HC Deb 06 May 1914 vol 62 cc293-367

Motion made, and Question proposed, "That the Customs Duty charged on tea until the first day of July, nineteen hundred and fourteen, shall be charged as from that date until the first day of July, nineteen hundred and fifteen, that is to say:—

Tea, the pound … … five pence; and 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. Lloyd George.]


I understand that we have your permission to make use of this Resolution to continue the general discussion of the Budget Statement of the Chancellor of the Exchequer which was made a couple of days ago. That statement occupied a great deal of time and covered an immense area of ground, yet it left gaps in our information which are only partially filled by the White Paper which the right hon. Gentleman has circulated, and, indeed, it opened up vistas which it will take this House a long time to travel down. I shall not attempt to follow the Chancellor in detail in all the many subjects which he raised. If I was to do anything of the kind my speech would be as long as his, and I am not sure that in the present stage of the information I should leave the country much wiser than I found it. But there are some observations which even at this early stage, and with the imperfect information which we at present have, that I would like to make. The Chancellor dealt very briefly with the results of last year. He congratulated himself, as he was entitled to do, on the realisation of Estimates the accuracy of which had been disputed by his critics a year ago. I was one of those who thought that the basis on which he told us he had framed his Budget was over-sanguine. I picked out one particular item last year as being an underestimate—that was Stamps—and apparently in that regard I was more fortunate in my guess than the Chancellor of the Exchequer. But the Chancellor of the Exchequer has had his Estimates justified, and more than justified, by a year of quite extraordinary prosperity from the Treasury point of view. He has now to budget for another year, which he tells us he cannot expect to be as prosperous as last year, but which he regards as likely to be a good normal year. Upon that assumption, and, indeed, upon any assumption, I cannot help thinking that the right hon. Gentleman has underestimated his income, and I would add that I am really at a loss to comprehend the Estimates which he has submitted to the House, cither for the current year or future years, as being the result to be expected from the alteration in Income Tax which he makes in reference to income invested abroad. These art minor matters, on which I do not wish to say more now. I rather want to clear away one or two subjects of this kind before entering on a general examination.

One other minor matter of the kind relates to the finance of the year. Towards the very close of last year we had submitted to us very large Naval Supplementary Estimates of, I think, £3,000,000; yet, if I understand what occurred rightly, the Admiralty underspent £1,500,000. If I am wrong I should like to be corrected. If I am right I should like some explanation of how it comes that so late in the year the Admiralty was so far out in its calculation. There is only one other point I propose to mention in regard to the finances of last year. The Chancellor once again reported with pride to the House the total yield of the new taxes which he imposed by the Budget of 1909–10. They have yielded in the year which has closed a sum of rather over £27,000,000. But, looking back on all that has happened, is the Chancellor wholly satisfied with his financial experiments of that date, and does he think that they have borne out his calculations? I am not now referring to the error which he himself admitted when he said that, owing to the failure of his expectation that the Navy Estimates would be reduced, and owing to growing demands, the taxes, as a whole, were not sufficient to finance the country without resort to new taxation. I am speaking rather of particular taxes. A very large part, the greater part, of the battle of these years was waged around the Land Taxes. They had, as I ventured to say before, other than fiscal purposes, and perhaps their other purposes were more important in the eyes of the Chancellor of the Exchequer than their fiscal purposes. I think I said on a previous occasion that in that great Budget the Chancellor of the Exchequer proposed certain taxes to get revenue and certain taxes to get votes; and that the taxes which got votes did not get revenue, and the taxes which got revenue did not get votes.

Let us look at the vote-catching taxes, and see how much they contributed to the £27,000,000 produced last year by the total changes made by the Budget of 1909–10. The total sum as we know from the Chancellor of the Exchequer's statement was £715,000, but included in that total sum is the amount yielded by the Mineral Rights Duty. That is not a Land Duty, nor is it comparable in any way with the other Land Duties. Indeed, it is based upon opposite principles; and the Committee will remember that the original Mineral Eights Duty was based upon the same principle as the Land Duty, as for instance the Undeveloped Land Duty in particular. It was proposed to tax minerals which were not got in order to induce people to get them. That we were never allowed to discuss, because before we came to the proposal the Chancellor of the Exchequer strangled his own bantling and substituted the new Mineral Tax for it. The new Mineral Tax is nothing more or less than a new imposition of Income Tax upon mineral rents. Therefore I put that on one side. That is really a development of Income Tax which is not a new Land Duty. The total yield of the other Land Duties is £386,000. By the courtesy of the Chancellor I have the figures. The Increment Value Duty brought in £31,000. It has not helped the Chancellor of the Exchequer to pay for many things. Undeveloped Land Duty brought in £275,000. That is a tax which, from the first, as soon as it was got into operation, the Chancellor expected to produce its full yield. I do not know whether he has seen any reason to change his mind on that subject. I see none. As soon as it was brought into effective operation it was to produce its full yield. I presume that it is in active operation now, and therefore that it is not likely to produce more than the amount gathered last year; but it is likely to produce less, because in the amount collected last year there is a great part of the arrears of the previous years. Lastly, there is the Reversion Duty, which, again, is not to be expected to develop to any great extent, for there the basis of the tax was dated back, and not, as in the case of the Increment Duty, dated from the time of the Budget, and that precious tax produced £80,000. I am sorry the Prime Minister is not here, but I should like the Chancellor of the Exchequer to draw the Prime Minister's attention to a speech he delivered in answer to my right hon. Friend the Member for the City of London on the 16th August, 1909, and reported in the OFFICIAL DEBATES. Volume IX., column 318. The Prime Minister was discussing the value of the Undeveloped Land Duty—the site value of undeveloped land. He said:— I now come to the final charge against this tax. The right hon. Gentleman, having made it before, repeated it this evening. He said that this was not a fiscal proposal in any real sense at all on the ground that the yield of the tax would be less, or certainly would not exceed, probably, this year, the actual cost of valuation. I do not assent to the right hon. Gentleman's proposition. I defend this tax and all the the taxes contained in this Finance Bill as fiscal instruments, and if anyone can demonstrate to me that they are not, I shall agree they ought to he excised from the Bill. I shall agree that they should be excised if anyone can show that they will not be useful, profitable, and fruit-bearing for fiscal purposes. I would like the Chancellor of the Exchequer to remind the Prime Minister of that speech, and ask him to compare the results with his anticipations. We shall have spent about £3,000,000 on this valuation. We have not begun to cover the cost of the valuation itself, let alone to pay for the "Dreadnoughts" which the right hon. Gentleman announced he was going to finance out of these taxes. But —and this is an important point—the charge on the revenues of the country for this valuation is but a small portion of the charge to the country itself. The amount of expenditure in which individual taxpayers, whether liable to the taxation or not, have been involved under the intricacies and complications of the Budget, the amount of litigation to which it has given rise, and which is still pending, the uncertainty which still prevails as to the whole basis of their assessment and collection, do, I think, mark those taxes out as something wholly unlike any tax we have ever placed on the Statute Book; and if the Chancellor of the Exchequer thinks they mark them out to his greater credit as Minister of Finance, I can only say that the standards of what are successful taxes are very different from those which I should apply. I turn for a moment only to the consideration of the Budget as a whole. It marks a stage—as when you turn a century you mark a stage—in our financial procedure. Within a very brief space of time we have created, and are continuing to create, standards of national expenditure which would not merely have filled with horror Gentlemen who were in the House when many of us entered it, and continued with us for years afterwards, but would have been treated by them as absolutely inconceivable.

I confess that this Budget, with its yield on present taxes of £200,000,000, with a deficit on present taxation of £10,000,000 this year, £16,000,000 next year, and perhaps more in the years to come—this Budget, which is to raise £210,000,000, fills me with serious misgiving, not so much as to the course we are travelling, but as to the rate at which we are travelling. I cannot see that anyone now asks the House of Commons or the country whether they can afford anything that they want. In private life we have to do it, whatever our incomes, unless they be beyond the dreams of avarice. There are things which we should like, and for which we think we should be better, but which we have to admit to ourselves that we cannot afford; and amongst the things, I do not say to most of us of prime necessity, but things in the rank of desirable, we have to choose those which we can afford and forego those which are in excess of our means. It used to be the business of the Treasury to watch over the national expenditure in the same sense, and, without necessarily disputing the desirability, on general or on particular grounds, of the expenditure asked for by different Departments, to put together the totals of all those fresh demands, and then, as representing the taxpayers, to say, "We cannot afford to carry out the whole of this expenditure; we must choose amongst it according to our means, and part of what otherwise would be desirable must be postponed until those means have increased."

The CHANCELLOR of the EXCHEQUER (Mr. Lloyd George)

Hear, hear.

4.0 P.M.


The Chancellor cheers. He knows that is very necessary. But, alas, under his dispensation, the Treasury appears wholly to have abandoned that view. It is no longer a Department of check and control; it is the greatest, the most extravagant of all the spending Departments. In the old days, under greater men than any of us now living, the Treasury left to other Departments the initiation, definition, and conduct of legislation involving great expenditure. The Chancellor of the Exchequer used to confine himself to a statement that for this or that purpose, for education, for health, or whatever it might be, he found it necessary to lay aside a certain sum, but the policy would be the policy of the Department immediately concerned. That Department would be left to justify it, and the Chancellor of the Exchequer only made himself responsible for granting to that Department, after it had presented its ease to him, such sum as he thought the country could afford. I do not see that that procedure is followed now. Nowadays the Chancellor of the Exchequer teaches us to look to him, and all his Friends in the House and outside of it encourage us to look to him, as the initiator of all social reform, and the result is that the financial check which ought to be brought to bear on those reforms is not brought to bear on them, and the Treasury becomes insistent on expenditure instead of exercising any control over expenditure. We are accordingly moving at a rate which, quite apart from one of the objects on which the money is spent are good or are bad, certainly means trouble whenever we come upon less prosperous years, and may, if those loss prosperous years be years of any serious difficulty or complication, mean something more than trouble, grave serious injury to the State, and loss of credit and loss of elasticity in its financial concerns, which may cause us deeply to regret that we can no longer echo the boast of our predecessors, that one of our greatest resources for any international struggle that we should be involved upon is the reserve of credit which our financial system gives us. Under those circumstances, and because I see already I shall exceed the time I allotted myself, I do no more than repeat in a sentence my regret that the Chancellor should have meddled with the Sinking Fund. Far better, in my opinion, to have taken a million off the new Grants somewhere, or to have raised a million more by taxation, than at such a time, and under such circumstances, to tamper again with the Sinking Fund. We have had within the last day or two the usual Return about the National Debt which gives a statement of the dead-weight debt, and of the amount of debt provision made each year for its repayment. In the last year for which we were responsible, 1905–6, the debt provision was eight and three-quarter million. In the next three years, and I am giving very round figures, it was nine and a half millions, eleven millions, and ten millions, respectively.

Since that time it has never been as high as the figure at which we left it when we were still suffering the after effect of a great war, and when we had no such prosperity to assist us as that of which the Chancellor of the Exchequer has year after year been able to boast. It is quite true, and the Chancellor of the Exchequer is always taking credit for it, that the actual reduction of debt has been higher than those figures, but that is due to the accident of the years through which we have passed being more prosperous than he has dared to hope, and that is due to the working of the Old Sinking Fund, and not to the working of the New Sinking Fund, which is the specific provision which the Government makes. This New Sinking Fund, the sum they deliberately set apart in their Estimates for reduction of deadweight debt—that is the measure of the importance they attach to the reduction of debt, and the measure of the sacrifice which they willingly incur for the purpose. And in all these prosperous years, except the first three, and for two of which the present Chancellor was not responsible, they have never made a similar effort to that which we made in the last year for which we were responsible under circumstances of great difficulty, when, without launching out on any new projects of expenditure, we were obliged to raise taxation to meet the ordinary liabilities of the country. The Chancellor of the Exchequer, even after raiding the Sinking Fund, has to largely increase taxation. What he has done is, I think, very much what everyone expected him to do. I never supposed that under present circumstances, both in legislation and in finance, that the Chancellor of the Exchequer would think of removing one of the food duties at the present time.

But if he had ever thought about it, I think it was made impossible by the speech which the Prime Minister delivered on either the Tea or the Sugar Duty last year, when he pointed out how much and how large a proportion of our new expenditure was incurred for the benefit of the poorest classes, and how the rest of our expenditure was for the benefit equally of all classes, and how large was the proportion of that national expenditure which now fell on the shoulders of the more well-to-do, and, he stated a principle with which I, for one, heartily concur, that under those circumstances and under the conditions of the distribution of voting power which we now have and must always have, it would not be merely unsound, but reckless—and I am using my own words and do not profess to quote his—and immoral to absolve those from whom so large a part of the expenditure is specifically undertaken, and who are interested in the whole, from the duty of contributing any part whatever to that expenditure. The Chancellor of the Exchequer raises the Income Tax. He raises the Super-tax, which is but another form of Income Tax, and he raises the Death Duties generally. I think I speak the mind of all my Friends when I say that towards meeting this huge new expenditure the rich must contribute a much larger share than the poor. I think I speak the mind of all my Friends when I say that it is our desire that the contribution which a man makes to the State should be in the main proportioned to his means and to his abilities to meet the burden cast upon him. But you must take into account also the distribution of that part of the expenditure which goes to benefit portions of the community. I admit that it is not possible for anyone to lay down an exact principle by which you shall decide accurately when the burdens on a particular class of income become intolerable and oppressive, and to say that people falling within certain Income Tax limits are taxed beyond their means and out of proportion to others. But I do think that we are travelling perilously near that point when in a Budget of this kind, and with demands for such an enormous increase of revenue so largely for social purposes, we take our contributions wholly from the direct taxes which exact no contribution from the less well-to-do amongst us.

It is not easy and I think it is not possible to lay down general principles of this sort, but we are accustomed to hear in this House doctrines of taxation from the hon. Member for Blackburn (Mr. Snowden) and others which are no more shared on the benches opposite than they are on the benches behind me; and I think Members on the benches opposite may usefully ask themselves what it is in principle which distinguishes the course we are treading under the present Government from the course which the hon. Member for Blackburn advocates, and may try to decide at what point they will draw the line in this special taxation of classes and separate themselves from the Socialistic view of the hon. Member for Blackburn, that what you have to look at is not what you take from a man, but what he has over when you have taken from him all that you want. The result of using the particular taxes chosen by the Chancellor of the Exchequer, and them only, is that they are now fixed at very high levels. That is a great disadvantage, not as regards specially all these taxes, but the new taxes, because when a tax is low the anomalies and imperfections are little felt, but when you raise it to a higher figure every injustice is enormously magnified. It is not a question of arithemetical proportion; it is an increase in geometrical proportion, if I may say so, of all the anomalies and imperfections of Income Tax, which were perhaps tolerable though not answerable in logic, and perhaps defensible in practice, when you had an Income Tax of 6d. or 8d., but really become a very serious burden when you come to 1s. 4d. They are not met by the subtle distinction between earned and unearned income. That is a distinction which I presume, and I do not doubt, has come to stay—once made it is not likely to be altered—but do not lot it be thought that as between individual taxpayers of the same wealth it is always a fair discrimination, and if you are to consider because you have discriminated between the two you may tax unearned income to any extent you please, I think you will be making worse hardships than any you may have remedied by the attempt to distinguish between the two.

Take the income unearned, and let it be remembered unearned income does not necessarily mean income which a man has not won by his own exertions. Every penny of it may have been earned, saved at the cost of some privation, and invested to provide for the old age of the man and his wife or to make provision for his family afterwards. Take the case of a man like that, or take the case of the widow of a man left with an income, it may be partly inherited, and it may be partly or wholly earned. Assume that they are just above the limit of abatement—that is to say, that they have £701 income amongst the man and his family or the widow and her family. Is not a tax of 1s. 4d. in the £ on a family income of anything from £700 to £1,000 a tremendous tax for times of peace, especially if you consider the cost of education in these days to people of that class of life? The State does not present them with free education for their children of the kind which they desire to have for them, and which we think that they ought to provide for them. I think that the Chancellor of the Exchequer, when he carries his tax so high, is inflicting great hardship on classes of that kind. In the same way I unfeignedly regret that he has altered again, and so quickly, the Death Duties, and I particularly regret that he has done so at the lower scale. I am inclined to think that, for the general welfare of the country and to preserve the best parts of its social system, it is a great misfortune that the Death Duties on moderate estates should be so large. What the effect over a period of years is going to be on the life of our country districts I will not undertake to forecast; but I am sure that, by the changes which the Government have made since they have been in power, they have done much to overthrow the old social system which, whatever its defects, has yet preserved relationships of kindliness, good feeling, friendship and helpfulness amongst different classes of the community in the rural districts, and that no social legislation that we have passed now or are likely to pass, whatever its merits, can replace, by its hard and fast systematic charity, the kindly help, the friendly good feeling, and the daily knowledge and assistance which the old system gave.

