get an advantage from one side, and get an advantage from the other also. The next point he made was the question of relaxation. As everyone knows we are not merely concerning ourselves with giving relaxation to the non-Income Tax payer. We have swept away some taxes on sugar and some taxes on tea, and we have already given as the Chancellor of the Exchequer has stated very substantial reductions to the Income Tax payer. There is the reduction to the comparatively rich man on Schedule A, and there is the reduction to the man of moderate means on earned income and the reduction to men of families and of comparatively small means, a reduction which I know from personal investigation has been very greatly appreciated. I find that a very large number of those people are putting into insurance for the children the money they have gained from that saving. Take a man earning £1,200 or £1,500 or £1,800 a year, which in the view of a poor man like myself is a very substantial income. That man is having a very substantial reduction in Income Tax as the result of the action of the Government compared with what he paid when hon. Gentlemen opposite were in office.

The next point is one which has been again and again put forward and is rather a stock argument in these Debates, namely, that by continuing a high Income Tax we leave ourselves no reserve in time of war. What are the actual facts, and what have the Government done? The Government might have reduced the Income Tax by something like 6d. in the £, if it had not paid off so much of the debt of the country, but instead of that they preferred as an advantage in time of peace and as a reserve in the miserable calamity of war to pay off £113,000,000 of debt. There is no better method of building up a reserve in time of war than by reducing the indebtedness of the country in times of peace. Then the hon. Gentleman said that on the question of Income Tax is was not so much the question of the particular tax as the question of the total expenditure. You have ruled, Mr. Speaker, that the question of total expenditure is not appropriate to a debate upon Income Tax, and certainly I have no reason to contest your ruling. I only make this one statement upon that subject: If the hon. Gentleman really thinks that we could reduce the Income Tax, and that we ought to reduce the Income Tax by refusing to indulge in any further expenditure, will he be consistent, and will he and his Friends, when schemes of expenditure are proposed all over the country at by-elections and elsewhere, and when the Government are accused of resisting these great schemes—will he do us the justice to say, "No, you are all wrong in attacking the Government; that money ought not to be voted, because the chief interest is economy, and economy will enable us to reduce the Income Tax."

Mr. EVELYN CECIL

I have said so.

Mr. MASTERMAN

The hon. Gentleman's party has not said so. His party is trying to make capital now because we do not increase the expenditure by £1,000,000, and his party are trying, on the other hand, to make a reduction of £6,000,000 on the Tea Duty. Surely that is not consistent. The last statement I have to make is this: Many suggestions have been made, and by no one more cogently than my hon. Friend the Member for Northampton, for dealing with Income Tax, and some have even suggested Income Tax for local purposes. I do not deny that the arguments of my hon. Friend are arguments which should be considered by any Government, but the only consideration I advance is we ought to act very carefully before we tamper in any way with this great and just instrument of taxation. The hon. and gallant Gentleman (Mr. Pretyman) said that the Income Tax was the least impeachable form of taxation that existed. I agree. Look at what it means this year! We propose to bring in by Income Tax from those who have the ability to pay £42,750,000 in ordinary Income Tax and £3,250,000 in Super-tax, making a total of £46,000,000 coming in on the basis of ability to pay. At the same time we are presenting Estimates which coincide almost to a pound for naval expenditure, and Income Tax payers may have the consolation that they are paying what they always professed they would pay for, and that they alone are maintaining the naval forces of this country. I say, under these circumstances and with the knowledge that almost every one of the great States in the world are turning to the Income Tax as a source of raising national revenue, and are turning to it as the result of the experience they see obtaining in this country of the enormous utility of the Income Tax as a source of national revenue, and as they see the way in which this country, with its increasing wealth and natural expansion, provides more and more money from the Income Tax, it would be folly, whichever party was in power, to attempt to tamper with this instrument of taxation.

