INCOME TAX.

HC Deb 19 November 1914 vol 68 cc576-653

Motion made, and Question proposed, that,

(1) For the last four months of the current Income Tax year the rate of Income Tax shall be double, the rate fixed by the Finance Act, 1914 (namely, two shillings and sixpence, instead of one shilling and threepence), and the rates of Super-tax and of the amounts payable in respect of earned income, and in respect of small incomes under Section 6 of the Finance Act, 1914, shall also be doubled for that period.

(2) Effect shall be given to the said increase of tax as follows:—

1. (a) by making such deductions in the case of dividends, interest, or other annual sums due and payable after the fifth day of December, Nineteen hundred and fourteen, as will make the total amount deducted in respect of Income Tax for the year equal to that which would have been deducted if Income Tax for the year had been at the rate of one shilling and eightpence; and
2. (b) by treating the amount payable in respect of any assessments already made of tax chargeable otherwise than by way of deduction or Super-tax as increased by one third; and
3. (c) by increasing any such assessments not already made by one third; and
4. (d) where the amount of any exemption, relief, or abatement under the Income Tax Acts is to be determined by reference to the amount of Income Tax on any sum, by calculating the amount of the tax at one shilling and eightpence.

(3) That it is expedient to give relief in certain cases in respect of diminution of income caused by the present War, and that any relief so given should be in substitution for such relief (if any) as may be claimed in those cases under the Income Tax Acts.

(4) 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.

The ATTORNEY-GENERAL (Sir John Simon)

It was arranged that in Committee to-day we should move the Resolution dealing with the Income Tax and Super-tax proposals put forward by my right hon. Friend the Chancellor of the Exchequer two days ago; and it was at the same time arranged, I think, with your assent and approval, Mr. Whitley, that the Debate to-day should be of a general character and might range over matters outside Income Tax and Super-tax. In order that that Debate may proceed with the whole scheme of the Government before the Committee, it is desirable that a statement should be made, at once, in greater detail than that of the Chancellor of the Exchequer on the Government's proposals with regard to Income Tax. My right hon. Friend has asked me to make that statement now at the opening of the Debate.

The statement made by the Chancellor of the Exchequer will have made it quite clear that there are two main principles which he proposes to apply in dealing with Income Tax and Super-tax. The first is that, Income Tax—and I include Super-tax in this statement—being selected as the one of our direct taxes, which is to be altered in view of the special demands of the War, the alteration shall take the form of doubling the rates of duty. The other principle, equally important—none the less important because much more welcome to the taxpayer—is that, though the rates of duty be doubled, the new charge is only to be treated as applying for one-third of the present year. My right hon. Friend spoke of the higher rates of duty coming to be charged as from the 1st December. I think it will be found when the Bill is introduced that, in order to get a precise division of the year, the date selected will be the 6th December; but the principle is the same. The consequence is that though the special need for expenditure arose as soon as War broke out—that is, although the special demands upon the funds which this country has at its command commenced at the beginning of August—for the four months August, September, October, and November, the Income Tax is not to be treated as increased, but the increase will begin, as I have said, on the 6th December. It is important to observe that, in charging this extra duty for one-third of the year, you are selecting a fraction which is easily applied to the existing rates of Income Tax. It so happens that almost all the existing rates are divisible by three without any irritating recurring decimals. Ninepence, which is the lowest rate, becomes, as from the beginning of December, doubled; that is the same thing as saying that, spread over the whole year, the 9d. rate becomes 1s. rate. The 10½d. rate, which contains three 3½d.'s, will contain four 3½d.'s, and become 1s. 2d. The 1s. rate becomes 1s. 4d., and the 1s. 3d. rate becomes 1s. 8d.

In the next place, I would ask the Committee to observe that what is true of the extra burden is true also of the extra relief provided under the Income Tax Acts. I mean that while the doubling of the rate involves a higher charge, the same operation increases the amount of the exemptions. Take the exemption first enacted a few years ago and quite recently extended—the exemption allowed in the case of small incomes for children under sixteen years of age. The Committee will remember that as long as the income is not over £500, there is an exemption for every child under the age of sixteen years. The exemption was originally for each child, £10 off the assessment; but in the early part of the present year the amount was increased to £20. The consequence is that if you take the all-earned income—which, after all, is the case that specially claims consideration—the relief involved in respect of the 9d. rate was 15s. The taxpayer had 15s. less tax to pay. The immediate and automatic result of the changes that we propose is to magnify that allowance and all similar allowances.

Mr. T. M. HEALY

Are there any others?