Let me make one other observation about frequent alterations in the Death Duties. When Sir William Harcourt made his great change he treated the Death Duties, and properly so, as a graduated Income Tax, to be provided for by insurance, which the owner of an estate would take up paying premiums year by year, so that at his death he might leave the estate as he found it. That becomes impossible, in the first place, if you make the charges too heavy, because the current revenue of the estate cannot afford the premium. It also becomes impossible if you frequently vary the basis of the charge. It is a very great hardship to a man who has made provision on a certain basis to find the Prime Minister, when Chancellor of the Exchequer, altering the basis; he covers himself again, and, as he is older, on more expensive terms. He then finds the present Chancellor of the Exchequer again disturbing the basis, and he makes further provision when he is older still. He now finds the Chancellor of the Exchequer once more upsetting the basis, forcing him to have recourse to fresh insurance if he is not to leave a decreased estate, and to insure against the new taxes at a yet higher rate, because he is older than when he insured before. I do not think then, although the Chancellor of the Exchequer's methods are simple, even brutally simple, that they are without great hardship. They are more dangerous to the morals of the House of Commons and the country, because, owing to the taxes which he has chosen, and the points in the scale at which they are affected, those who suffer hardship are only a small proportion of the population, and therefore exercise but a small influence on our legislation. That is so, and it must be so in these days. I venture to say that that imposes a solemn duty upon us to weigh well the effects of our actions, and to see that, in the effort to make things smooth for ourselves with our electors, we do not pile an unjust burden upon a few, because they are a few—upon those who have not great electoral influence, not because they have the means to bear the new burden with indifference, but just because they have not the votes to make themselves a commanding force when we go back to our constituencies.

One word about the new taxes. The Chancellor of the Exchequer proposes to abolish the Settlement Estate Duty. I think that that raises an ethical question of some difficulty which the Committee ought seriously to consider. Let me say at once that I, for one, should take no exception to this change, if the Chancellor of the Exchequer proposed to apply it to all future settlements. I think his case is a very strong one for saying—I will not say there is no reason, but that there is not sufficient reason given for the present law. I do not challenge the proposal, therefore, as regards future settlements; but what about past settlements? Many years ago perhaps you took money front the taxpayer as part of a contract with him. For years, having paid that money, he has assumed that, when the time came for the fulfilment of the contract, he would have the benefit of it. Now you say, "On the contrary, we are going to break the contract which we made. We deprive you of the benefit for which you have paid." And you think you can justify that to yourselves by simply refunding to him the money you have received. No man as between man and man would make a claim of that kind. No Court would substantiate such a claim. Are we to be less scrupulous in keeping our bargains as between the Stats and the individual? On so great a question of principle, I hardly like to recur to a minor matter in connection with the proposal, although I have it on my notes, and which I heard suggested by an hon. Friend behind me. I understand that the Chancellor of the Exchequer not only proposes to break the contract and to return the money that was paid, but that he proposes simply to return that money however long he has kept it, and had the enjoyment of it. The least you can do if you break a contract of this kind—which I hope you will not do without a great deal of further consideration—is to allow the taxpayer interest on the money he has paid, just as you charge him interest when you allow him time for payment.

These are all general questions from which one could not well escape. But the real interest of the Budget is not what is in it, but what is to come out of it. We shall not know what the Budget really is or what is the meaning of it, I presume, until we have had four or five other Bills submitted to us. But the main purpose of the Budget, after filling the deficit in the existing national balance-sheet, is to deal with the question of local taxation. We are all of us agreed, and have been for a long time, that that is a question urgently needing to be dealt with. We are agreed that it is not merely a debt, but a debt long overdue, to the local authorities and the ratepayers. We are agreed also that it is a debt from personalty to reality.




The hon. Member will forgive me if I do not verbally except him from every general statement that I make.


made an observation which was inaudible in the Reporters' Gallery.


As between the Government and ourselves we are agreed that there was a debt from personalty to realty. In so far as his proposal conforms to these general admissions, the Chancellor of the Exchequer has our hearty concurrence and approval. But he used very ominous language about the payment of this long overdue debt. He said that any subsidy to the local authorities was to be dependent upon the passage during the present Session of the various other legislative projects which the Government had in contemplation—a Rating Bill, a Valuation Bill, an Education Bill, an Insurance Bill, a Housing Bill—I do not know whether the number is more or less than half a dozen. If you get the money as the Chancellor of the Exchequer proposes to get it, and if you admit as he admits that this is a debt long overdue, the money ought to go to the local authorities at once, and the House of Commons ought not to be put under duress to pass within the very limited time available half a dozen highly-complicated, very technical, and, if we may judge from the Chancellor of the Exchequer's previous performances, I venture to say very undigested measures. We know something of the perils of hasty legislation, and I submit that it is in the interests neither of the Treasury nor of this House nor of the country that we should be told that our constituents will be deprived of the money we are voting for them, unless we consent to swallow, regardless of time and of our power to examine them, all the legislative projects which the Chancellor of the Exchequer or his colleagues will produce to give effect to his proposals.

I have spoken of the amount of agreement which we have enjoyed for a long time on the subject of rating. I am glad to think after the Chancellor of the Exchequer's speech that that agreement is now much larger than it has often appeared. The Chancellor of the Exchequer was anxious to explain that, although he had sometimes dissembled his love, he had really always been very fond of the Agricultural Rates Act; it was only the particular method that he opposed. I thought that he opposed the principle on the ground that it was a dole to the landlord. I thought that the view of himself and of his party when in opposition had been that agricultural land was not entitled to the relief which it obtained. We now have it admitted, not merely that it has been entitled to that relief, but that it would not be fair to rate it on the same basis as other property, and that that kind of relief must be continued to it under any changes in the future. But the right hon. Gentleman proposes that as part of his new scheme there should be a new valuation for rating purposes. I do not think that he explained to the House why. At any rate, I am unable to find in his speech any sufficient reason for that proposal. The new valuation is not required for any of the Grants which the right hon. Gentleman adumbrated, except the Education Grant, and by a very slight modification of our present system and the Education Grants you could fairly distribute the new Education Grant without any such new valuation as proposed. In spite of that he requires a new valuation. He tells us that for a large part of it the work has already been done, and the results in the offices of the Land Valuation Department, that he has got for it already gathered together an admirable staff; and that his new need will be easily adjusted to the valuation already made by that staff. I venture, profoundly, to differ in regard to those statements. He proposes to supersede all present Local Assessment Committees. In a sentence he said that though they were superseded local influence would not necessarily be eliminated. We shall be interested to see what amount of local influence is left. The Assessment Committees are superseded ! They have done their work very well. [HON. MEMBERS: "No!"] As a whole they have done their work very well. If a taxpayer is aggrieved as against ether taxpayers he has his right of appeal and can exercise it. I say that whether you think of the local authorities or of the individual taxpayer, all of them would sooner trust the judgment and knowledge of the Local Assessment Committees than be placed under the thumb of a centralised Government Department which will not have the local knowledge, which will not be accessible as the Local Assessment Committees are, and which will be costly out of all proportion to the Local Assessment Committee as at present constituted.

I have had a calculation supplied to me to which I invite the attention of the Committee. The Valuation Department, I am told, at the present time costs six shillings per cent. per annum on the rateable value of the country. A London borough, which was selected by my informant for comparison, manages its valuation at the rate of two shillings per cent. once in five years, with practically no charges in the interval. That is to say, your centralised scheme costs six shillings per cent. per annum against, say, sixpence per cent. per annum for the decentralised scheme of the London borough. But what about the valuation which the Chancellor of the Exchequer proposes to have, and what about the staff? I do not want to speak harshly of the staff of any Government Department, but I do not think that in any competent quarter it will be held that the staff which the Chancellor of the Exchequer has gathered together is competent for the valuation of agricultural land for annual rating purposes. I am quite sure that the valuation which they have made is of no use for their new purpose. The Chancellor of the Exchequer appears to think that by some simple arithmetical rule of thumb calculation carried out by the Department in their offices, they can convert the capital values they have got into an annual value for rating purposes—the capital value of 30th April, 1009. What rule of thumb is there between that and the annual value in 1915? Then take all special properties, mines, quarries, and properties of that kind. What relation has the capital value to the annual rateable value? They are wholly distinct, and have got to be discovered by examination of each case on the spot. They cannot be decided by any general rules laid down in central offices. To discover the annual rateable value of agricultural land you must have a field-to-field valuation. No such valuation has been undertaken or attempted by the valuers who have been at work. Those same valuers have never had to make a valuation of any of the statutory companies, and all those statutory companies must be valued for the purposes of rating.

In the first place, any attempt to centralise your valuation will be infinitely more costly than your existing system, and in the second place, that it will cause, and rightly cause, great dissatisfaction and mistrust in the localities, and will be resented alike by your municipal, county, and other authorities and by the individual taxpayers concerned. I add that it is wholly unnecessary for the purpose of the distribution of the taxation which you propose to make amongst these local authorities, and it is only required, if I may for once guess at motives in order to find a justification for taxes which have brought in no revenue and a Valuation Department which has spent a good deal of money without being hitherto of any use. I must omit some of the points on which I proposed to speak, but I must, in passing, say that I think the Chancellor of the Exchequer owes the Committee a sentence, at least, of explanation, if not more, of his reasons for flinging on one side the Report of the Majority of the Committee on Local Taxation—and the side which he himself adopted! The Committee reported not merely against taking land values as the sole basis of rating, but against any scheme of which the rating of site values should be any part. Their reasons are set forth with great power and ability in the Report which they have published, and not only their reasons, but some of the difficult problems to which the rating of site values in that connection gives rise. The Chancellor of the Exchequer gives us no reason for disregarding their recommendations. He did not dispute a single one of their conclusions. He gave us no information as to how their difficulties are to be got over. I am not going to read to the House—if I had not taken so long over other parts of my speech I had intended to do so—their general objections to this proposal. But I want to read to the Committee a paragraph or the part of a paragraph of the Report—paragraph 262. Having come to the conclusion that on general grounds they are unable to recommend the substitution of a system of site value rating for the present rating system, the Committee go on:— It is unnecessary for us to refer at length to more detailed questions connected with the proposal. The witnesses who gave evidence before us had not in any degree elaborated their scheme. For example, we were unable to ascertain exactly how the land value was to be calculated, not from whom the rates were in fact to be collected, not what was to be done with existing contracts. Nor was there any indication given of the way in which the ownership of the site value was to be divided between the different interests, which in many cases must be deemed to have a share in it. Those are all very important matters, but no word have we had from the Chancellor in regard to any one of them. The right hon. Gentleman cheers me. I gather he appreciates the fact that, whilst professing to give the House an indication of what he is going to do, he realises perfectly well that the House must be and cannot help feeling completely in the dark as to the nature, the equity, and machinery of those proposals—after the only statement which he has so far vouchsafed. I do say that we ought to have all this information before us before we are called upon to vote money as part of a scheme which, when it is disclosed to the Committee, the Committee may be unwilling to accept, and which may be as unpopular on the other side of the House as on this side of the House—for what I know it may be more unpopular in some quarters of the House. That information we ought to have before we are asked to vote the money. We ought immediately to have information on such subjects, for instance, as the treatment of existing contracts, and on questions which can be described as questions not of machinery, but of principle. On these there is no excuse for any delay, and I ask the Government to give us that information at the earliest possible moment.

We want also—and this is very important—much more information than we have already got, either in the Chancellor's speech or in the White Paper which he has laid, as to the effect of his schemes upon the local rates. I spent, as I have no doubt many other hon. Members did, many laborious hours yesterday trying to find out where the local authorities would be if the Chancellor's proposals were carried out exactly as he has made them. I have come to the conclusion that there is no Member of the House of Commons, and no local authority, that can by any possible calculation within their power say how they will stand if the proposals adumbrated by the Chancellor of the Exchequer are carried out without alteration. It is quite evident that the Chancellor of the Exchequer has a great number of calculations before him. It is quite evident the Committee had other calculations than those which they have published in the table, on page 30, I think, of their Report. But that table—and the Chancellor's speech—is enough to show that some authorities are going to lose. I think there is reason to suppose that a good many authorities may lose, and very grave reasons to doubt whether any purely rural areas are really going to get relief at all. Take the Chancellor's proposals in regard to roads alone. I am not at all certain, if you consider the purely rural areas—by which I mean those which are agricultural—excluding from the districts known technically as rural district council areas the urban communities within them—there is good reason to doubt whether these purely agricultural parts will not be worse off under the proposals of the right hon. Gentleman than they are now. But we ought to have, as far as the Chancellor of the Exchequer can give it, for the whole of his Grants, a statement as to how they will affect all the types of authorities within the country. He takes out one here and there, and I have no doubt he takes care it will show up pretty well. If I may judge from what I am able to see of local opinion down in Birmingham, we are not quite as sanguine as to the relief to that city as the Chancellor of the Exchequer himself appears to have been, nor am I myself quite certain—I am now talking of urban areas—as to what relief the Chancellor of the Exchequer professes to give. He spoke of his Grant being equal to a relief of 9d. in the £. Ninepence is a rather ominous figure. The last time it was 9d. for 4d.—this time it is 9d. for nothing. If any ratepayer, rural or urban, thinks his rates are going to came down by 9d. in the £ of which the Chancellor of the Exchequer speaks, I think he is an extremely sanguine individual.

The Chancellor of the Exchequer divides his Grants into Grants for new services, and Grants in relief of existing expenditure, but I think his division is very imperfect, for anyone who studies his speech will see that the authorities which count upon getting large relief for what they are now doing are counting without their host. The Chancellor of the Exchequer is putting new burdens on all round. I saw the Budget described in a paper which supports the right hon. Gentleman as "a speeding-up Budget," but you do not speed up for nothing. No doubt local authorities will get larger sums, but they will only get them on condition of spending more, and it will be observed that at every stage in these new relations between the central and the local authorities, the local authorities are to count for less, and the central Government Department is to count for more. A central Government Department never works for economy. Take the Education Department. Do you think if we had less centralisation we might not have had, for instance, in our rural district, a system of education long before this, much better suited to the rural districts and much more economical. We hear a great deal about necessitous school areas. I remember having had to consider the case of West Ham when I was in office as Chancellor of the Exchequer, and I found the Education Department refusing to sanction a proposal by the West Ham education authorities as being incompatible with their rules or standard of accommodation for children, which prevailed in every great public school in the country, and which prevails in some of them now, and which, I should think, prevailed in all the old public schools of the country when I was at school. A central authority drives to expenditure, and this Budget is intended to lessen the discretion of the local authorities, and to put more power into the hands of the Government Inspectors and Presidents of Boards.

The Budget marks in this respect, as in other respects, an absolute abandonment of the old Liberal tradition. I have not been in this House nearly as long as many Members, but when I came into the House, the extension of local authorities and local responsibility was the great panacea of all Liberals. I remember the hon. Member for Salford (Sir W. Byles) and my right hon. Friend the Member for West Birmingham (Mr. J. Chamberlain), already divided on the Irish question, co-operating in view of their common Radical instincts on the Parish Councils Bill on these lines. All the trend of modern Radical legislation is in the direction of taking away power from the municipalities and local bodies, and concentrating it in the hands of central bodies, and this Budget will be an enormous and most powerful instrument for taking local government out of the hands of local authorities and concentrating it in Government inspectors and presidents of boards. I think that is so. Well, Sir, this Budget—and I am coming to the end of my observations—is also an abandonment of the old Liberal policy in matters of finance. No Liberal candidate can in future go upon a platform and talk of retrenchment. I recall a speech of the Prime Minister and speeches of many of his colleagues made in the General Election of 1906, denouncing not the particular objects to which the Unionist party had devoted money, but their general extravagance. I remember the Prime Minister announcing seriatim that every tax he mentioned was too high. All pretence of retrenchment, all careful economy has been abandoned by the Liberal party. They, like most of us, enjoy spending. I remember a witty lady who observed she was never so happy as when she was saving a penny, except when she was spending £5. The House does not care much about saving a penny, but it loves to expend millions, and the Chancellor of the Exchequer encourages it to do so. He has been fortunate.