Sir F. BANBURY

The right hon. Gentleman has given us figures which show the number of people Who pay less than 1s. 2d. in the £ Income Tax and the number who pay 1s. 2d. in the £, but may I point out that in all Governments, at any rate during the last thirty years, there have been grades of Income Tax? In the time of my right hon. Friend the Member for East Worcester (Mr. Austen Chamberlain) there were a large number of people in the days of the Boer war, when the Income Tax was at 1s. 3d. in the £, who did not pay the 1s. 3d. rate; people whose incomes were under £500 did not pay as much as the Income Tax payers rated at the higher figure. The only difference the right hon. Gentleman has shown is in the case of earned incomes under £2,000. That is a proposal which was initiated and carried out by the Liberal party, but, with that exception, no other difference was made in the Income Tax since the Liberal party came into power.

Mr. MASTERMAN

There is the Schedule A abatement and the exemption of families.

Sir F. BANBURY

That is really whether a man is paying on what is his income. That, I admit, is a concession. With regard to the families, it is a question of assessment and not of taxes. It is true I omitted what in those days was called the Dog Tax of 7s. 6d.

Mr. JONATHAN SAMUEL

It means the remission of £700,000.

Sir F. BANBURY

I think the remission must be very small.

Mr. J. SAMUEL

I beg pardon, it is £600,000, not £700,000.

Mr. PRETYMAN

I presume the hon. Member means that the £10 reduction per child is £10 assessment, and not £10 taxes, and what he probably means is that the assessment is reduced by £600,000.

Mr. JONATHAN SAMUEL

No, there was a loss to the revenue by this remission of £600,000.

Sir F. BANBURY

The right hon. Gentleman the Secretary to the Treasury can give us the correct figures. I was going to point out to the right hon. Gentleman what seems to me a very good argument in favour of a moderate amount of indirect taxation. I think the right hon. Gentleman said that out of 1,100,000 people who pay Income Tax only 150,000 pay at the rate of 1s. 2d. in the £. My point is this: Is it not very dangerous to allow such a large amount of taxation to be put upon such a small number of people as 150,000? We have here some 7,000,000 electors out of a population of 45,000,000, and here is a very large sum of money placed in the form of taxation upon 150,000 people. Is that not a direct temptation, in these days, or in any days, when the power is in the hands of the people who do not pay so much taxation, and a temptation to hon. Members who are dependent for their presence in this House upon the votes of the democracy who do not pay, to vote for expenditure? I admit that what the right hon. Gentleman said in that respect is true. Is it not a temptation for them to vote for it in the hope that it will fall upon this comparatively small number of 150,000 people who can exercise no influence at election time, and who have, or will have, the ability for the time being to pay this heavy share of taxation? That is a very strong argument in favour of having, at any rate, some considerable proportion of the taxes raised by indirect taxation? I do not go so far as the hon. Member for Stockton (Mr. Jonathan Samuel) said some people are ready to go. I do not say that you ought to go back to the old system where indirect taxation provided some 75 per cent. of the-taxes, and direct taxation only 25 per cent. Although that may not be right, it is a very different thing to say that 75 per cent. should be provided by direct taxation and only 25 per cent. by indirect taxation. A moderate average is really the proper course in this as in many other things. There should be a certain proportion raised by indirect taxation, and a certain proportion by direct taxation, and I rather agree with my hon. Friend that that percentage should be about 50 per cent. of each.