Sir J. SIMON

Yes; but I take this as an example, and I think it is a good example. Therefore the allowance, which was 15s. earlier in the year, now becomes £1, and for a full year it will be, not 15s., but twice 15s. So far, the proposals made by the Chancellor of the Exchequer contain in themselves a great and very important concession to the undoubted cases of hardship which arise when one suddenly asks for a substantially greater rate of Income Tax from the taxpayer. That concession is involved in saying that you do not start charging the double tax until the month of December. That is not done in respect of the BeerDuty, which will start at once. It was pointed out in Committee two days ago, by the hon. Baronet the Member for the City of London (Sir F. Banbury) and by my hon. Friend the Member for Aberdeenshire (Mr. J. M. Henderson), that when you are changing the rate of Income Tax to the severe extent here necessarily involved you are still faced, in spite of the choice of so late a date as December, with the difficulty that some people in the year of charge will find their income so much less than the figure on which the increased rate is charged that the burden thrown on their shoulders will be one which must in some way be modified or alleviated. It is in order to deal with that situation that I more particularly intervene at this moment. The hon. Member for the City of London referred, with a feeling of attachment, to the arrangements which existed in times past—in the "good old days"—in a Section of the Income Tax Act, 1842, Section 133—though it has been dead for some time now—there was a provision that the right hon. Gentleman thought very apposite for this case.

I must ask the indulgence of the Committee while I try to state in as clear terms as I can precisely what the provisions were. First of all do not let us proceed as though the whole Income Tax was charged upon the figure which is the result of an average, or a series of averages. Income Tax under Schedule A—Income Tax under all Schedules except Schedule D—is not based upon the average of past years: in some cases it is based upon the receipts of the actual year; in a few cases it is based, I think, on the receipts of the previous year. I am speaking now intentionally and altogether of ordinary Income Tax—and as the subject is a difficult one for me I shall be glad to be allowed to proceed in my own way—and I am endeavouring to point out that it is under Schedule D that for the most part the application of average arises. So far as you assess profits and gains under Schedule D from trades, professions, and so on, it is charged in the year of charge, not on the income actually received in the year of charge, but on an average calculated on what was received last year, and the year before, and the year before that. It is quite true that there were provisions in the Act of 1842 which altered or modified that in certain cases of proved hardship. There was the provision to which the hon. Member for Aberdeenshire referred, which is ordinarily called a Provision for Relief on the Ground of "Specific Cause." If a man died in the course of the year, or became bankrupt, or absolutely gave up the occupation or business on which he was being assessed; or, fourthly, if for any other specific cause his profits or gains for the year were lessened as compared with the figure on which he was charged, he was entitled to have the actual figure substituted.

As my hon. Friend (Mr. J. M. Henderson) pointed out two days, ago, it is a very difficult and uncertain tiling to prove this "specific cause." The hon. Member for Aberdeenshire said that it had been very difficult to prove to the satisfaction of the Commissioners what a specific cause was. I think it would be most unsatisfactory if we left the matter in a state of doubt. Consequently we propose to make a provision which, whether it be adequate or not, at any rate is quite clear and precise. Another reason why we must do this is that otherwise the practice of different Commissioners in different parts of the country may differ. I speak quite subject to correction, but my view would be that the fact that a man's income is, owing to war, less than it was in times past is not a diminution from what is called "specific cause." I see an hon. and learned Gentleman opposite agrees with me, and I am sure that is the view that will be entertained by most lawyers. But here and there it is possible that some Commissioners may take a different view, and we ought to make quite certain that everybody is treated the same so long as his circumstances are similar. If over there was a time when one is justified in saying that the burden, so far as may be, should be felt in the same way so long as the circumstances are the same, it is now. We therefore propose to substitute for a very doubtful advantage—if, indeed, it be an advantage—under that Section that deals with specific cause another provision which is, I think, entirely clear and plain. What is that provision?

"Specific cause" occurs in Section 134 of the Income Tax Act, following immediately Section 133. The provisions of this repealed Section 133—which were finally swept away by the present Prime Minister when he was Chancellor of the Exchequer in 1907—provided that wherever the taxpayer could show in the year of charge that his actual profits and gains were less than the assessed figure based on the average on which he was being charged he was entitled to substitute the actual figure for the average upon which he was being assessed. That was excessively pleasant for the taxpayer. It was a charming provision, because, of course, it did not compel that substitution to take place except in cases which suited the taxpayer. You worked out the charge on the average of the three previous years, and if in the year of charge the average was not greater than your actual receipts you said nothing about it; if, on the other hand, your actual receipts fell below the average you claimed to substitute the actual figure for the average. The revenue lost fearfully by that arrangement. That arrangement in its simple form could not be justified, and long ago—long before the present Prime Minister was Chancellor—it was modified in one direction. The very basis of Income Tax law as an effective instrument of taxation is this: the principle of the average; and I do not think that it can be disputed that in the long run the principle of the average is good, not only for the State, but for the taxpayer. When he comes to some year of exceptional misfortune he is able to show it in order to modify the tax which he has got to pay for several years to come. That is quite right, because when you have had a year of exceptional misfortune it takes several years to get back to the position in which you were before. On the other hand, if a man has had a year of exceptional good fortune, the modified averages which are adopted for professions and trades has this great advantage from his point of view—that the State does not come down in the exceptionally favourable year and say that he should pay instantly a proportion of that exceptionally large income. It rather deals with him as a man fortunate one year, who very likely would not be so fortunate another year; as a man who should use his good fortune when it comes in order to provide against possible ill-fortune. It modifies the demand in the year of good fortune by bringing it into the average for the three years.