Sir, I concluded my speech upon the introduction of his Budget last year with a prophecy which has been fulfilled. He then had spoken of the yield of his new taxes and the power they had given him of financing the growing expenditure of the country. I told him that that would be the last year of which that would be true. I was right. He has admitted that even the new taxation he is raising now will not enable him to finance next year's expenditure. We cannot look forward to a continuation of the unexampled prosperity which we have had. What are we going to do when the bad years come? What provision have we made to meet that? We have spent every penny as it came in. We have raised nearly all our taxes to a high figure. The Prime Minister indicated that it might soon be necessary to graduate the Income Tax downward, I suppose to a class which do not now pay, while his only reserve for war was to raise the food taxes—I think not a very happy reserve for a great war. Opinions differ amongst us as to the part which food taxes should or might play in our system of taxation, but is there anyone who thinks that a great war, which was a naval war as well as a land war, would be the happy moment to choose for an increase of the food taxes—just that moment when our food supplies would be threatened, and the quantity of them might be reduced, and the cost of them would certainly be raised?

We are raising all our taxes to what would have been thought a war figure in times of peace. We raise them to this figure in times of great prosperity. We spend every penny year by year which these taxes bring in. We have mortgaged the whole future increases that we could reasonably calculate to come from these taxes. We know that the social reforms that we have passed will grow in their cost without any legislative interference, if no amendments or changes were made, and we know that as they work and their imperfections become visible, their anomalies become more painful, and we know that other Chancellors of the Exchequer might have to patch his handiwork and find fresh money to make these schemes work. I beg the House to think of these things. We are living too fast, we are moving too rapidly, and unless Members of the House in all parts will make some serious effort to check the weigh upon the ship, we shall run upon the rocks before we know where we are.


I think it may be for the convenience of hon. Members if I say at this stage that I foresee a possible danger in the discussion in our Committee of Ways and Means. It arises no doubt largely from the speech of the right hon. Gentleman the Chancellor of the Exchequer on Monday last, and that danger is, that we should introduce into the Committee of Ways and Means matters which more pertain either to Committee of Supply or to stages on Bills which have been hinted at. I do not propose to take exception to anything the right hon. Gentleman has said, but only to remind the Committee that in Ways and Means we are considering the ways of raising money, and not how that money will be dealt with after it is raised; but of course, to the extent to which the Chancellor of the Exchequer opened these matters in his speech, I cannot prevent hon. Members following him, but they must not attempt to go further into details.

5.0 P.M.


The right hon. Gentleman who has just spoken will not misunderstand the position if the right hon. Gentleman the Chancellor of the Exchequer does not rise to reply to him at once. He asked me to intervene in order that he may answer further questions that may be raised in the course of the Debate when he replies later on. The right hon. Gentleman began with a dismal description of the Treasury and the condition in which he finds it now as compared with older times. I have very little experience of that office, but I can assure the right hon. Gentleman that we are endeavouring to administer that office on the same lines, more or less, as he administered it himself, and the reason why this new expenditure is recommended is because we believe that the country can fully afford it, and it is in response to demands comparable to those which he referred to from the Board of Education and from the Local Government Board. I do not think the right hon. Gentleman paid in his speech sufficient attention to the fundamental fact of this Budget, that the majority of the new taxes are not intended to increase the burden of the community as a whole, but go to reduce existing burdens, and ought not, therefore, to be compared with the whole for new expenditure. The right hon. Gentleman developed yesterday, and proceeded to develop to-day, an argument against the conduct of the Government in determining to reduce the charge for the repayment of debt and announcing that as part of their financial policy. He first said that we ought not to include in the reduction of debt achieved in the last eight years those amounts which had been paid on the Votes for Army and Navy works respectively. The right hon. Gentleman reminded us that that had been achieved by setting up Sinking Funds when the expenses were incurred by the right hon. Gentleman opposite and his Friends. I think we are entitled to include those amounts if we remind the Committee of the fact that whereas they provided the Sinking Fund and incurred new debts, we have put an end to that kind of expenditure since this Government assumed office. There is one other remarkable argument which is as great an achievement as anything I have heard in this House in the difficult task of comparing two things which were wholly and irremediably unlike.

The right hon. Gentleman said that by reducing the debt by £100,000,000 you have saved the taxpayer, roughly, something like £3,000,000 in interest on that debt, but you have to set against that the £21,000,000 you have incurred in respect of old age pensions and insurance. As I understand it, the dead-weight debt derives its name from the fact that the taxpayer, who is called upon to pay the interest, derives no present measurable benefit from the debt at all, and yet he cannot honourably escape, and his successors cannot escape, from the task of providing that interest as long as the debt remains unpaid, and as long as it remains a debt of this country; whereas, on the other hand, the expenditure incurred under the Insurance Act and for old age pensions is money which the taxpayer is asked to pay in order to foot the Bill for services rendered from day to day and from year to year. It is, in fact. a method of repayment of future debt, for whereas we inherited a deadweight debt from which we had no advantage, others who come after us by this Budget, on account of the great social reforms initiated by it, will have the advantage of greater prosperity in the nation through being relieved of many of the charges which now fall upon the taxpayer and the ratepayer. To suggest that you should compare the burden of the taxpayer, in respect of something which can only continue as long as it is useful, with something which burdens him for ever is, I venture to say, with all respect to the right hon. Gentleman, merely grotesque.

If the Committee will forgive me for dealing in more detail in this question with the reduction of debt, I should like to point out that there are three main heads under which we ought to consider the adequacy of the provision we have made. (1) How does the burden of debt remaining for future generations compare with the burden shouldered by the taxpayers of to-day or yesterday? (2) How do the sacrifices made by the present generation for the purpose of reducing debt compare with those made by earlier generations? (3) How far, having regard to expediency and equity, does the provision for debt reduction satisfy the creditors of the State, that is, the holders of Consols? The debt to-day is lighter per head of the population than it has ever been since the Napoleonic wars. In 1887, the total burden per head was £20.11, in 1899, before the Boer war, it was £15.52, and to-day it is £15.37. So far, therefore, as this comparison goes, the taxpayers since the Boer war have succeeded, despite the new debt added by that war of £160,000,000, in bringing the debt per head down to a lower figure than that which faced the taxpayer before the Boer war broke out. Further, not only has the population increased, but the wealth of the country has increased as well, and whereas the dead-weight debt on the 31st of March. 1906, was 5.8 per cent. of the estimated capital wealth of the country, on the 31st March, this year, the dead-weight debt was 4.3 per cent. of the estimated capital wealth of the country. Despite the fact that a large proportion of the money spent was derived from the Old Sinking Fund, I do think we are entitled to take credit for the fact that within the last eight years the present generation has made unprecedented sacrifices for the reduction of the debt. If you take into account the amount left over from last year of something like £5,000,000 for the reduction of debt, we have reduced it by £104,000,000 sterling. If you reduce the charge which comes in course of payment for the interest on debt by something like £3,000,000 sterling, then it clearly follows that with a debt charge of £3,000,000 less you can go on devoting the same amount of money as you did before to the reduction of debt. I ask the Committee to consider seriously, having regard to the sacrifices that we have made recently, and to the growth of the wealth of the country, whether it is right, when you are taking great sums of money from the taxpayers to improve the well-being of the community, to ask them to tax themselves with the unprecedented amount for the continued reduction of debt which has been going on for the last seven or eight years. I think it would have been right to-reduce the Sinking Fund, as is proposed to-day, even if there had been no suggestion of an increase of taxation. I would remind the right hon. Gentleman opposite of a Paper laid before this House on the 11th April, 1899, by Mr. Hanbury, in which he presents this view:— The maximum amount of stock of which alone account can be taken in connection with the Striking Fund cannot exceed the amount in the hands of the public. The amount to be taken into account is the amount in the hands of the public. Out of the total dead-weight debt the Government held on the 31st March, 1913, £233,000,000 sterling, or 35 per cent., the corresponding percentages for 1899 and 1906 being 34 per cent. and 28 per cent., respectively.


What is the amount in the Post Office Savings Bank?


I have no figures on that point.


The more there is in the Post Office Savings Bank account, the more serious is the situation, as by taking it for the Post Office you transform the obligation from a liability for an annuity into a liability to pay the capital sum.


I am only showing that if you take the test which was laid down by Mr. Hanbury, even in regard to that there has been an improvement in the position in respect of the amount of stock held by the public. I should like to commend to the right hon. Gentleman a report which I have noticed in one of the morning papers, which is not usually particularly favourable to the Government, with regard to the effect on Consol holders of the announcement which the Chancellor of the Exchequer made the day before yesterday as to the reduction of £1,000,000 in the Sinking Fund. Here is the quotation: Consols were depressed at first by the reduction of £1,000,000 of the New Sinking Fund. They fell to 74¾ for cash. Afterwards the market thought, after all, that £1,000,000 either way makes no great difference to the Consol market and Consols rose again to 7415/16 The fact of the matter is that when this money has been withdrawn from the Sinking Fund there still remains something like £6,500,000 for the reduction of debt, and having regard to the considerations that I have mentioned this is ample for that service. The next argument which the right hon. Gentleman addressed to the House was one concerning the new rates of Income Tax and the dangers which we were under of taking an undue proportion of taxation from those who were wealthy but who were few, because they did not loom largely in the constituencies. I do not think it is right to say that wealth is not adequately represented in this House. I wholly and entirely demur to the view that you can measure the influence of wealth upon politics by the actual number of votes recorded at the poll. Wealth has many other methods and weapons of political activity, and I do not think the wealthy are ever likely to suffer, because, politically, they are not adequately protected. I believe that the unequal distribution of wealth can only be defended if it can be proved that an adequate subscription is taken from those who have wealth—for the necessary requirements of the country. If one looks at the statistics of the growth of wealth and capital in this country on the one hand, and the growth of the size and amount of incomes that come under review for Income Tax purposes, there is not the slightest doubt, if this burden is spread properly and fairly over the community, that the community can easily afford to pay it. But this money is not taken from the wealthy alone, for it begins with the very lowest Income Tax payer. Roughly, on the basis of the rates in force last year, out of 1,250,000 Income Tax payers, 251,400 paid less than 1d. in the £; and on the proposed rates 214,000 will pay less than 1d. Going a little higher up the scale, 725,000, three-quarters of a million of taxpayers out of one and a quarter million, will pay less than 6d., as opposed to 747,000 if the old rate had continued.

I do not think that enough attention, in considering Income Tax questions, is paid to the actual rate of Income Tax that is paid. People talk of a 1s. 2d. Income Tax and a 1s. 4d. Income Tax, when the actual rate is something far less, when the majority of people are paying less than half, and when therefore there is sufficient room for a further drain upon Income Tax resources in times of national emergency. The House ought also to remember that the general run of Income Tax payer is just the very man who benefits mostly by a reduction in the rates, and therefore, when we are setting out to relieve a burden which a Royal Commission and a Departmental Committee together have agreed falls unjustly upon local taxes and ought to fall more substantially upon Imperial Taxes, the Income Tax payer is one of the first people to whom this House ought to apply. After all, there are many people in this country, and I believe in this House who would admit the rating of personalty—a local Income Tax. These new Income Taxes are local Income Taxes in that they are collected imperially and distributed locally for the relief of local burdens. I do think, and here I am expressing a personal opinion with all humility, that the idea that the Income-Tax should be kept low in order that in times of crises it should be the first place to which to resort for extra funds, is really not so axiomatic a proposition as people suggest. It is at the very moment of a national calamity and national emergency that you can go with the greatest certainty to the whole body of taxpayers, from the poorest to the richest, and call upon them to make a special contribution in aid of the necessities of their country.

The right hon. Gentleman opposite said something about the taxes on capital, and the harm that had been done by the increases in the Death Duties for which this Government have been responsible. There is no evidence of the destruction of capital in the statistics which are available. The total Death Duties paid in the seven years 1906–7 to 1912–13 have amounted to £154,400,000. The capital value of this country in 1913, if we take Sir Robert Giffen's principles of calculation, is £15,000,000,000, and other recent writers have put it at £15,869,000,000. Therefore this sum of £154,000,000 is under 1 per cent. for the whole period, or about. 15 per cent. per annum, and when you consider the rate of interest that this money probably obtains it is absolutely certain that the capital of this country is growing far faster than the amount taken from it for taxation.


May I ask the hon. Gentleman from where he got that figure of Sir Robert Giffen's?


I took a figure from the "Nineteenth Century Magazine" of March, 1912.


It does not agree with the authoritative statement.


I do not think that the truth of my statement can possibly be refuted. The growth of the national wealth is infinitely faster than the growth of the taxation upon it. I would remind the House that when they are considering the taxation of wealth they ought to consider, too, the purposes for which the money is taken. When you distribute money taken from wealth to such persons as those who are in receipt of old age pensions and to persons who obtain thereby a wage to tide them over a time of sickness, you are helping to build up a capital which is of the utmost advantage, the greatest possible advantage, to the tradesmen and manufacturers of this country. The right hon. Gentleman has, I think, few other criticisms of the method of raising the revenue and of the Estimates of the year. He did say something about the Land Taxes. It was a renewed criticism of bygone Budgets. I do not think that he appreciates the fact, or if he appreciates it he did not say anything about it, that you ought not to set the whole cost of valuation against the yield of these particular taxes, for the valuation has been of inestimable value in increasing the yield from the Death Duties themselves. [HON. MEMBERS: "No."] Oh, yes, that is absolutely undeniable—[HON. MEMBERS: "Oh!"]—in obtaining a better valuation of the estates which are taxed under it. The right hon. Gentleman compared the cost of valuation under the Budget of 1909–10 with the cost of the quinquennial valuation in London, which is only concerned in keeping an old valuation up to date. He compared that with the cost of making a new valuation. Then he uttered a solemn warning about the dangers of central control in local government. He said in an earlier part of his speech that Members on all sides of the House were agreed that something in aid of the rates was long overdue, and that therefore, so far as that topic was concerned, there were features of welcome in this Budget. The reason it is always suggested that more assistance to rates should be given is that the services upon which this money is spent are described, I think, as national or semi-national purposes, such as main roads and criminal prosecutions. Does the right hon. Gentleman deny, if they are national or semi-national, and if the Imperial taxpayer is therefore called upon to foot a large part of the bill for them, half the bill for them, that he ought to have a voice, and a substantial voice, in the control of those local authorities who expend his money upon them?

The right hon. Gentleman began with a review of the Budget as a whole. I say that the Budget as a whole simply consists of this proposal—to take money, large sums of money, mainly to improve local or semi-national services administered by local authorities in order to relieve the local taxes. My right hon. Friend has done this partly because the injustice of taking local taxes for Imperial purposes is admitted on all sides, and partly and mainly because this House is dependent in its social reform activity upon the willing co-operation of those responsible for local government. Unless this House asks the taxpayers to take their share of the cost of legislation, which is responsible for the growing burdens on the ratepayers, it is impossible to get valuable and efficient service from those who carry out our Acts of Parliament. Our Budget is a way of relieving unjust taxation and improving local services. Local services are at the root of national health and prosperity. The figures of our revenue, the figures of our national wealth, are ample and abundant evidence that we can afford to devote the money necessary to alleviate and prevent the remediable distress which is a blot upon our national reputation, and I am perfectly certain that the people of this country are willing to join in the war against ill-health and avoidable poverty as a valuable investment for the taxpayers of this country, provided that this House assists them in placing the burdens, local and national and Imperial alike, upon the broadest and most vigorous shoulders.