I am not quite certain that the reduction in the case of unearned incomes from 1s. 2d. to 9d. is altogether a wise thing. Of course it is a popular thing. Every one who happens to earn an income of £2,000 is naturally very glad to know that he has only to pay 9d. instead of 1s. 2d., but look at the hardship upon the man who has worked hard for a large number of years and has saved money, and has consequently been able to invest a certain sum of money which will return £600 or £700 a year, and in his old age have to pay upon that at the rate of 1s. 2d. in the £, whereas a young man who is making £2,000 a year, who is providing nothing whatever for his old age, who is spending everything he is getting, only pays at the rate of 9d. I really do not quite see where the great advantage of that comes in. It is a direct incentive to extravagance and a discouragement of thrift. I think that a person who has saved money, and who has an income from what he has saved, should be encouraged instead of being penalised as he is under the present system. One of the great disadvantages of our present system of taxation is that it encourages extravagance and penalises thrift, and this is a particular example of it. I want to say a word about the question of Income Tax in time of war. The right hon. Gentleman rather put that by by saying that it was a stock argument of my hon. Friend. Stock arguments are very often very good, and certainly it was the first principle I learned, when I took an interest in finance, that the great reserve of this country in time of war was the Income Tax. It was pointed to me that countries like Russia, and, I believe, to a great extent Germany, kept a large reserve in gold, bearing, consequently, no interest as a war reserve. They had what was called in those days, and is probably still called, a war chest. We have no war chest in England. We are a great Empire, subject, though not perhaps so much, to a great many of the risks which Russia, Germany, and other great European countries are subjected to, but we have no provision in the shape of a war chest, as these countries have. The answer to that always was that we have a provision in the Income Tax, that the Income Tax in this country is fixed at such a rate that, in the event of there being a war, it could be raised and the richer classes would be able to contribute largely by Income Tax towards the funds necessary for carrying on a war. It was pointed out to me that that was a very much better way of keeping a war chest, because it allowed people to keep that money in their business and encouraged enterprise. It enabled them to go on with manufacturing business or other kinds of business, whereas if we kept a sum in gold it would be locked up in the Bank of England or in some other secure place. But if we are going to keep the Income Tax at 1s. 2d. in time of peace, I think the war reserve disappears.

I suppose it would not be in order to allude to the Death Duties, but they are really the same question. If I may for one moment point out the connection, the real Income Tax at the present moment is not 1s. 2d.; it is very much more, because the Death Duties are practically Income Tax. You have got to make a calculation which I cannot make at the present moment, of how much has to be added to that 1s. 2d. to represent the Death Duties. If that is added, you will find that the Income Tax at the present moment is, not only as high as it has ever been in time of war, but considerably higher. I merely submit that this is a question which does deserve the serious consideration of the right hon. Gentleman and the Chancellor of the Exchequer. I could not raise this question on the Committee stage because, although the Eleven o'clock Rule was suspended, it was arranged, I understood, that the Committee stage should terminate at about the usual hour. I do think that such an important question should have proper consideration given to it by the right hon. Gentleman. I quite sympathise with him, if he will allow me to say so, in his complaint that there is a very large number of Members on both sides of the House who are always anxious for expenditure. I have never been one of those, and I think that on the Bill to which he alluded I voted with his party, and did not vote with my Friends on this side. I quite recognise it is no use getting up and saying we object to expenditure, and at the same time going to the Government and saying we want a million for this and a half-million for that. I am not tarred with that brush. I have always consistently voted against all these schemes of expenditure. Sometimes I think my action has been misconstrued. It has been thought that. I did not vote for them because I had an unkindly spirit, but I do not vote for them because I do not believe We can afford them at the present moment. I believe that is a sound principle to go upon. There are a great number of Members in this House who do not go upon that principle.

There is a method of levying Income Tax which I think is a very unjust one. Supposing a person has a house and a garden, Income Tax is levied upon the occupation of the garden. I have a garden. I do not make any profit out of it. The reverse is the case. I make a loss upon it. I pay a certain number of men, and I get a few vegetables and a little fruit, and I get my lawn mowed. They cost me as much as if I were to put the cost of the vegetables and the flowers at the highest price in Covent Garden, and yet I have got to pay Income Tax upon a problematical profit which the right hon. Gentleman's subordinates say I have made upon that garden because I occupy it. It is a small matter; it is only a few pounds, but it is the principle that I contend for whether or not it is a great injustice to charge Income Tax in that way. What does Income Tax mean? It means a tax upon income. How can you come down and say you have got to pay something when there is no income2 It is surely not right to say, "We believe it to be an income which you might make under certain circumstances." I do not believe anybody could make a profit out of a garden—no private individual at any rate. But even if one were fortunate enough to make a profit, then put a charge upon that profit, but the person who cannot make a profit should not have a tax to pay upon it. May I hope to receive for these points the favourable consideration of his Majesty's Government? If the right hon. Gentleman will nod his head that will be enough. I did not see him do so. I think he might be ready to consider how to remedy this injustice, especially as the return is so small. It is not a good argument to say that the return is small, but after all, because it does not mean very much money it may be an argument which will appeal to the right hon. Gentleman. I should like to ask whether it would not be possible to do away with what I consider a great injustice—that is the making of a husband liable for Income Tax upon his wife's income. Why should the income of husband and wife be lumped together in these days when in a great many cases he has no control whatever over his wife's income? Why they should be lumped together, and why he should be made liable, perhaps for Super-tax in consequence, I cannot conceive. If a brother and sister live together their incomes are not lumped together. If you are not married to your wife your incomes will not be lumped together; it is a direct incentive to immorality. If you are married, your wife's income is joined to yours, and you may be brought under Super-tax. If you are not married, that is not so. I really do think in these days—I am not quite certain how the right hon. Gentleman voted last night; I think he voted for the women. I am told he ran away like my, right hon. Friend here.