I do not think that it is open to dispute that seventy years' trial of the three years average which was introduced into the Income Tax Act of 1842 by Sir Robert Peel has shown that is a method which, on the whole, works better and more fairly for the taxpayer, just as it undoubtedly tends to regularity of flow from the point of view of the Inland Revenue. For the purpose of estimating what taxes we are going to get it is a matter of the greatest importance that we should maintain the principle of the average, because the estimate of each year does not then altogether depend upon what may have been the fortune of the immediately preceding year, but upon the calculation which is extended over three years. Consequently we tend to get year by year much more accurate estimates of what the revenue is likely to be. Therefore I certainly do not in the least accept the proposition that the principle of the average should be abandoned. What was done about Section 133—since as it stood it obviously could not be justified—was this: In the year 1865 that Section 133 was modified in this way and provision was made which stood in our Income Tax law from 1865 to 1907 (when the Prime Minister substituted other provisions for it): so far as you arrive at the figures of assessment of ordinary Income Tax by averages the law requires that you should average the last year, and the year before and the year before that; that is to say, that you should take the average of the three previous years. In 1865 it was provided that where the Income Tax payer had an exceptionally bad year he was to be entitled to claim to substitute as one of the three years on which the average was calculated the actual year of charge in which he had done so badly; that is to say, instead of the average years one, two and three in order to arrive at the assessed income the man was entitled to come forward and say, do not average the years one, two and three, but average the years two, three and four and bring into the average the year of charge in which I am so heavily hit. That was the provision of 1865, and the Committee will see that that provision, which lasted for forty years, had this advantage from the taxpayer's point of view, that it allowed him to use the exceptionally bad year in making out his average, not three times, but four times. He was able, first of all, to bring it into the year of charge, and in the next year, it being a bad year, it became one of the three years, and next year it fell into the three years' average, and finally it was used for the fourth time in order to reduce the amount he had to pay. That was the provision in 1865. It is, I think, convenient to have it just read so that hon. Members will follow quite clearly what the position is. Section 133 having been what I said, the provision was this, that no reduction or repayment under Section 133 was to be made unless the profits of the year of assessment were proved to be less than the profits for one year on the average of the last three years, including the year of assessment. In 1907, for reasons which the debates of that time will show to be perfectly good, the present Prime Minister, who was then Chancellor of the Exchequer, removed that provision from the Income Tax law. It was obviously a provision that naturally worked in favour of the subject and never in favour of the State, and he substituted another provision which I need not refer to in detail, because it would not meet the difficulty here. In this case the question is, What should we do in view of the undoubted fact that we were asking this high, rate of Income Tax in this year of charge from many people who because of the circumstances connected with the War are affected either directly or indirectly in their incomes and are not really receiving this year an income comparable with other years. We propose to accept in principle the suggestion made two days ago by the hon. Baronet the Member for the City of London—that is to say, We propose to restore, in this time of emergency, without any intention of making a permanent change, but as a piece of emergency legislation, the provision of the law before 1907 in so far as the reduction of income in this year of charge is due—and I will use the exact words—"to circumstances attributable directly or indirectly to the present War." That expression, "attributable directly or indirectly to the present War," is familiar to us: it occurs in the Act called the Courts-Emergency (Powers) Act.

Mr. PIKE PEASE

Does that apply to Super-tax?

Sir J. SIMON

Before the hon. Gentleman came in I asked the Committee to allow me to deal with the two separately because they depend upon different provisions, therefore I am dealing now only with Income Tax. We restore the state of the law as it existed before 1907 subject to this, that the right of the taxpayer to substitute a lower figure will, of course, depend upon the lower figure being due to circumstances connected with this War.

Mr. BONAR LAW

Who will decide?

Sir J. SIMON

It is to be shown to the Commissioners who assess the taxpayer in the first instance—that is to say, he will go to the very people who have to examine his own returns and tax him. We do not claim to do it here in Somerset House; it will be done by the Commissioners who are the people who assess now.

Mr. BUTCHER

Will there be an Appeal from the decision of the Commissioners?

Sir J. SIMON

I am much obliged to the hon. and learned Gentleman for reminding me of that. Yes, there has always been some dispute, as the hon. and learned Gentleman knows, whether there is an appeal under Sections 133 and 134, and it seems to us it would be right, if only for the purpose of preserving uniformity, that we should provide in the ordinary way an appeal on points of law in respect of this new provision as in many other disputes. I have made it plain that I am confining myself now to the ordinary Income Tax payer.