It used to be more or less a principle that direct and indirect taxation should proceed on parallel lines. When the Chancellor of the Exchequer had to raise more money direct taxation upon property and indirect taxation upon commodities were raised together, and when the Chancellor of the Exchequer was going to give relief to the taxpayer both these sources of revenue would receive that relief. The right hon. Gentleman the present Chancellor of the Exchequer has not adopted this principle, and, although he has not decreased the indirect taxation, as some of his supporters anticipated, he has so largely increased direct taxation that the proportion of that direct taxation to total taxation is now upwards of 60 per cent. No doubt he has done this with the best intentions, but I think that it will be comparatively easy to show that the methods he proposes to adopt will have a diametrically opposite effect. When duties are paid upon articles of necessity it is recognised by all classes that each individual is contributing his fair quota to the revenue in respect of his consumption, but when the necessity arises for raising fresh money and duties upon such articles of necessity are not increased, and the whole increase is placed upon the persons who pay direct taxes, the latter seek and obtain relief to some considerable extent from the burden that is thrust upon them by making higher charges for the money they supply for the handling of the commerce of the country. It has to be remembered that money is very fluid; it can be used one day for one industry in one country and the next day it can be taken from that industry and that country and used in another. Just as the merchant in commodities who sells his goods at a certain price, less a discount, reckons his profits upon the net sum that he receives, so the merchant in money or credit lends his resources at a rate of interest, calculating the taxes that he has to pay, and reckons his profits upon the net sum he receives. The higher the taxes, the higher necessarily are the charges. If the Chancellor of the Exchequer increases the Income and Super-taxes these charges are passed on by the money and credit merchants to the borrowers.

Direct taxation may, for a short time, fall upon the shoulders of those who first receive the burden, but, except in the case of trust funds and annuities, the burden is, to a considerable extent, passed on. If the money or credit merchant, by whatever name you call him—banker, capitalist, broker, or what not—lends at home he charges a higher rate of interest on what he lends to the manufacturer, middleman or the tradesman. If he lends abroad, he also charges higher interest, which is recouped to the foreign borrower by the higher prices that foreign borrower charges for the commodities he sends to this country to defray his liabilities. Ultimately, a large portion of all the additional burdens falls on the consumer. The amount of money required to finance our Home and foreign commerce is enormous, and the power of the money or credit merchant in a commercial community like our own is very great. As I have said, he charges the manufacturer and the merchant more interest, and the manufacturer and merchant charges the tradesman higher prices for the commodities that they supply or produce. The tradesman, who has to pay those higher prices, and also, in all probability, higher rent, increased taxation, increased rates, and frequently increased interest for the money he has to borrow to carry on his business, raises his prices to the consumer to meet the whole of those charges. The consumer, therefore, to-day does not find that 20s. goes as far as it did a little time since, and there is no doubt that, if the present Budget becomes law, 20s. will in the future produce still less.

The Insurance Act recognises a new principle, because it makes the employer a tax collector. The exact amount that the employer can recover is defined in the Act. The Budget now proposed necessitates the Income Tax payer becoming a collector of revenue, but the amount of his recovery is not defined, and it is pretty certain that the consumer will not pay less than his full share. It is generally admitted that the smaller the quantity of anything purchased, the higher is the price paid, and hence it follows that the really poor bear more than their proportionate part of the higher prices current for the necessaries of life. The general impression among the working classes is, I believe, that the higher price that they have been obliged to pay of late for the necessaries of life is due to the increase in wholesale prices. This is not the case. A volume has recently been issued—a most interesting volume—by the Co-operative Wholesale Society, and this gives the wholesale prices of commodities over a number of years. One of the tables in that book shows the cost of an average weekly family order of 21½ lbs. The figure for 1905 is 67.56d. For 1912 the figure is 74.28d. The increase in wholesale prices between the two years is 6.72d. The Report of the Board of Trade inquiry gives the retail price of most of the commodities composing this family order. For 1905 the retail prices worked out at 72.25d., and for 1912 at 83.25d., an increase of 11d., showing very clearly that the additional burdens borne by merchant and tradesman were charged to the consumer. The difference between the wholesale price and the retail price in these two years is 4.28d. in respect of an expenditure of 83d., which is something over 5 per cent., so that the consumer not only has had to pay the additional price in respect of the increase in wholesale prices, but added to that has been another 5 per cent., which is no doubt his part of the burden which is supposed to be borne by the direct taxpayer.

This is proof that the consumer to-day is paying a full share of the taxation imposed to meet the expenditure upon social and other legislation arising out of the Budget of 1900, although he was not directly charged in connection therewith. The present proposals of the Chancellor of the Exchequer may be attractive to the class they are intended to influence, but it is to my mind unfair to let them think that they are going to benefit by a proportionate remission of indirect taxation, and that the corresponding burdens are to be shouldered on to another class. Reference has already been made, in the course of this afternoon, to the "ninepence for fourpence" argument. When the small consumer realises that he pays not only the fourpence, but an additional sum for everything that he consumes, he is not likely to be too grateful. My principal object in bringing these facts to the notice of the Committee is to prove that the system of collecting from a comparatively small class the large sum the Chancellor of the Exchequer requires is uneconomical, and in the long run entails upon the masses a heavier charge than would be the case if, in the first instance, the charges were more evenly distributed in the form of direct and indirect taxation. I have endeavoured to show that the burdens of direct taxation passed on to the consumer in the case of necessaries of life amount to upwards of 5 per cent. of the total expenditure, and in the case of luxuries I am sure a much higher figure might be quoted. It is difficult—indeed, it is almost impossible to compute the total expenditure of the country, but it must amount to a huge sum, and 5 per cent. thereon would give a figure that would prove that the present system of taxation is not economical from the consumer's point of view. The Budget we are now discussing penalises wealth, and therefore makes the acquisition of money a crime. It inflicts a hardship upon a class which is very ready to bear to the full its proper proportion of all reasonable burdens, but that class distinctly resents unfair treatment.


The hon. Gentleman who has just sat down expressed an opinion that the Budgets of my right hon. Friend, following the Budget of 1909, have been responsible for the recent rise in prices in this country, I think that rather an extraordinary expression of opinion. It seemed to suggest that the activities of my right hon. Friend have extended far beyond the shores of this country. But the recent rise in prices has been a world-wide phenomenon. It has affected commodities not only here but in all parts of the world, and the hon. Member's statement requires to be qualified, because prices have not risen quite so much, for example, in this country as they have in the United States and several other countries to which, I believe, even the activities of my right hon. Friend do not extend. We must, therefore, look a little further for the cause of these high prices. It would be out of place for me to name them here. This is not the time for a strictly economic discussion, but I may-say that the rise is, partly attributable to the increased gold production, and partly also to the variations—in the balance of supply and demand throughout the world. I really cannot help feeling that the hon. Gentleman, when speaking of the charges being placed on the consumer might have referred to the recent rise in railway rates which should be taken into account in that connection. It would be unfair for me to dwell upon that now, but I hope I may be permitted to congratulate him upon his recently renewed interest in Grimsby and upon his endeavour to give increased facilities to meet the wants of its trade.

With these few observations I may be forgiven if I pass to the very interesting speech which we heard from the right hon. Gentleman the Member for East Worcestershire (Mr. Chamberlain). That speech ended, as it began, upon a pessimistic note, a note which was also struck by the hon. Gentleman who last spoke. The right hon. Gentleman spoke, if I remember correctly, in deprecation, not so much of the nature of our recent expenditure as of the rapidity with which that increase is proceeding. Upon that point I think it necessary to observe that this country has to keep its place in the world, and if we compare our expenditure with that of other nations, we are struck with the fact not that we are spending more money than they are, but that we are rather laggards in the race of expenditure. That is no excuse for the expenditure, which must be considered on its merits; but whether it be in connection with armaments or with those social reforms which I think we in this country have taken up much too late, it is only too clear that instead of setting an example to the world, it is rather the world that is setting an example to us. I do not urge that as an excuse for a single pound of the expenditure, the consideration of which is before us. But, after all, the Budget we are considering is concerned with national as well as with local expenditure. What do we find when we turn to a country like Germany? In that connection we find this: that local bodies there, not elected on the democratic basis at all—and this is a very remarkable thing, which I commend to the attention of the hon. Baronet the Member for the City of London (Sir F. Banbury)—but elected, as the Prussian town councils are, on a basis which gives weight to wealth, so that the rich elect more representatives to the councils than the poor—the councils elected on that basis spend money more freely than our towns do, and charge the expenditure chiefly to the well-to-do by a local system of graduated Income Tax based on a State graduated Income Tax. The Income Tax in Prussia is graduated, and a town like Frankfort takes that graduated Income and levies upon that a graduated tax.


It is graduated downwards.


But not reaching below £45 a year, which, as the hon. Member will remember, compares with the higher incomes in this country, because wages and salaries in Germany are lower than they are in England. The hon. Member will admit, I am sure, that the revenues of a city like Frankfort have in the past been levied with a much greater regard to the distribution of wealth than in this country, and it is one of the chief commendations of the proposals of my right hon. Friend that they have regard to the distribution of wealth, and do make an attempt to draw upon the wealth of the country for local purposes. There are one or two other tests—


Would the hon. Member like to have the German Emperor over here?


I hardly know what the German Emperor has to do with Prussian cities. I know they have a most admirable Home Rule system—not only a State Home Rule system, but a municipal Home Rule system which makes the cities independent of the State, and certainly independent of that regal personage.


We are now discussing national, and not municipal, finance.


With great respect to the hon. Baronet, I say we are discussing both in this connection. I want to pass from that to one or two other tests which may be applied to the pessimistic observations of the right hon. Gentleman. The test of savings may be applied. Last year was the record year for British investments. That can be absolutely demonstrated, as it has been demonstrated by my friend Sir George Paish, so that, after all the so-called depredations of my right hon. Friend, the British investor last year was able to invest more money than ever before. Turn to another test, and take the test of luxurious expenditure. It is perfectly clear that last year the expenditure upon luxuries in this country reached a point which was never attained before, and, with the exception of the, United States, perhaps, in the history of the world. It is only too clear from these general tests of luxurious expenditure on the one hand, and of saving on the other, that the taxation of my right hon. Friend, so far from trenching upon what is called the war reserve of this country, or the reserve for emergencies, has really not touched the fringe of luxury. There is one other observation in that connection which may be made, and it is that it is idle to compare our expenditure at this time of day with the expenditure, let us say, of the 1880's, when statesmen of both parties and of both Houses viewed with the utmost alarm the near approach of our total national expenditure, including Post Office expenditure, to £100,000,000.


And very sensible, too!


It is idle to make that comparison. If I am asked to, decide whether an individual or a nation, is spending too much, I refuse to go back ten or fifteen years and ask what we were spending then. I would rather apply this test: What is the income of the individual or the nation, and what are the merits of the proposed details of expenditure? There is one other relevant consideration,—that is the magnitude of the people to whom the expenditure applies. It is very easily forgotten that this is a nation of 46,000,000 of people at this moment. Therefore, if you only spend 1s. per head upon them, you have to raise over £2,000,000. It is easy to astonish a public audience, and eventoexcite alarm sometimes in the House of Commons, by referring to £5,000,000 or £10,000,000 without reference to the magnitude of the nation to whom it is applied and to the wealth of the people. Unfortunately, through the lack of what I may call the application of the sense of proportion, we get all kinds of admirable proposals burked, not only by the hon. Baronet (Sir F. Banbury), but by many other Members of this House. I venture to submit to hon. Members who think in that way that, after all, national expenditure may well be in the nature of an investment. I ask the Committee to ponder whether if, in those old days to which I have referred, there had been a larger national expenditure upon public health, education, housing, and town-making, that not only the health of the people of this day would be greater than it is, but whether their wealth would not be greater than it is. It is beginning to be demonstrable in this country that, although what I call the social reform era only commenced at a recent date, we are already beginning to draw dividends from the investments we have made. For my own part I rejoice that, not only one party, but every party in this House, is competing in proposing measures for social amelioration which makes demands upon the public purse. Only to-day we had a measure proposed under the Ten Minutes' Rule which would increase public expenditure. This country would get a tremendous dividend from the small national expenditure which would be involved in a measure of that kind.

I pass to some other important general considerations arising out of the speech of the right hon. Gentleman the Member for East Worcestershire. He contended that it was immoral for us not to tax the poor. [HON. MEMBERS: "No, no!"] I do not want to go one inch beyond what the right hon. Gentleman intended. He was referring to the illustration of the balance between direct and indirect taxation, and he contended that we ought not to take taxation off the many, and that we ought not to relieve them entirely from a contribution to the national expenditure. I think I have put his statement fairly. [An HON. MEMBER: "He was quoting the Prime Minister."] It matters not who was responsible for the argument or whether the right hon. Gentleman was only repeating the argument of another. I am only addressing myself to the merits of the argument. In reply to that I say that it is not a new doctrine in this country or in this House that we should excuse the very poor from taxation. It was a doctrine set up in the plainest terms by John Stuart Mill more than a generation ago, and by some other economists before him. For instance, Bentham, the founder of modern Liberalism, held that there was a level of income below which the State ought not to levy taxation. Therefore, I cannot agree with the right hon. Gentleman that it is not the duty of my right hon. Friend if he has the money—and I think he has the money this year—for example, to repeal altogether the remnants of the Sugar Duty. His observation as to giving undue power to the many has already been dealt with by the Financial Secretary to the Treasury, and I would only like to add this: If we examine the distribution of wealth in this country, we find that, of all the wealth left in an average year in this country, two-thirds are left by only 4,000 people—that is to say, of about £300,000,000 which will pass in this year, £200,000,000 will be bequeathed by only 4,000 people. It is quite easy to deduce from that the extraordinary command of the entire resources of the nation by a comparatively few people. When the right hon. Gentleman spoke, as he did, of our giving undue power to the many, I could not help thinking of that extraordinary distribution of wealth, and of what goes with it. For what goes with it is that it is ownership which is the real government which obtains in this country, and that all that this House has done so far is somewhat timidly to interfere with the real government of the nation, which is exercised by the people who command the nation. That really means the government of the nation by a comparatively handful of people. I do not think any hon. Member of this House need fear that we are giving undue weight to the needs of the many. As to the redistribution of wealth through taxation, I have never claimed in this House or out of it that taxation was a means of equalising incomes, but in these latter days it is very remarkable how far we are getting on that road. For example, in the "Times" this morning, I read—and it is a very remarkable utterance to read in the "Times" of 1914— We have no objection to the principle that the rich should pay for the poor. Moreover, we regard the method of differential taxation as an extremely powerful instrument for redressing those inequalities of fortune which no one can regard as desirable. That is a saying which goes very far, although I myself should like to make many qualifications as to its application to the needs of this country. I would rather that we applied ourselves to the distribution of wealth by making it possible for people to gain incomes than I would, after the inequalities had arisen, simply play the part of Robin Hood by robbing the rich and giving to the poor. After I have said that, I submit it is a remarkable thing to read words like those in a leader in the "Times." With regard to national expenditure as it is, I should like to point out that there is a good deal of exaggeration with regard to the statement of the increase in our national expenditure. That exaggeration arises from the nature of our accounts. The Post Office of this country is a rapidly growing business. The outgoings of the business are included in the statement of national expenditure, so that as during the last ten years the outgoings of the Post Office have increased from £16,000,000 to £26,000,000, we have that loaded on to our national expenditure. It is, of course, not national expenditure, and, so far from being that, it has, during those ten years, brought in an increasing profit. Therefore, in 1915, the present financial year, instead of adding £26,000,000 we ought rather to subtract over £6,000,000. That is the real truth in regard to the Post Office outgoings.