Mr. MASTERMAN

The right hon. Gentleman's first surmise was correct, and did more credit to my character. I voted for it.

Sir FREDERICK BANBURY

He voted for it. Then I think, with his view of the rights of womanhood, surely he would not want to lump the wife's income with her husband's, and would agree that they should occupy at any rate an equal position, and that the husband should not be supposed to be in any kind of way a superior person. It is most inconsistent on the part of the right hon. Gentleman. Perhaps, to make himself consistent, he will accept the Amendment on that point of my hon. and learned Friend behind me. May I appeal to the right hon. Gentleman to give these matters a little consideration in view of the fact that I have been a consistent supporter of his party against any increase of expenditure?

Mr. CHIOZZA MONEY

Income Tax has now become a permanent part of our system of taxation, and it is surely beside the point to refer to that somewhat obsolete argument about it being a war-reserve. The hon. Member for Aston Manor (Mr. E. Cecil) makes that speech every year, and I find myself in danger of making the same reply every year. The real reserve of the nation in time of war is the entire wealth of the country and the national dividend of the country. It is that and nothing else, and if in time of peace that wealth or that national dividend is attacked by any taxes whatsoever, you perform precisely the same operation whether you call the tax a Tea Tax or an Income Tax. Whatever name you care to give it, you take something from the nation's dividend, and all you have to have regard to surely is the principle of equity and justice, asking yourself from what persons you are taking it. The hon. Baronet seems alarmed at the prospect of a 1s. 2d. Income Tax in time of peace. He should reflect upon those very striking facts which were given to the House by the Financial Secretary (Mr. Masterman) as to the small number of persons who actually pay 1s. 2d., and also as to the amount of money which after all is raised, not only by the Income Tax, which has become the chief instrument of our taxation, but by all our taxes put together.

I do not suppose anybody will quarrel with my estimate of the national dividend if I put it at well over £2,000,000,000. It could not have been less last year than £2,100,000,000. I think our national expenditure is commonly exaggerated by the inclusion of the Post Office figures. If you subtract the Post Office figures, which are not really national expenditure, our national expenditure is £175,000,000. That being the case, what proportion of the national dividend are we taking? If we took a tithe, we should be taking £210,000,000. I remember a very striking essay by the late Sir Robert Giffen in which he pleaded with the nation to consider whether a nation like this ought not to be taking for national purposes at least a tithe of the national dividend. If we were taking a tithe at the present time, we should be taking £210,000,000, whereas we are taking very much less. I am not pleading for taxation for taxation sake. I am only trying to reassure the hon. Baronet (Sir F. Banbury) with regard to his fears as to the rate of taxation we are levying. I take it that the hon. Baronet does not desire that the working man's family should pay an Income Tax larger than is paid by a Super-tax payer.

Sir F. BANBURY

No.