6.0 P.M.

Making allowance for the Post Office outgoings, I find that, including the sum devoted to the local rates, which is only in one sense national expenditure, the increase has been £48,000,000 in ten years. That £48,000,000 is again reduced by this consideration: In 1904–5 the national expenditure, without the Post Office outgoings, was £136,000,000, and in the new financial year it is £183,000,000, without the Post Office outgoings. These figures take no account of the fact that in 1904–5 the party opposite, as the hon. Baronet (Sir F. Banbury) knows, borrowed for naval purposes, whereas in 1914–15 we are paying off part of that borrowing and part of the interest arising from the debt. That makes a further qualification. It will be found that I am right in saying that in ten years, making allowance for that fact, the true increase in national expenditure has been, as nearly as possible, £44,000,000, which is about £4,000,000 per annum. How does that compare with the growth of wealth? I find that, leaving out of account the new financial year, and merely taking the nine years, which makes the comparison tell against the illustration I am using, the incomes of the Income Tax paying classes increased by £238,000,000, whereas the increase in national expenditure was £44,000,000. In fact, it is almost true to say—I think it will be true to say at the close of the present financial year—that the increase in the incomes of the Income Tax paying classes was as great as the whole of our expenditure plus the whole of our local expenditure in rates. That surely is a very remarkable fact indeed! What has accompanied this increase in expenditure? The old economists have been quoted with great effect by the right hon. Gentleman who opened this Debate. If their opinions with regard to the restriction on national expenditure had been true, what would have happened in the last ten years? If all their prophecies of woe and disaster arising from increased taxation of the people had proved to be true it would surely have brought us to the brink of disaster in May, 1914, In those days of restricted national expenditure we certainly had great booms. There was a trade boom in the 'seventies, there was one in the 'eighties, and one in the 'nineties. But what invariably succeeded them? The records of commercial history show that invariably we had slumps of the most severe character. We had one in the 'seventies and one in the 'eighties, when the Fair Trade movement originated, and we had one also in the 'nineties. [An HON. MEMBER: "We are having one now!"] We are not having one now—that is the point I am making. I think prophecy with regard to trade matters should be indulged in with caution. What has happened is that the opinion of every person qualified to give an opinion was that there would be a certain amount of depression experienced long before this, and that all of them have been surprised that the depression has not arrived. If one-half of what the old economists and statesmen said in the old days with regard to national expenditure had been true, this happy result of a calm ending to the greatest trade boom we have ever experienced could not possibly have happened. There is something to be said on the other side. May we not give some weight to the consideration that probably a great deal of the increased national expenditure upon which we have entered has served to steady trade and unemployment? Take, for example, one of the chief items in that £44,000,000—the £12,000,000 or £13,000,000 which we are spending upon old age pensions. Is that national expenditure? Is the income of the nation diminished by a penny by that expenditure? Of course, the national income remains unaltered. All that we do is to call upon certain people, chiefly the Income Tax paying class, for a contribution, which in some cases can be shown to be a very moderate contribution. It is taken from them and transferred to about a million old men and women at the rate of 5s. per week. The only thing that happens is that a different kind of spending takes place. Someone may say, "Does it not lead to a decrease in the amount invested?" Last year saw more invested in this country than ever before. It is permissible to say that there might have been more if that £13,000,000 had not been raised.


There would have been more.


I am inclined to doubt that, because of the contemporaneous increase of luxurious expenditure. I, therefore, prefer to think that it was taken out of expenditure on luxuries, and transferred to expenditure on necessaries, and what is the result of that? Surely it is clear that what we do is to take something from trades which are notoriously fickle and changeable, with changes of fashion and taste, and to transfer them to trades which are concerned with necessaries, and therefore to steady those trades. I do not say it is a great deal, but it is something done to steady trade and employment. As to other evidences, it is notorious that whether we take the test of foreign trade or of bankers' clearances, or the great test of the Unemployment Returns of the Board of Trade, we find that last year we obtained record figures in every direction and the growth of those figures has been contemporaneous with the growth of national expenditure, and the decline of the unemployment figure, of course, followed similarly. I should be deeply sorry if any word I have uttered should make it appear that I am singing the praise of taxation as taxation. I desire to safeguard myself in that connection. I do not believe that this or any other country can go on increasing its taxation in an unlimited degree for an unlimited period. As it appears that I have been defending taxation, I want to safeguard myself against that supposition. Taxation is more necessary for a given amount of national income in this country than in many other countries, because of the opinions of the economists and statesmen which have been referred to. The very Gentleman who had charge of the destinies of this country but who, just because they held these opinions, allowed our slums to grow up and allowed our people to fall into physical deterioration, were by the same token opposed to every sort and kind of national investment. The result is that at this moment, where the Prussian Finance Minister can rise in the Prussian Diet and propose a Budget which contains an enormous amount of national State revenue, our Chancellor of the Exchequer when he proposes his financial statement has merely the £6,000,000 of the Post Office to begin with, and the few millions which were brought in by that little Socialistic experiment of Lord Beaconsfield when he bought the Suez Canal.


That was better than land value taxation.


I am glad to find that the hon. Baronet a supporter of State investment. I never looked upon him in that light before. May I ask the Committee to look at the statement of the results of the Prussian State railways, for the last year for which we have figures as given in the recent return for which I moved. Prussia bought some of her railways and others she built herself out of revenue. The total capital cost of the railways was £558,000,000. That sum has now been reduced, by repaying capital out of profits, by £194,000,000, so that the railways now only stand in the books of the Prussian State at £363,000,000. I find that in 1912 the nett profits were over £39,000,000, that the interest on the railway portion of the Prussian State debt was met, the sinking fund was met, £6,000,000 of new capital expenditure was undertaken out of the profits, and there was a special reserve fund contribution of £8,000,000 and, in all, that there was £11,000,000 in the hands of the Prussian Chancellor of the Exchequer in relief of the Prussian taxes. It was clearly demonstrated that Prussian fares and freights were much lower than in this country. [An HON. MEMBER: "What about wages?"] Wages are rising much more rapidly than on British railway companies. As the more railways the more Free Trade, I do not exactly see the logical connection with the point of view of the Tariff Reformer. I think it can be demonstrated that Germany possesses more internal Free Trade than we do because of the existence of these State railways—indeed, Prussia gets a double revenue. There is this revenue of which I have spoken and there is a second revenue which consists of the fact that she gets her goods and her people moved more cheaply than we do. This example is one that we ought to bear in mind at this time, when we are once more raising the taxes of the British people.


Is the hon. Member not aware of the fact that the railway service in Germany is very much worse than it is in this country?

The DEPUTY-CHAIRMAN (Mr. Mac-lean)

I think the hon. Member had better keep to the subject.


I was trying to defend myself from the suggestion that I find taxation the only way out of our financial difficulties, and I want to suggest that it is the duty of those responsible for the finances of this country not merely to tax, but to have regard to the future revenues of this country, and therefore especially to have regard to such subjects as that. I cannot suggest that we could readily put ourselves in the fortunate position that Prussia is in in that regard because of the extraordinary capitalisation of our railways, but I think that something might be done, and that the sooner it is done the better. I think the Estimates, both of the new taxes and the old, are very conservatively estimated in the figures which have been given us, and under those circumstances I cannot conceive why my right hon. Friend thinks it necessary to raid the Sinking Fund. I think it will be surely found, when the end of the financial year is reached, that we shall have much more than the revenue we need if we dispense with the £1,000,000 taken from the Sinking Fund.


It can go back.


That is hardly the right way to do it. I am glad to think that the Sinking Fund will benefit very considerably at the end of the year, but at the same time I would rather see the New Sinking Fund not tampered with I should like to see a Chancellor of the Exchequer with courage enough to ask the people of this country to submit to a little extra taxation in order to get rid of the capital indebtedness of the country altogether. It would not take very long to clear it up There is one other matter upon which I should like to make an observation. It is with regard to the graduated Income Tax. The Chancellor of the Exchequer has circulated a Paper which shows the effect of the graduation of the Income Tax and Super-tax. I think page 5 of that Paper furnishes a criticism of the proposals in detail. Here we have erected a graduated Income Tax. It is formed really by the joint working of two separate Income Taxes—the Income Tax proper and the new Income Tax which we call the Super-tax. It is only necessary to look at these graduated scales to see that they bristle with anomalies. I do not agree with all that was said with regard to the hardships attaching to persons with unearned incomes of, say, £800 a year or thereabouts, who have to pay an Income Tax of 1s. 4d. in the £, but I agree that there should be some graduation between £700 and £3,000. That is much too big a step in graduation in unearned incomes. Now that the right hon. Gentleman is going so far as to get personal declarations of income from, I imagine, something over nine persons in eleven in the country, surely he can go a little further and get declarations from the whole of the taxpayers, which would enable him to graduate these incomes!

Hon. Members will also notice that there are some very big steps in the earned scale. Take the difference between £1,000 and £1,001. One pound more income means paying £6 more tax. The same thing occurs with an income of £2,001. The taxpayer who has an income of £2,001 pays £15 more tax. That has an unfortunate tendency in practice to lead to incomes keeping within the point at which that remarkable transformation takes place, and really, if they work it out fairly, I do not think hon. Members will feel surprise that that should be so. If we turn to the Death Duties scale, we see a plain graduated scale which any man can understand. Why cannot we have a similar scale with regard to the Income Tax? The reason is that we do not get personal declarations of income from all taxpayers, but surely the time has come when we could complete the system, and set up a perfectly plain scale which would not only do justice to the taxpayer, but show the taxpayer that justice is done to him.

With regard to the somewhat complicated series of measures which we are promised to deal with local taxation, and upon which the distribution of the Grants depends in some measure, I cannot myself see how the Government can expect this House to pass these measures in such time as to enable the valuers to get their work done, and to enable the Grants to be made as between owners of sites and owners of improvements. How is it to be done in so little time? That being the case, I venture to press upon my right hon. Friend that the Government will not drop the excellent proposals it has made, but will frame an interim scheme which would enable the Grants to be made. The position is this: We are beginning to enact these taxes. These taxes will be passed into law, and the revenue will be accruing. Surely the House is not going to enact increases of the Income Tax and the Death Duties, and put the money in the Treasury for that money to be hung up, if the House of Commons finds itself unable to pass certain measures, or if the valuers are unable to get their work done. Surely the simple way out is for the Government, whatever else it does, to frame an interim scheme for the fair distribution of that money. I am pleased the Government has seen its way to make a bigger call upon the wealth of this country, in order to provide for the needs of the local authorities. The condition of the towns is a great reproach to the country. Our towns are beginning to rank very badly among the towns of Europe with regard to their amenities and their appearance, and really, if the present rate of progress goes on with regard, I fear, to the housing of its people. I think it would not be unjust to say that in many cases the towns do not make the creditable appearance they ought to make in view of the wealth of the country, and I attribute that row, as I have done before, to the fact that we have not got a proper call upon the wealth of the country to provide for the needs of the State. I rejoice that the Government have taken the matter in hand, and I would earnestly hope that they will not postpone the needs of the ratepayers and the municipalities. I hope they will not postpone the distribution of these Grants because of any difficulties there may be in carrying the necessary legislation this year.


The very interesting speech to which we have had the pleasure of listening makes one realise what can be done with figures by people who really have got a grasp of them. When I heard the hon. Gentleman explaining almost to my satisfaction that the expenditure of the country was not going up, and that the Income Tax was not a burden upon anybody, I wondered why the Government should propose any new taxation at all if the expenditure has gone up so little, and if their economies are so rich. But in spite of his very optimistic comparisons between this country and the German States, I personally cannot help agreeing with my right hon. Friend that the financial situation to-day caused by this Budget is a very serious one, not only because of the actual amount we are asked to vote in the Budget, but because of the general policy of the Government which proposes it. I wonder what are the feelings of any hon. Member opposite who fought the General Election of 1906. I remember some of the speeches made in that year. There were violent denunciations of a Budget of £130,000,000, and we heard talk of peace, retrenchment, and reform. The present Prime Minister, speaking of a Budget of £149,000,000, said:— These figures appear to me to call for no Comment. They speak with an eloquence that needs no rhetorical embroidery. In my opinion, they make a return to more thrifty and economical administration, the first and paramount duty of the Government. The present First Lord of the Admiralty, speaking at a time when he honoured our side with his support, said:— He should like to do his best to pursue the same-economic performances he had hitherto devoted himself to, and unless the incoming Government made a substantial reduction both in naval and military expenditure, he should do his best to be a plague to the right hon Gentleman. … Since his quarrel with the Government [the Conservative Government of the day] had become serious, he should like to say that it was solely and entirely on the question of finance. And yet the right hon. Gentleman cheerfully supports a Budget which is £50,000,000 greater than that Budget, and he is himself at the head of one of the greatest spending Departments of the State. After using in 1906 the words which I have quoted, the Prime Minister sits beside his colleague, the Chancellor of the Exchequer, who, in the peroration of his speech introducing a Budget for £210,000,000, said that the Government were taking a step forward which would conduce to the more enduring strength and honour of our native land. Indeed, things seem to have changed since those days. I do not think that the country, perhaps, or even the House of Commons, fully realise the enormous extent of the expenditure to which we are committed and the liabilities which we carry. Not only have we got to face a Budget for over £200,000,000, but we have a local budget of a great deal more than £150,000,000. In addition to that, we have local debt, the amount of which I cannot find out, but at the end of 1911 it was £620,000,000, and as it had nearly doubled in the previous ten years, I suppose it may be safely assumed that it is larger now. In addition to that, we have the National Debt of nominally £650,000,000. In addition to this deadweight debt and actual liabilities, we have contingent liabilities for loans guaranteed, and so forth, of over £200,000,000. Besides that contingent liability, we have another either actual or present liability, in regard to which I have often asked the Chancellor of the Exchequer to give us the benefit of his skill, and that is the deficiency in the Post Office and Trustee Savings Banks. We know that the Departments have deposits of £180,000,000 in their hands, against which they hold Government stocks as security. We all know that during the reign of the present Government some of these securities have had a considerable slump, and therefore there must be a very large deficiency as between the amount for which the Department is liable and the market value of the securities. That is a small point to mention in discussing these enormous figures, but it certainly would make for more intelligible accounting if that deficiency was clearly shown and added to our debt. I may say, though this also is a minor point, that the deficiency would not have arisen in its present acute form if the Government had carried out the principle, which is carried out in any business concern, of not holding their own debt. When the Department went into the market to purchase Consols they ought to have cancelled them and charged the interest due to the depositors on the Consolidated Fund. In that way they would have had the system regularised, and not this large deficiency now.

These figures are very large, and the alarming point—even more than their size—is that they show a substantial increase from year to year, except, of course, the dead-weight debt, and the decrease in the dead-weight debt is, after all, a great deal more apparent than real, because, while you have been reducing debt, you have been putting to the expenditure of the State certain capital charges. The Secretary to the Treasury dealt with this question and said it was most immoral to say you are adding to the total liabilities of the nation because you are spending £21,000,000 a year, or whatever the figure is, for old age pensions, national insurance, and so on. I agree that, from the moral point of view, it is, a very desirable thing that the money should be spent, but I say that the comparison you have to draw between the annual burdens which we have to meet every year and the annual interest of the dead-weight debt is whether or not these capital charges which you have put on us can be remitted. The annual payments for old age pensions and national insurance cannot be remitted by any Government, and therefore they are not only annual expenditure, but they are capital charges, and in any financial review of our position these charges should be capitalised. If they were capitalised, they would be found to be infinitely greater than the amount the Government has produced. They are increasing largely.

My right hon. Friend has already eloquently pointed out that we are in a rather defenceless position, because the Minister on whom we ought to rely as the guardian of our finance, and as a rigid economist always prepared to say "No" to the extravagances of his colleagues, instead of being the guardian, has become the principal robber, and is always at the head and front of any movement for further expenditure. For that reason, I think that his check on the Treasury should be removed, and that the check of the House of Commons should be enormously increased. I am bound to say that during the short time I have been in this House nothing has struck me more than the incessant attempt that is being made by the Government to evade financial control by the House of Commons. For instance, there was the Persian loan, where a large sum of money was filched from the Treasury Chest and lent to Persia without the House of Commons having voted the money, and without our having the slightest opportunity of saying whether we approved of the loan or not. A similar case was the Chancellor of the Exchequer's issue of Exchequer Bills the year before last. He did not want the money, but he put out the Exchequer Bill and made the nation pay the interest, and put the money on balance. I suppose that the Government will say that they did not think they could have time to come to the House of Commons and ask for what was wanted. We have extraordinarily little time to discuss Supply in this House, and when we do discuss Supply, very often party politics are discussed on those days, and then millions of money are voted without discussion.


The Stationery Vote.


In this matter I do not think that one side is more to blame than the other. Most serious of all, I think, are the Supplementary Estimates. Supplementary Estimates have now become part of our financial machinery. This Budget, as an Estimate of what the nation is going to be asked to spend in the coming financial year, is of no value whatever, because we know that any Minister may come down to this House and demand further sums, which we shall be compelled to grant. I would like to know what is the financial policy of the Chancellor of the Exchequer which is underlying this Budget? The Chancellor of the Exchequer, in introducing this very important Budget, made a very long speech, though I could not understand what he meant or how the money was going to be spent, and he stated casually, at the end, that he was going to raise the money in a particular way. He introduced the biggest normal Budget that any Chancellor of the Exchequer has ever introduced. He was putting larger taxes on capital and larger Income Taxes, without any regard to our resources in time of war, than any previous Chancellor of the Exchequer has ever done, and yet we have no justification either of the increased taxation or of his raid upon the Sinking Fund, though the Secretary to the Treasury has dealt with that question at some length this afternoon. I do not expect that the Chancellor of the Exchequer would justify his increase of Death Duties, Income Tax and Super-tax on the score of justice. We all recognise that under the present system of government it is no good for a section of the community that can only carry 10,000 votes to come to the House of Commons and talk about justice. But I would like to know whether the Chancellor of the Exchequer thinks that his present policy of taxation will be adequate to finance the necessary expenditure which is foreshadowed in this Budget, especially when this trade boom has fallen off, and whether, if that policy is going to be pursued to cover completely all his expenditure, what does he consider will be its effect upon the commerce of the country?

It seems to me that the whole financial scheme of this Budget is unsound, and that it infringes some of the permanent principles upon which our financial system is based. The Chancellor of the Exchequer proposes, first, to take £1,000,000 from the New Sinking Fund. The Secretary to the Treasury has defended this proposition, which the Chancellor of the Exchequer never attempted to do in the Budget speech, and took great pride in the fact that Consols had only fallen one-eighth, and had immediately recovered. The hon. Gentleman knows just as well as some of us who are engaged in the City what was the reason—that it was partly the activity of the Government broker and partly a more serious cause. So bad has been the effect of the Government financial policy that the Consol market has lost all the resiliency which it used to have. Hon. Members know very well that in the better days of Consols any political crisis, any foreign crisis, and, even more, the almost total suspension of the New Sinking Fund, would have produced a very heavy drop in Consols, because it was the natural investment of the funds of the public, and people were always jobbing in and out, according to what the political situation looked like. But the Government have so effectually frightened the private investor from investing in Government securities that even this rather large raid upon the Sinking Fund had not really any effect in depressing the already grievously depressed Consol market. If the Chancellor of the Exchequer takes satisfaction in the fact that his Budget can still keep Consols up to 74, I do not think that anybody need grudge him that satisfaction. Another point. Next year, as the hon. Gentleman knows, there are £19,000,000 Exchequer Bonds falling due on the 1st April. I suppose that the Government are going to make arrangements for renewing these bonds, and I have no doubt that they have considered the effect upon the price of that renewal which the present juggling with the Sinking Fund will have, and, even more, the announcement that that raid is going to be increased and extended in the following year.

How did the Chancellor of the Exchequer justify his partial suspension of the New Sinking Fund? He justified it by comparing the amount of debt which he has reduced with the debt reduction of former Chancellors of the Exchequer. The hon. Gentleman the Financial Secretary had some very hard words to say of people who compare unlike with like. His strictures ought to be reserved for the Chancellor of the Exchequer, because his debt reduction is absolutely incomparable with the debt reduction effected, say, by Mr. Goschen. Not only was the stock which he had to redeem about 25 per cent. cheaper than it was in Mr. Goschen's day, while in Mr. Goschen's time the necessity for reduction was less; but, much more important than all these facts, the Chancellor of the Exchequer is making his debt reduction by capital taxation, and in the days when Mr. Goschen made his debt reduction there was practically no capital taxation of any sort. It seems to me that by taking this £1,000,000 from the Sinking Fund, and by the large increase which the right hon. Gentleman is making in the Death Duties, he is making the nation live upon its capital. That could only be justified by a great national crisis or by the fact that a great reduction in expenditure has been undertaken. Luckily, the former alternative is not with us, and we know very well that with the right hon. Gentleman in office we are not very likely to suffer from the latter.

In spite of the figures which have been given to us, the returns of the estates liable for Estate Duty for various years recently give us a rather interesting indication of the effect of this policy. Up to the year 1909 these figures had very largely increased. After 1909 they remained practically stationary. Before 1909 you were taking 6.5 of these estates in Death Duties, but since then you have been taking 9.1 per cent., and now you are going to take about 11 per cent. Therefore it does not want figures to show what must be obvious to everybody—that if you are going to increase the capital taxation of this country at this rate, you must be gradually reducing the capital of the nation, and the time will come—I do not say now—when the increased tax which you are going to put on will produce a relatively small sum of money. That is to say you will, by your policy, have destroyed the whole of the principal source of your income. But after all that may seem unnecessarily pessimistic. I quite admit that it will not happen to-day or to-morrow. The question which I wish to ask the Government to consider, and which the House of Commons ought to consider, is—what will be the immediate effect of the present system of taxation? The House ought to consider seriously, whether you can increase the tax on productive wealth up to the point to which you are increasing it to-day, and still maintain sufficient capital, not only to carry on but to increase and expand the various enterprises in the country. That seems to me to be the point of the matter.

There is no use discussing whether the rich can, or cannot, afford it. That need not be considered. What you have got to consider is the good of the whole country, and if taxation has been brought to a point at which you reduce the capital upon which people live, not the rich but the whole people of the country, then you are doing a very grave disservice to the country as a whole. I think that I detected signs in the speech of the hon. Gentleman who has just sat down of an electioneering strain, about the luxuries of the rich being taken away and invested in helping the poor. Sentiment is all right in its place, but you must have finance when you are discussing the Budget, and I think that it would be a very dangerous thing if, in order to avoid the immediate difficulties and unpleasantness of coming to the country for fresh taxation, you are taking the easiest course now which may end in very serious difficulties for the country. One of the results, which I foresee from the present financial system, is that you are infallibly going to undermine our position as the banking centre of the world. If you are going to put an increased Income Tax on the securities which foreign people hold over here, it is quite obvious that they are not going to continue to hold those securities. You can ask any large financier about this. I was talking to one this morning. He used to be—I do not know whether he is now—a supporter of the policy of the right hon. Gentleman, and he confirmed this view.

I think that all of us must agree that in driving foreign security holders from this country you are preventing London from being the exchange centre of the world, as it is quite obvious that people draw from us and we discount their bills because they have got the securities lodged with us—I admit also because we are on a gold basis which other nations are not; but I think that the hon. Gentleman will admit that the securities held here in connection with these credits are also a very large factor in producing this result. That is the effect upon commerce. I want to know what the Chancellor of the Exchequer thinks will be the effect upon trade of this system of taxation? One result must be that foreigners are not going to invest their money in this country. Another result will be that, by taking these large sums of capital every year from the country, you are leaving less capital for the expanding industries which already exist, and by the same process you are crippling old businesses by taking away from them a huge part of their resources, especially at a time like this when, as everybody knows, you have got to employ a large amount of liquid capital to make a profit than ever was the case before.

The real fact of the matter is that you cannot consume capital for expenditure and employ it for trade as well. You are doing that. You are consuming that by your methods of spending it as income, and you cannot expect to have increased trade at the same time. I think we must make up our minds, when we are discussing this Budget, as to whether we have not come to the point at which we can no longer tax surplus income, which is the fund from which the people of this country must be employed. These principles seem to me to be so obvious that they should be agreed upon by everybody, and they seem to me so obviously broken by this Budget that I am driven to the conclusion that its real object is not fiscal at all, but has other considerations in view. I see in this extraordinary system of taxation which the right hon. Gentleman has introduced, and his methods of presenting the Budget, that he is dealing with the policy of hon. Gentlemen below the Gangway opposite, and is trying a great legislative measure for the redistribution of the wealth of the country. I gathered from the speech of the hon. Gentleman the Member for Northamptonshire that it was one of the traits of the Budget which he welcomed, namely, that it would have the effect of making a better distribution of wealth all through the country. I do not argue whether it is right or whether it is wrong, but I do say that it must be wrong in a Budget, the object of which should be to raise the necessary money for the needs of the nation with as little disturbance as possible of the interests of those from whom the money is to be collected. If you give up that principle, if, under your Budget, you transfer the wealth of the country from the present holders to other holders, then the principle which underlies this Budget can be understood. I do not believe myself that you can succeed, at all events by budgeting, in making the poor richer, but you may succeed in making the rich poorer. I think it is very dangerous for the Government to attempt to deal with such a proposition by framing a Budget which may, perhaps, get them electoral support—for that is the object, no doubt—but I, for my part, believe that you cannot do it except at the risk of gravely crippling the commerce and industry of the country as a whole.


The right hon. Gentleman, in opening the Debate this afternoon, referred in terms of misgiving to the increased expenditure of the country, but I cannot help thinking that something will be gained if a little more recognition is given to the fact that the money necessary to finance the nation to meet its needs has been raised without any real difficulty. It is highly satisfactory that the revenue of the past year has grown to such an extent that the account closed with a surplus of £750,000. In the eight financial years during which the Government have been in power they have shown an average net surplus at the rate of £2,811,000 per year. In Germany, on the other hand, during those eight years, the average net deficit, as nearly as it can be ascertained, has been not less than £2,000,000 a year, irrespective of the £50,000,000 on naval and other expenditure, which has been financed out of loans, In this country we have demonstrated that we can, with comparative ease, find the money necessary to finance the nation's greater responsibilities. Nevertheless, it is contended that our national expenditure is now too high, quite irrespective of the fact that the character of the expenditure has materially changed in recent years, and the country, in some respects, is getting a much greater direct return for the money than formerly. Apart from that important consideration, and it is an important consideration, what is the standard to be when it is said that national expenditure is too high? It must be remembered that no scientific or definite conclusion has been reached as to the proper limit of national expenditure. Probably the point is one that each nation can only determine by experience, and, if that is to be the test, I can certainly see no evidence, in view of the generally prosperous condition of the country, and the great growth of trade in recent years, that our national expenditure is excessive.

Moreover, some guidance in this matter may be found in the rules and maxims laid down by eminent authorities on these questions, and in a comparison with the expenditure of other countries. Sir Robert Giffen regarded a national expenditure, which amounts to 10 per cent. of the total income of the country, as not unreasonable. M. Leroy Beaulieu has said that under 5 per cent. is light, between 5 and 10 per cent. moderate, from 10 to 15 per cent. heavy, and 16 to 17 per cent. the extreme limit. Judged by those tests, this country stands in a favourable position to-day. My hon. Friend pointed out that the real expenditure of the country in the current year is not £209,203,000, because from that ought to be deducted the cost of the Post Office, the telegraph, and other services, except so far as profit is made, otherwise the charges for those services cannot be regarded as a tax on the people. In justice, it should be said that the true expenditure of the country for the current year—that is, expenditure out of what may be termed taxed revenue, is £183,000,000 in round figures—8.5 per cent. of the national income. Taking the latter as £2,150,000,000 the figure accepted by competent authorities, it is a distinctly low percentage compared with that of Germany and France. The expenditure of those two countries has been recently growing very rapidly, much more rapidly than ours. The figures work out like this: The proportion of tax revenue expenditure to the total income of each nation now amounts to 11 per cent. in the case of Germany and about 16 per cent in the case of France. The comparison is a very satisfactory one for the United Kingdom. However much or however little importance may be attached to those figures, I do submit that hon. Members opposite cannot justly criticise the present rate of expenditure.

Hon. Members opposite have repeatedly spoken of the excessive expenditure, but they have not shown any substantial item that they themselves would reduce. On the contrary there are certain items that they want to increase; but consistency is not a prominent characteristic of the present Opposition, and therefore, it is not surprising to find that at one and the same time they complain that we are spending too much, and urge that we should spend more. They want to spend more on the Army and the Navy; they want money spent upon agriculture and upon the relief of local rates; they want money for housing, for the land, and other matters. All their proposals are extremely vague, but are bound to put additional burdens on the taxpayer. If we take the present expenditure as substantially agreed and add these further items, the figures are likely to be in excess of the present sum, and the real question at issue between the Government and the Opposition is not so much the amount of expenditure in future as it is on what objects and in what manner the money is to be spent and though the national expenditure to-day shows a large increase over ten years ago, yet it is not correct to place the figures of to-day in comparison with those of ten years ago, The character of the outlay has materially changed. Ten years ago national expenditure was mainly, for the ordinary cost of Government, quite apart from what may be termed beneficial social services. Today our national expenditure includes not only the ordinary cost of Government, but in addition, a large sum for beneficial social services. Ten years ago, in 1904–5, as my hon. Friend pointed out, the national expenditure on taxed revenue, eliminating the cost of the Post Office, except so far as profit is concerned, and including the payments to local taxation account, was £136,000,000 in round figures, and it is now £183,000,000 an advance of £47,000,000, the major portion of which is for these new beneficial and social services.

That is not all. Apart form the growth in the cost of the ordinary Civil Services and so forth, there is no less than £14,720,000 of the total increased expenditure in the last ten years, represents the additional cost of the Navy. It is true, as my hon. Friend said, that if the money spent out of loans on the Navy in 1904–5 were taken into consideration, the increase would be less. I deplore the fact that the Government have thought it necessary to spend no less than £51,550,000 on the Navy. I deplore and regret it all the more, in view of the great improvement in the international situation which has taken place in recent years. There are peaceful relations between us and foreign Powers, but that apparently counts for nothing at present. However, apart from that, I think it is a matter for much satisfaction that there is no less than £27,000,000 for this new class of beneficial social services. There is the sum of £21,000,000 for old age pensions; there is a State contribution under the Insurance Acts and for Labour Exchanges; there is £1,500,000 for road development, which provides a source of relief for unemployment; and £500,000 for an extended and improved educational service. All this is quite apart from the normal in the cost of education. Finally, we have the sum of £4,000,000 to be devoted to social objects and to the relief of local rates this year.

7.0 P.M.

In order to arrive at the increase of national expenditure pure and simple on these new beneficial services, the £27,000,000 should be deducted from the present expenditure of £183,000,000, which gives the sum of £156,000,000 for the current year, taking the expenditure on the same lines as ten years ago. That shows an advance of £20,000,000 compared with ten years ago. But as the population of the country grows the normal expenditure also grows. Fortunately, the tax revenue accruing to the Exchequer also grows at the same time. The normal growth of the Exchequer's tax revenue since 1904–5 has averaged about £2,000,000 a year, making a total automatic expansion to date of £20,000,000. What does this mean? It means that even if the present Government had imposed no new taxes at all, the revenue of £136,000,000 ten years ago would automatically have become £156,000,000 this year, and consequently an expenditure of £156,000,000 imposes no greater proportion of burden on the country than the expenditure of £136,000,000 ten years ago. I have already shown that on the same lines as ten years ago, eliminating the cost of new social services, the expenditure amounts to only £156,000,000. It consequently follows that, apart from the money for social service, the capacity to meet additional responsibilities has kept pace with the increase that has been made by the present Government, or, in other words, that the proportion of total national income now being taken for the same class of expenditure as ten years ago has not increased. That is the position if the new items for beneficial and social service were to be cancelled, but the great majority of the Members of this House, and of the electors of the country, do not wish them to be cancelled. After a very long experience the country recognises that all other efforts have failed to deal adequately with those social problems, and that it is therefore time that the Government should step in. There is almost general agreement that this money ought to be spent, and if it were not spent by and through the agency of the Government, or the local authorities, some of it would be spent by the workers. Therefore, these sums should not be regarded as an increase of national expenditure in the ordinary sense of the term. A proportion, at any rate, of the money spent on beneficial social service is in the nature of alternative expenditure, such as expenditure on old age pensions and on the Insurance Act. Before those had been arranged for by the Government the aged and the sick had to be kept by local authorities or by hospitals or philanthropic institutions and charitable agencies or by the poor themselves.

The outlay for those services represents a more equitable distribution of the burden of social evils which are national in character, and for which, therefore, all classes should take responsibility, and in the amelioration of which all classes benefit The burden of these social evils is now more fairly shared, because in raising the necessary money the Government have, apart from the normal growth of revenue, increased direct taxation. That is, to my mind, an eminently sound policy. It is only, indeed, by an increase of direct taxation that the money could have been got, or can be got, unless an excessive burden were to be placed on the poorer classes by an increase of indirect taxes. For my part, I would like to see indirect taxation made lighter, and not heavier, and here may I say that I regret another year has passed without some remission of the taxes on sugar and tea. Whatever differences of opinion there may be with regard to that important matter, let me point out that the Opposition have no proposals before the country as an alternative to direct taxation. It is quite true they are committed to a truncated system of Tariff Duties, estimated by their Leader to produce £10,000,000 per year. Personally, I do not think that when the cost of collection and other things are taken into account the yield would approach £10,000,000, but even if that estimate is realised, the money would not be available for reducing direct taxation, because it is mortgaged for other purposes. It is mortgaged for an increase in expenditure on the Navy and the Army, assistance to agriculture, and so on, and after those commitments of the Opposition have been met, if anything remained which is extremely doubtful then such sum is pledged for remission of indirect taxation on tea and sugar, which the Opposition frequently criticise when they are in opposition, and which they say they hope to reduce.