Mr. CHIOZZA MONEY

If he investigates the facts, I think he will find that if you take an average penny of the working classes they are paying an Income Tax expressed as a percentage which is rather higher than that paid by the middle-classes, and is almost as high as that paid by the Super-tax payers. I do not want to quote the figures because I have not got them with me, and I know how dangerous it is to quote figures from memory, but this general statement is at least true, that the average working man's family pays taxation, expressed as an Income Tax, higher than the middle-class man, and rather lower than the Super-tax payer. It cannot be said, in spite of the adjustments and the amendments that have been made, that the working classes are not taxed greater in comparison with other classes. I want to pass to some interesting remarks made by the Financial Secretary. He claimed, on behalf of the Government, and it is a just claim, that they have given more attention to the principle of ability to pay than was given in former times, and the figures he quoted shows that is true; but, while that claim is true, the hon. Member opposite might have replied by pointing out that it wants a great deal of explain- ing to the public what our system of Income Tax really means, and I say that is a criticism of our system of Income Tax. A man has to sit down and examine the Income Tax very carefully indeed—not only the provisions of the Act, but a list of concrete examples—and make a table for himself before he can understand what it means. That is a criticism of the Income Tax which ought not to obtain at this time. My right hon. Friend pointed out, with perfect justice, the small number of people who pay the 1s. 2d. rate, and he might have added the 1s. or the 9d. rate, but that is never made clear to the taxpayer. Supposing the taxpayer received a demand note which showed him a plain, graduated scale of taxation—let us say he has £500 a year—he would see that a man with £500 has to pay at a certain rate, that those with a less income pay at a less rate, and that those with a greater income pay at a greater rate. The justice and common sense of the system would immediately appeal to him.

Under the existing system there is nothing to reveal to him exactly what is his rate of Income Tax. He does not work it out for himself. He does not work it out with regard to his neighbours, those of his neighbours who have smaller incomes and those who have larger incomes. He, therefore, does not understand exactly how he is treated by the Income Tax system. Really, even if he did, and supposing he took the trouble to take the man with £100, the man with £200, and so on, working his way up to the man with thousands, which he does not himself possess, what would he find? Would he find it very equitable? He would find that some attention has been given to the principle of ability to pay, but he would find that it has been done in a very rough way indeed. Take merely the case of a man with £700 a year. It is extraordinary that a man with £700 a year should pay equivalent to 8d. in the £, whereas, if he got £10 a year more income, his rate would be 9d. in the £. Our Income Tax is full of these extraordinary anomalies. There is, with regard to unearned incomes, a certain amount of graduation, but how poor it is. At £700 a year graduation ceases until we reach the region of the Super-tax payer. You get graduations from £160 up to £700. At that point you reach is. 2d. I do not hesitate to say that 1s. 2d. is too much to levy upon an unearned income of that size, but there graduation ceases. The man who has £2,000 a year also pays 1s. 2d., and the man who has £3,000 a year also pays 1s. 2d. You do not get any fresh graduation until you arrive at the Super-tax line. There, of course, the man with an earned income over £5,000 begins to pay at a higher rate, but you get an extraordinary gap in the graduated scale between £700 and £5,000, which surely ought not to obtain. It is high time we graduated those incomes.

I do urge that very strongly, because graduation is the real differentiation. Really, if you graduate your scale properly, you need not worry very much whether it is earned or unearned. The graduation itself effects justice in the matter, because, as a general rule—I am using the word "unearned" in the sense that it was used in the Finance Act, that is to say, incomes derived from dividends and interest and so on, and not dependent entirely upon the exertions of the individual—as incomes rise in the scale, they are found more and more on examination to be unearned. Therefore, if you graduate the Income Tax you also differentiate the income. You perform the two operations at the same time, and you need not worry very much about the differentiation. I regard that point as of very great importance. What stands in the way of this? There is only one thing, and that is to complete the system of personal declarations, which is now almost complete. Let us think what we do. If a man has an income of under £700 a year, he has to declare his income or he does not get abatements. Again—I am speaking now of earned incomes—he has to declare his income in order to get the 9d. up to £700 a year, or 1s. up to £3,000 a year. Then, when you get into the higher scale of incomes you get the Super-tax-payers also declaring their incomes. It comes to this, that out of every eleven Income Tax payers about nine now for some reason or other make a personal declaration of their incomes.