The important problem for the Committee to consider is this: Are the proposed direct taxes, the Income Tax and the tax on Death Duties, too high, and on what grounds can it be shown that they are? In discussing that problem, I think we must start from this point. There is no established or scientific principle by which you can determine how high are the rates at which direct taxation can be wisely levied. In this matter, just as in ascertaining the limits of expenditure, we can only be guided by certain general rules and principles, and by the tests of actual experience. It is not sufficient to say that direct taxation is too high, because it is higher than it used to be. Regard must be had to what is being done with the additional revenue. It may well be that higher rates are justifiable if the money is being used for social and beneficial objects. It has been said, for instance, that an Income Tax of 8d. is high in times of peace, and there is something to be said for that for ordinary Government services; but it does not follow that it heavier rate is too much if the additional yield is being mainly used to finance beneficial social objects which operate to the advantage of the country as a whole. Moreover, as has been pointed out, although the present rate of Income Tax will be nominally 1s. 4d., the actual rate, taking into account the various abatements, for the majority of Income Tax payers is considerably less. Nevertheless, the right hon. Gentlemen opposite and others have objected to the proposed rates of Income Tax, because they hold that the tax should be mainly a reserve for war expenditure. As a matter of fact, the reserve of a country for war expenditure out of current revenue is not only Income Tax, but all the taxes in the tax system. That was demonstrated at the time of the South African war, when a sum of £76,000,000 was raised out of current revenue, and of that £39,000,000 came from Income Tax and £37,000,000 from other taxes. In adition to that, a further sum of £160,000,000 was obtained by loans. The cost of War, when it comes, is generally met by loans, and not from current revenue, and the real reserve is ability to borrow; and, in comparison with many other European Powers, and particularly with those countries which it is at all necessary to take into account in this connection, we are to-day, relatively in virtually as favourable a position to borrow as nine years ago.

It must be remembered that the Government have already reduced the dead-weight of the National Debt per head of population from almost the highest figure which it touched down to the lowest figure of modern times. They have reduced the dead-weight of the National Debt per head of population from about £17 5s., which it was in 1906, down to £14 2s. Under those circumstances, I do submit to the Committee that the Chancellor of the Exchequer is justified in taking £1,000,000 from the Sinking Fund. Otherwise, in my opinion, we should have been imposing too big a charge for debt reduction on the present generation, and relieving posterity of an undue share of its just burden. If the National Debt charge were to be maintained at the level of past years, and as a consequence the Sinking Fund steadily growing, then the whole of the National Debt would be paid off in about forty years on the estimate of an average price of 90 for Consols. I really do not think on the grounds I have so far discussed that a good case can be made out for the contention that the direct taxes have been too high, nor is it true that Income Tax and Death Duties have been reducing profits, or the stimulus to make profits, because profits continue to grow and are growing at a greater rate than formerly. Further, the savings of the country are very considerable and are growing. An hon. Member said that we would very soon be living on our capital by taxation. In 1903 Sir Robert Giffen estimated the total' savings, after all expenditure and taxation had been met, as £264,000,000 per year. Last year the Chancellor of the Exchequer named £350,000,000 as the amount of yearly savings, and since then it has been put at £400,000,000 by Sir George Paish.

Therefore, the annual savings are much greater than they used to be, and I do not see how it is possible to contend successfully that, through the increased Death Duties, the Government is taxing capital in the sense that the national resources of capital are on balance being reduced. I say that that contention is wholly misleading and unsound. There is the capital of the individual, and there is the national capital. No doubt the Death Duties do take some capital from individuals, but it does not follow that the national resources of capital are thereby being entrenched upon. A country cannot be said to be encroaching upon its capital when capital is added to by savings, and in this country there is such an addition, amounting to £350,000,000 per year or more, and the major portion of these savings are made by the Income Tax paying classes. I really think it would be idle to argue that the Government is proposing to tax capital unwisely in the future. Finally, and this is a most important consideration, the yield from the Death Duties and Income Tax is continually progressive, and the heavier rates have been justified in that respect. Ten years ago the yield from the Income Tax was. £31,250,000 as against the estimated yield in all this year of £56,550,000, or £48,550,000 apart from the new taxes. Ten years ago the yield from the Death Duties was £16,668,000, and the current year it is estimated in all to be £28,800,000, or £28,000,000 apart from the new taxes. I cannot myself find any established fiscal principle to confirm the view that these direct taxes have been too high. On the contrary, they have been, and I think they will be, economically sound and increasingly productive.

May I remind the Committee that the cost of collecting direct taxes is, generally speaking, in proportion to their yield much less than the cost of collecting indirect taxes? That is certainly true of Income Tax and Death Duties, and it will also be true of the Land Taxes when the valuation is completed, and when all the Land Taxes are fully in operation, and I rejoice that rating of site values will soon be an accomplished fact. It has frequently been emphasised that the cost of making the land valuation is a capital cost. In similar circumstances most industrial concerns would have spread the amount over a number of years. The Government, perhaps in an excess of virtue which has received but small recognition, elected to find the whole of the money out of current revenue. Even so, it is highly satisfactory to know from the very full statement made last year on this matter by the Financial Secretary to the Treasury that the present capital cost of land valuation is already, taking everything into account, being substantially recouped. Let me take the case if hon. Members opposite were in power, and were inaugurating a system of Tariff Duties, there would be, in the first place, not only the ordinary cost of collection, but there would also probably be the cost of new Customs warehouses and so forth. In that event I certainly would not think it right to add this capital outlay to the ordinary cost of collection, which would be very large indeed, and give the combined total as the normal cost of collection, as I should know full well that the proportion of the total amount due to the capital outlay would not soon recur. I suggest that hon. Members opposite should be equally fair in their criticism of the land valuation.


My right hon. Friend the Member for East Worcestershire (Mr. Austen Chamberlain) laid great stress on the danger of destroying our power of raising special taxation in cases of national emergency. The Secretary to the Treasury, in replying to my right hon. Friend, pointed out that it was not necessary that direct taxation should be available for that purpose, because, in cases of national emergency, indirect taxation could be levied without undue hardship. I would point out to the hon. Member that indirect taxation would, in the case of a European war, for instance, fall with much greater hardship than in normal times. The hon. Member who has just spoken (Mr. Arnold) apparently throws aside that explanation, and maintains that emergency expenditure would not be met by indirect taxation, but must be paid entirely out of credit. If we are to rely in case of emergency, such as war, on getting through the temporary difficulty entirely on credit, surely it behoves us to take special care to do nothing in our financial system which may destroy the credit on which we are to rely. The fact faces us that we have before us a stupendous Budget—a Budget for the first time exceeding £200,000,000—and when we remember that the £100,000,000 line was passed only eighteen years ago, I think no one will deny that it is, at any rate, a position in which we should turn round and consider where we stand.

I wish to ask the Committee to consider for a moment a rather different aspect of the case, namely, the effect of the proposed taxation, not only on the industries of the country, but on the industrial and working classes. The Civil Service Estimates, taken by themselves have increased during the last nine years from £47,000,000 to £87,000,000—that is to say, they have nearly doubled, and have increased by £40,000,000. About one-half of that increase is due to two big items, old age pensions and national insurance. So far as national insurance goes, I think it will not be denied that not only the portion of the £20,000,000 which comes directly from the State, but also that portion which comes out of the pockets of employers and employés, are direct charges and burdens upon industry. It is worth while considering what is likely to be the result of the incidence of these charges on industry. Obviously, burdens of that kind, like all others, must result in an increased cost of production. It is equally true that in most cases this increased cost of production would be reflected in the form of higher prices, and inasmuch as it is reflected in increased prices, so much will it add to the general cost of living. But there is a further effect. Burdens which tend to raise prices must also have a tendency to lessen consumption, and, by reducing the output, to lessen the demand for labour, and consequently to lower wages. All burdens of this kind when they assume sufficient magnitude can be directly connected not only with the cost of living, but with the whole question of the demand for labour and the rate of wages in the country.

In the same way this tendency must always be enhanced by the effect of very large additions to direct taxation. It is obvious that a large proportion of the direct taxes, such as Income Tax, if not taken for the purposes of taxation, would be capitalised; it would be invested, and go to increase the amount of capital in the country. Therefore, the larger the amount of money taken by the State for spending purposes the less the amount that remains to replace the capital which is gradually being exhausted or wasted, and which must be replaced if the position of the country is not to fall back. I should like to differentiate very strongly between the effect of Income Tax and the effect of Death Duties. I have always maintained that as a direct tax the graduated form of Income Tax is by far the most equal and just form of raising the money required. The same remark does not apply in the case of capital duties such as Death Duties, because it is obvious that although a considerable amount of the money levied in Income Tax would, if not so levied, be capitalised, it is also true that a certain portion of it would be not capitalised, but spent in the ordinary way. But when you come to capital taxes, such as Death Duties, it means that at a certain given moment you take large blocks of capital now being employed for the purposes of industry, not for the purpose of keeping it as capital in the hands of the State, not for the purpose of investing it as might be done, for instance, in nationalising railways, but which is in order to melt it down for the purposes of ordinary expenditure. It must be remembered also that this destruction or melting down of capital is, in cases like the present, accompanied by the curtailment of the very possibility of replacement—that is to say, by the increase of the Income Tax.

There are other special disadvantages in the Death Duties form of direct taxation which, I think, should be borne in mind. There is the effect which they must have in the case of businesses belonging to one or a few owners. In the case of a big industry belonging perhaps to two or three people, the death of one of the partners involves a very large burden upon the industry, which, in many cases, can only be provided for either by mortgaging the property, assuming it is not already fully mortgaged, or, what is very serious to the welfare of the industry, by curtailing the amount of free working capital left in the hands of the survivors. The hard ship of Death Duties in cases of that kind is acknowledged by the Chancellor of the Exchequer, when he grants certain concessions as regards rebate, not only in the case of land, but, I think, in the case of fixed plant or machinery of that kind. Therefore, my general contention is, I think, fairly admitted. The Chancellor of the Exchequer, in his speech the other day, told us that the national contribution to public health was only £200,000 a year. Surely the national cost under the Insurance Act, which is largely for the purposes of public health, and which amounted to something like £7,600,000—


I was talking about the rates.


I take it, then, that that sum was purposely not intended to represent the total expenditure? I will not pursue that point, as apparently I did not understand what the right hon. Gentleman said. What is the position in which we stand? The additional amount to be raised by this Budget is £9,800,000. It is disappointing that fresh means should have to be found to raise this money, after the hopes that were held out to us that the Land Taxes would be so enormously productive. It is true, as the right hon. Gentleman told us, that the new taxes of the 1909–10 Budget produced something like £27,000,000 last year. The fact remains, nevertheless, that the Land Taxes, which were those upon which the right hon. Gentleman repeatedly relied to provide increased revenue in future years, have up to the present produced absolutely nothing. Up to date the result of the Land Taxes has been a net loss of £1,470,000. It is proposed that we should have yet another valuation for rating purposes. As the old one is not yet completed, I suppose that this new valuation is to be commenced before the old one is finished. I do not gather clearly whether this new valuation is to be based entirely on the old one—that is to say, by deduction—or whether there is to be, to some extent, a really new valuation. In view of what happened in connection with the land valuation, it would have been very interesting to know how long this new valuation is likely to take, and what prospects there are of getting any result whatever out of such a valuation during the current year. I really think, without taking a too one-sided party view, that it is time this Committee took a very serious view of what is likely to be our position in the future. The point has been fully dealt with this afternoon that our expenditure is increasing by leaps and bounds. The Budget has already doubled in eighteen years. We really ought to consider what we are going to do to meet the requirements of the next few years, if the normal increase goes on at anything like the same rate. If in the next eighteen years we are to have an increase in our national expenditure in anything like the same proportion as in the last eighteen, then I fear to think, quite apart from a national emergency, which might arise in the case of a great European war, what a serious problem it will be for this country to find the taxation which will be necessary for our ordinary purposes.

Let us look at it in this way. The right hon. Gentleman has in this case very drastically taxed every source of direct taxation. I think it will be generally admitted that the amount of increased direct taxation is in all the different cases—in five definite alterations—is of a drastic nature. The result of that drastic treatment has been that during this year we are to get a revenue of £8,800,000 from those taxes, and that during the first full year that will become a revenue of £13,500,000. By figures which the right hon. Gentleman gave to the House in his Budget speech I made out that the amount would be more—that it would be something like £17,000,000 in the full year. It is not so. I see in the White paper it is £13,500,000. What I want to draw attention to is that if the drastic treatment of this direct practice produces £13,500,000 in the full year, what is to be our position in the future in the event of our having to raise a very considerable sum for some emergency. If there were an emergency of the kind such as I have referred to, that this large increase of expenditure was necessary, it could not be met by recourse to these direct taxes: we should have to look to some different method. We must look forward with some anxiety as to how such an event might affect us.

It is obvious that indirect taxation cannot and ought not to be relied upon in the case of national emergency, such as would come upon us in the event of a great European war, especially as such a war, being a naval war, would inevitably lead to an increase in prices. When we come to reflect what would be our position if we had to raise another £40,000,000 or £50,000,000 a year, I cannot help thinking that the figures I have quoted are worthy of very serious consideration. The fact that this drastic treatment of direct taxes is to produce only £13,500,000 in the full year makes one wonder whether, in the event of it being needed, where the £40,000,000 or £50,000,000 is to come from. When you come to the suggestion which was thrown out by the last speaker, that in the event of a national emergency we should rely not on the possibility of further taxation, but on the credit of the country, then I say that the whole system of national finance must be overhauled, and considered, not only in view of the needs of the moment, not only even in view of the possibility of increase in the revenue in the future, but also in view of the effect of all these matters upon the whole credit of this country, upon which we should have to rely in such an emergency.


The hon. Member who has just sat down referred to the effect of increased taxation upon the cost of living. He will pardon me if I do not follow him further in his remarks in criticism of the expenditure, because he and hon. Members on his side of the House generally ask for reduction of expenditure, while they still persist in seeking to increase it in other directions. Before I pass on to speak on the speech of the right hon. Gentleman the Chancellor of the Exchequer, I should just like to make one remark upon the very able speech made by the hon. Member for the Holmfirth Division (Mr. Arnold). There is one point which I could not quite follow. He spoke of our real reserve being our ability to borrow. He seemed rather to deprecate the fact of maintaining our taxable reserve. Our real reserve, he said, was our ability to borrow in. time of stress. I think that most hon. Members will agree that our ability to borrow does not entirely depend upon ourselves, because, of course, in borrowing you have to borrow in the money market of this country, which is affeeted by all the money markets, and there is the fact that we cannot control the money markets of the world. It is very important, therefore, that we should very carefully guard our taxable reserve. I certainly do think that there the hon. Gentleman marred what was otherwise a very able speech.

When he opened his speech the right hon. Gentleman the Chancellor of the Exchequer spoke of the right hon. Gentleman the Member for East Worcestershire (Mr. A. Chamberlain) as one who criticised his sanguine Estimates of last year. He included with the right hon. Gentleman some other Members who had also ventured to doubt his Estimates being realised. I happen to be one of those hon. Members who doubted that the right hon. Gentleman would be able to arrive at this Budget with the results which he has been able to announce. I shall endeavour to reconcile my criticism with the facts which have since emerged. My criticism on that occasion was directed more against the excessive expenditure. I believe—and I think I shall be able to show—that this very swollen revenue is stimulated by the extravagant expenditure. The particular expenditure which I was attacking—on armaments—does unquestionably tend to swell the revenue over which the right hon. Gentleman is now rejoicing. The right hon. Gentleman will readily follow me when I say that if the Government embarks upon a very extravagant programme that that encourages the great armament firms to increase their capital; it encourages the great shipbuilders to increase their plant; and this unquestionably tends to swell the revenue. It means a great expenditure of money by these employers of labour, which goes to swell the Customs, and unquestionably goes to increase very materially the revenue which he is now enjoying. At the same time, I am bound to state that I rejoice that the right hon. Gentleman certainly has been able to get this revenue, and also that we have enjoyed a period of great prosperity. I would just like, in support of my statement, to draw the right hon. Gentleman's attention to a somewhat parallel case—that this apparent prosperity, which is stimulated both here and on the Continent by this excessive expenditure, does not mean that we are necessarily in a very sound position. Looking at a very interesting book, entitled "Twenty Years of Financial Policy," by Sir Stafford Northcote, I see that in 1847, when the then Chancellor of the Exchequer was bringing in his Budget, that he then, as we now, was enjoying a period of great financial prosperity which then, as now, did not necessarily show that the state of trade was in its essence very sound. The then Chancellor went on to point out—the case is not quite a parallel one— While the revenue is expanding, it is largely due to the excessive expenditure which is going on on railways. The railway boom was then on, just as we during these past years have had large investments of capital abroad, with much wastage of capital through wars and other causes. The book goes on:— On the other hand be informs the House that the condition of the revenue was never more satisfactory: that the estimates of his predecessor had fallen far short of the result; that for the first time within the memory of any financier in the House, it had been found unnecessary to have recourse to Deficiency Bills. … Before attempting to explain this apparently inconsistent state of things, it may be well to look on a little and see what was the end. Sir Charles Wood was speaking in February. In April there was a commercial panic, and many failures took place. The Chancellor went on to show that when judging as to whether your position is sound or not, you ought to have some regard to the character of your expenditure. While one is not appalled at the size of this Budget, I think many of us are appalled at the character of it when we know that this expenditure is still persisted in, and when we find that little or no check is placed upon it. We know that large sums are raised from Income Tax and Death Duties, and are almost entirely spent upon this unreproductive expenditure, and I think we may really ask the right hon. Gentleman and the Government to pause before asking for further authority to tax our taxable reserves. The hon. Member for the Uxbridge Division in the earlier part of his speech drew attention to the promises made by the First Lord of the Admiralty and by the Prime Minister when the present Government came into power. Those promises have certainly not been carried out. We were then told that we were entering upon a period of retrenchment. As the hon. Member pointed out, speeches were made on platforms that we might and ought to expect from a Liberal Government economy, whereas it is well known to all of us that the increase alone upon naval armaments since the present Government came into power has been something like £20,000,000. Apparently even the Chancellor of the Exchequer could hold out no great hope of this policy being altered. That to my mind, and that of many on this side of the House who are supporting the Government, is discouraging—this further trenching upon our taxable reserves. The first part of the Budget Speech of the right hon. Gentleman was certainly well met with enthusiastic support on this side with regard to the adjustment of Imperial and local taxation, but the financial statement was marred by little or nothing being said about economy, and by holding out no hope of bringing to an end this blot—which it unquestionably is—this blot of sterilising waste of expenditure. We are entitled to survey the whole Budget, and to judge whether it is advisable or wise of the Government to continue to tap those additional sources of financial supplies.

The Government were put in funds in 1909 by the Budget, and certain schemes of social reform have been advanced. But they have in many cases been far more than offset by the devastating effect of this policy of additional waste in other directions. One may liken the policy of the remedies of old age pensions, the Insurance Act, and other admirable schemes, to the running sand in an hour glass. What they put in on the top is far more than offset by this continuous drain at the bottom, and this policy is not only pursued in this country, but stimulates the Powers of Europe to pursue a similar policy, and you have often expenditure of a wasteful character which accentuates the increased cost of living. The hon. Member for Northampton combated the statement of an hon. Member opposite that this Budget had nothing to do with the rise in the cost of living. I should like to point out to the hon. Member that while the hon. Member opposite did not entirely say it affected the cost of living, I think there is no doubt it does affect a rise in the cost of living. If you have large proportions of your expenditure used for this purpose and withdrawn from other purposes, reducing capital available through opening up new territories in other parts of the world, such as the supply of wheat land, tending to bring down the prices of food, that undoubtedly would affect the cost of living. So the hon. Member was perfectly wrong in stating that the finance we are now experiencing does not in a very direct way effect our economical position.

The Chancellor of the Exchequer, in his very interesting statement as to the re adjustment of Imperial and local taxation, did not state very definitely what is going to be the relation between the Imperial Treasury and the local bodies. Of course, it is quite true that he told us these matters would be more definitely shown in the Bills which were still to come, but I should like to point out to the right hon. Gentleman that if any large Grants which are made by the Imperial Treasury entail considerable interference with local bodies, I believe he will find that it will meet with resentment on the part of the local administration. I recognise that where the money is provided by the public there must, of course, be a certain amount of control. But I hope, whatever arrangements may be come to between the Imperial Treasury and the local bodies, it will be along the lines that if the money is abused they would enter and take control, rather than on the lines of direct interference with the existing administration. The local bodies, as far as one can learn, are very jealous of their administration, and of their powers of assessment and valuation, and I would respectfully point out that the Government should bear that in mind in any arrangement that they come to in the administration of these Grants. I should like to say a word in regard to the particular financial position which we ere now in with regard to the alteration in the Income Tax, and to ask whether the Government would not be. prepared to reconsider the addition of what will really amount to 1s. 4d. upon small unearned incomes. It seems to me that presses very heavily upon a section of the community who are feeling the increased cost of living and who therefore are going to have their taxes raised in addition to their other charges. It seems to me that as little advantage will be derived from that particular class in the way of revenue they might surely be cancelled and the amounts recovered from the higher grade and higher income.

There is no doubt as we heard throughout the Debates in this House on the position of the employés of the Post Office, that the increased cost of living is pressing very heavily upon those in receipt of small incomes, and any relief which can be given to those who are in receipt of small fixed incomes, and who find everything has increased in price will, I hope, meet with the sympathetic consideration of the right hon. Gentleman. I should like to make one or two remarks upon the question which I hope the Government have had pressed home to them to-day as to the particular character of their expenditure. I do not think enough could be said of the necessity for making some change in our policy in that direction. One feels as a Liberal when speaking to popular audiences that there is unquestionably a considerable amount of truth in the gibes that we have from hon. Members that we have not been faithful to our old traditions. In one speech of the right hon. Gentleman the First Lord of the Admiralty, he actually made the astounding statement when speaking to a popular audience:— None of the increase for naval expenditure has come out of the pockets of the wage-earning classes. While it is true that in direct taxation the burden has fallen heaviest upon the wealthier classes the cost of living affected by this policy falls heaviest upon the poor, and Mr. Churchill further tells us:— If you trace this expenditure to its ultimate destination from its original source, you find that the overwhelming proportion of it has been expended in the wages of those who construct the ships or who construct the material of which the ships are subsequently built. I think that is one of those half truths that deserve most severe censure, because whatever our view may be as to how much or how little should be expended on naval armaments, there is no question of doubt that this expenditure is a direct charge upon the poorest in the land by increasing the cost of living, and I hope, therefore, the right hon. Gentleman will not use his position to either directly or indirectly try and deceive the working classes that the burden does not fall upon them. Of course it falls upon them. Perhaps more than upon any other class in proportion. If this policy is persisted in it will lead to an increased amount of labour unrest which will accentuate the increase in the cost of living by reducing the purchasing power of weekly wages, and will tend to perpetuate this discontent and unrest which we from time to time have experienced. On the other hand, if we could have economy in that direction, if we could reduce that amount of expenditure by one single stroke, we would improve the real purchasing power of wages. It is a very difficult thing to automatically increase wages all round. An hon. Member speaking the other day very ably pointed out that, of course, while we agree it was desirable to have a fair wage for a fair day's labour still if you were to automatically increase wages in all trades, necessarily there would not be much relief to the individual workman in the purchasing power of his wages.


It seems to me the hon. Member is now arguing matters not relevant to Ways and Means.


I will not pursue that further. I am just about concluding my remarks. I want to emphasise this point with regard to the character of our expenditure, and I say, therefore, in asking us to give the Government increased powers to trench upon our taxable reserves, we should have some regard to what the money is to be spent upon, and while I recognise that the Chancellor of the Exchequer is faced with this possible deficit and the necessity for meeting it, the burden ought certainly to press hardest upon those best able to bear it. Mere taxation is no advantage in itself, and the highest finance surely would be to come down here and offer us some relief from taxation.

8.0 P.M.


There is one point upon which Members in all quarters of the House will congratulate the Chancellor of the Exchequer, and that is the splendid way in which the revenue has come in. I was one of those who thought at the time that the Chancellor was too bold and sanguine of what the result would be, but the trade of this country has kept up in a most marvellous way, and I was pleased to hear the testimony of the Chancellor of the Exchequer that he did not think from inquiries he had made that the present so-called depression was going to be a serious one. I hope that that is so, and that we may take it that the Estimates he has adopted for the present financial year may prove to be as satisfactory as last year. But, having said that, I am afraid that the rest of my remarks must be criticisms of the Budget and of the right hon. Gentleman. We have in the space of eight years an increase of £60,000,000 in the expenditure of this country, amounting to 40 per cent., and if we go back to the year before the Boer war, which, I think, is a fair year to take, as it goes back to the last Administration, and before the period when the Army expenditure began to go up so much, we find that there is an increase of £93,500,000, or 80 per cent. I mention these figures because it is a very serous matter that there should be such a rise in these few years of the life of the nation, and that the expenditure should be growing this way. But there is a worse feature than that, and it is this: That the national expenditure is going up more in proportion to the national income. The Chancellor of the Exchequer has no doubt seen the very interesting book published by Mr. Mallet, who, of course, is an expert, and who has gone very carefully into this question of the relations between national expenditure and national income. He points out in his book that whereas during these twenty-five years the national income has increased by 69.25 per cent. during the time, expenditure has increased more than 100 per cent., and it is calculated that at the present time the proportion will be very much more. It is not a very satisfactory condition to find an expert like Mr. Mallet, after very careful inquiry, telling us that our national expenditure is going to be more in proportion to our national income. That expenditure has been exceeded in recent years by the present Government which came into office pledged to economy. It was one of the chief election cries of the present Government during the election of 1906 that the Tory Government were spending far more than they ought to have done. Sir Henry Campbell-Bannerman, speaking at the Albert Hall on the 21st December, 1905, said:— We want relief from the pressure of excessive taxation. I should also like to recall what the present Prime Minister said in his first Budget speech:— A return to more economical methods was their first and paramount duty. There was a little leaflet issued by the Liberal Publication Department in the year 1906, which stated that:— The present extravagance must cease and the business of national retrenchment must be promptly and seriously taken in hand. Has it been taken in hand? Instead of that we have a national expenditure which has been going up by leaps and bounds ever since. I cannot acquit the present Chancellor of the Exchequer of taking a part in this business. The duty of the Chancellor of the Exchequer is primarily to be the guardian of the public purse, and to be very jealous indeed of all expenditure. That was the most prominent feature in the financial character of the late Mr. Gladstone. In fact, he carried it almost to an extreme— His whole financial theory being plainly coloured with a passion against the waste of money with which experience had taught him to identify almost any Government expenditure. That is what Sir Robert Griffen says in his very interesting book, "Essays in Finance," published in 1880. The same authority further points out:— The ordinary understanding of a financier's duty—and usually the correct understanding—is that he is to find ways and means for expenditure, and maintain the credit of his Government. With the expenditure itself it is not supposed he has much to do, except that having to furnish the means, he is expected to criticise it closely and reduce the bill if he can. What I complain about is that the Treasury has become one of our great spending Departments, and that many of the things which the Treasury now control, like old age pensions and the national insurance scheme, ought really to be in the hands of the Local Government Department.


Hear, hear.


I am glad the right hon. Gentleman agrees with me, because the Treasury ought to be kept apart to deal with money matters as the guardian of the public purse, and to check expenditure. Under our present system the Treasury has become a great public spending Department.


Would the bon. Member reduce the expenditure on the Navy?


No, certainly not. I would not reduce that expenditure, because, in my opinion, our very first duty is to secure the safety of the country.


You cannot have your cake and eat it.


Our first duty is to have security, and if we have not security then we have nothing. Taking the expenditure on the Civil Services, the cost has more than doubled during the last eight years, as compared with the expenditure on the same Services during the last year of the Unionist Government. In 1905–6 the expenditure on the Civil Services was £28,177,000, and during the coming year the amount will be £57,065,000, or an increase of nearly £29,000,000, or over 100 per cent. Of course, it is perfectly true to say that the larger part of this expenditure is made up by old age pensions, insurance, and the Labour Exchanges. Taking the expenditure upon the Army and Navy, the position is that as regards the Army it is practically the same, but as to the expenditure on the Navy, making allowance for the loans which were raised by the Unionist Government, the actual increase in naval expenditure is only about £7,000,000. I know the total expenditure on the Navy is £51,550,000, but we all look upon that as an insurance for our national safety, and it only amounts to 2.3 per cent. on the national income, which is estimated by Mr. Mallet in his book to be at the present time £2,200,000,000. I maintain that for the safety of the nation that expenditure is absolutely necessary owing to the unfortunate competition we have been put to by one of the other nations of Europe. The increase in the expenditure on the Civil Services does not stop with the items which I have mentioned, but it runs through all the various classes, such as Public Works, salaries and expenses of the Civil Service, law and justice, education, science and art. Altogether the comparison between 1906 and the present year of those items shows an increase of £7,850,000. To that you have to add the increase on the Customs and Excise and the Inland Revenue, which amount to £1,371,000. Those two items alone amount to £9,223,000, and this includes the unfortunate item of the expenses of land valuation, which for the coming year with the other Departments will amount to £843,000. As hon. Members know, the revenue from the Land Taxes does not come to half that amount.

With regard to the Income Tax, it is a most useful engine for getting money, and if the Income Tax is to be increased, I agree that the plan of the Chancellor of the Exchequer is a fair one, because it graduates from the lowest to the highest. I would like to ask, however, what hon. Members think of the fact that in a time of peace like the present we are to have an ordinary Income Tax at the rate of 1s. 4d. in the £? That is a rate which has only been attained twice since Sir Robert Peel reintroduced the Income Tax in 1842, and that was only for two years during the Crimean war and during the Boer war. During those two years the ordinary rate was only 1s. 2d. in the £. There is, however, this difference, that before those two wars the Income Tax was very low. Before the Crimean war the rate was only 7d. in the £, and before the Boer war it was only 8d., but now it is to be double that rate. I would like to know what the Chancellor of the Exchequer is going to do in case we should want money during an emergency. [An HON. MEMBER: "Double it again!"] But can you do that with a tax of 1s. 4d. in the £? Will the people be willing to pay such a large part of the income in that way? Mr. Gladstone pointed out time after time what a most valuable engine the Income Tax was in time of emergency. But he denounced it as:— being a demoralising tax and a dangerous tax, vexatious to trade and industry and could not be retained as a permanent and ordinary part of the finance of the country. Mr. Gladstone thought the ordinary rate of the Income Tax in time of peace ought to be 4d., and we all know that he wanted to take the tax off altogether. I wish to congratulate the Chancellor of the Exchequer on his proposed alterations with regard to the Death Duties on quick succession. That is an Amendment which I moved in this House in the early years of the present Government, although I moved it with a rather larger graduation. I extended it to ten years in tenths, and I included all property, but the right hon. Gentleman has not gone to that extent. I regret that the Chancellor of the Exchequer has suggested an alteration in the Settlement Duty. On the grounds of policy I think settlements ought to be encouraged. In cases of a young family, is it wise for the husband to leave money unsettled? For these reasons I think it is a bad policy for the Chancellor of the Exchequer to make any increase in that direction, because it will not bring in very much money. With regard to the allocation of the new taxes, I am afraid that I cannot look forward with much hope to the ratepayer himself getting much relief. Those who have served on public bodies know that the more the Exchequer contributions the more encouragement there is to expenditure. The Chancellor of the Exchequer himself told us that one of the conditions he was going to make in giving these Grants was that the local authorities are themselves to show a spirit of expenditure. Therefore, I am afraid that this proposal is going to encourage local authorities to spend money, and that therefore the ratepayers will not be able to obtain the relief which the Government hope to give them. The point I want to make is that the Government ought to cry a halt in national expenditure, and the country ought to insist that this increase in expenditure, which is going on year by year, ought to stop, and also that the Income Tax and the Sinking Fund should both be kept up to a standard at which they will be a real safeguard in the case of a national emergency. We want a low Income Tax and a high Sinking Fund.

Whereupon Motion made, and Question, "That the Chairman do report Progress; and ask leave to sit again."—[Mr. Pretyman]—put, and agreed to.

Committee report Progress; to sit again to-morrow (Thursday).