Why should we not complete the system? I suggest to those in charge of our national finances that, if we did complete it, we should get a better result from the Income Tax. Why should we merely fish in regard to the Super-tax, for example? Why should the Commissioners merely send a form of declaration to persons whom they suspect to be very rich? I do not know, and I have often wondered upon what principle they conduct this fishing process. The curious figures that were given the other day by the Chancellor of the Exchequer in reply to a question were quite a revelation to me, and I think to many others. We find that in the present year the number of fishing inquiries is only about 17,000 in a great nation like this. Is that enough? I very much question whether it is. It is very difficult in these times to detect whether a man has £2,000 or £5,000 a year merely by the way in which he lives. You cannot tell that. It is especially difficult in the provinces. I should very much like to know upon what principle the Commissioners fish for the Super-tax payers. If we had declarations all round, I am quite sure that we should not only get better returns from the Super-tax, but better returns from the Income-tax also. The people with middle incomes, if I may use the term, would not be in the position that they leave the Government to tax them where they can at the source. I am not, of course, suggesting the abrogation of taxation at the source. If you had a system very much like the Super-tax system, of levying a certain amount at the source and collecting the balance on personal declaration, you would combine all the advantages of taxation at the source with all the advantages, and they are great, of taxation on personal declaration of income.

8.0 P.M.

I suggest that my right hon. Friend might well consider whether that admirable conception of making allowances to the family man cannot be carried a little further. We have now got a family man's allowance. But what about the man who has no family? I once suggested seriously to this House, and I venture to suggest it again, that we might very well indeed, in view of the needs of the national exchequer, penalise the bachelor. Supposing we made the bachelor pay 25 per cent. more on his income for one thing, it would be no more than he deserves. Even if he paid 25 per cent. more, he would obviously be left in a better position than the family man with the same income and with his family responsibilities. Surely, in view especially of the fall in the marriage-rate and the birth-rate, we might give very serious consideration to that suggestion. It has been seriously considered in other countries, and I see no reason why we should not adopt it. Apart from that, there are other allowances which might be made to small Income Tax payers which somewhat resemble the family man's allowance. I think in cases where a man suffers special misfortune, or where a man has suddenly the support of poorer relatives cast upon him, there ought to be power given to the Commissioners to make certain allowances within certain limits. The Prussian Bureaucracy has a name for hard dealing, but the Prussian Bureaucrats do this thing. Why should not we have such regard to ability to pay as to make such common-sense provisions as that? Then we might make payment easy to the small middle-class man. The payment of Income Tax is very often a burden to him because he has to pay it in one sum. Why should we not make it payable half yearly, or even quarterly? I am suggesting all these things to my right hon. Friend with a view of improving this instrument of taxation, which has become our chief instrument of taxation. Why, therefore, should we not do everything we can to improve it. Reference has been made to local Income Tax. We have to face the fact that our local government demands more revenue. That being the case, do not let us run away with the idea that by any special tax of any kind we shall ever get enough for this purpose. If we want sufficient money for local purposes we must have regard to the wealth of the community, and there is no other proper way of having regard to that wealth than the levying in some form or other of local Income Tax. Our present rate is a form of local Income Tax. I make the suggestion to the Treasury Bench that they should give this matter most earnest attention. Since it appears that they are contemplating a reform of local taxation, they should have regard to this question, and not put it away from them as being impossible. You will find in the great towns of Germany the local Income Tax is the chief instrument of taxation, just as we make it for our national purposes. If the Government refuse to consider the possibility of the scheme they will retard the development of local government in this country. Local government demands increased revenues. These increased revenues, in my opinion, cannot be secured unless we have regard to this form of taxation, and I hope my right hon. Friend will not relax his efforts to readjust taxation in view of what I have said with regard to the high proportion of taxation still falling on the working classes. It would be churlish to deny what the present Government have done in this direction, but I would urge them to take their courage in both hands and go a little further. A working man's family, with an income of 30s. a week, ought not to be expected to bear a higher rate of taxation than 5 per cent. As a matter of fact, it bears much more like 10 per cent., and I am sure my right hon. Friend will see that there is a great deal still to be done before we can lay the flattering unction to our souls that we have put the taxation of this country on a fair basis.

Bill ordered to be brought in upon the said Resolutions by the Chairman of Ways and Means, the Chancellor of the Exchequer, and Mr. Masterman.

FINANCE BILL,—"to continue the Duty of Customs on Tea and to reimpose Income Tax (including Super-tax), and to apply with respect to Income Tax, including Super-tax and the annual value of property, the like provisions as were applied in the last preceding year"; to be read a second time upon Tuesday, 27th May, and to be printed. [Bill No. 174.]

Resolution reported,