Mr. NEVILLE

With regard to exceptionally bad years, does that include stringency in the Money Market, which might prevent payment by other countries to this country? For instance, there is Brazil, whose payments are affected by stringency in the Money Market.

Sir J. SIMON

I am not to be tempted by the hon. Gentleman into discussing all possible applications. I am bound to say that I do not think Brazil is a very happy illustration; but, be that as it may, it is quite clear we are bound to use language that will be able to be applied to particular cases, and, as long as we make the best arrangement for the individual taxpayer to make his case before the people who know what his circumstances are and that is the object of saying he may apply to the Commissioners who assess him, I do not think we can possibly hope to lay down rules. So far as these questions are questions of fact, they will have to be proved according to circumstances, and I do not think the expression used is open to much doubt in point of law. When the hon. Gentleman sees the Bill he will be better able to judge whether that expression can be with advantage modified. It has been very carefully considered, and for my part, I think it will be effective.

Mr. RAWLINSON

You give the Income Tax payer the benefit of the Act of 1865 and not the Act of 1842.

4.0 P.M.

Sir J. SIMON

It is to be the benefit which existed for some forty years, and the result will be this: Let me give a very simple case. Take the case of a man whose income arises under Schedule D, and therefore had been averaged. By far the greater part of the Income Tax is collected at the source; but I am not taking the ordinary case of a man who receives dividend or interest which is not taxed upon any principle of averages at all, but it is taxed on a year and we are not therefore concerned with these differences. Let me take the case of a tradesman or professional man with no investments and no dividends, and whose income is due to the balance of his profits and gains in trade or in his profession. In this year of charge, let mo assume that an examination of his books for three years past from the year 1911–12 to the year 1913–14 produces an average based upon three figures which I will take as £1,000, £1,000, and £1,00O. In this year of charge he will be assessed at £1,000, but if he will show to the Commissioners who have assessed him at £1,000 that in the special circumstances his income is not £1,000 but £500, he will be entitled to do that which could be done from the year 1865 to 1907, and say, "You ought not to take the average on three good years, but knock out one and substitute £500 to reduce my assessment." Next year he will again use that £500, even though his income has gone up, and the same will occur the year after, and in the fourth year he will still use it, and he is restored into the condition in which he was before. I think that is the real and fair way to meet this undoubted difficulty, as far as the ordinary Income Tax is concerned.

With the Super-tax it is more difficult to deal, because Super - tax is not paid by the taxpayer in respect of that part of his income which he receives free of tax, but in respect of the whole of his income, whether it has been already taxed, or taxed after it reaches his hands. It is paid upon his total income from all sources. If, and in so far as his income consists of dividends, interest, and things of that sort the figure which is taken as the basis upon which he is charged Super-tax in this year is his actual receipts last year, but so far as his income from all sources is contributed to by profits and gains which would come under Schedule D, his income this year is based on a figure which is called the figure for last year, but which is really an average based on three years before. Adopting the same explanation as I did for ordinary Income Tax you have a certain income in the year one, another income in the year two, and another in the year three. In the year three you add them together and divide by three and the result is what you are assessed at in the year four. When you come to Super-tax you must go a step further, and it is paid in the year five in respect of what is called the total statutory income for the year four, which in its turn is based on the average of years one, two, and three. It may sound absurd, but I think I have made my point clear. My object is to make it clear, and it would be perfectly easy to show that the reason for this course is a very good one. If you have regard to the extent to which you can collect the tax without wasting it, there can be no doubt that the principle upon which the Super-tax is based is to charge it upon ascertained and historic facts, and in this way you collect it more effectively and with much less waste. What is true in the case of the ordinary Income Tax payer is true in the case of that more envied class the Super-tax payer. I do not say that the Super-tax payer always gets as much sympathy, but he is entitled to have just as fair treatment as other taxpayers, and it is certainly our intention to see that he gets it.

It appears to us that the best way to deal with this matter will be as follows:—The Super-tax in this present year of charge is increased by one-third, and, as the Committee knows, the rate of Super-tax now varies according to the total income. Under the Finance Act of last May, which was introduced by my right hon. Friend earlier in the year, if a man had a total income from all sources attributed to him in this present year of charge of £4,000, his Super-tax would be £39 11s. 8d. The result of adding in this year of charge one-third is to make his Super-tax £52 15s. 6d. That is the £4,000 man. Now I will take the £6,000 man whose total income from all sources is returned at £6,000 this year. Under the Budget of last May he would pay £122 18s. 4d., and the result of increasing the duty by one-third for the last four months of this year is to substitute £163 17s. 9d. for £122 18s. 4d. I will take, as another instance, a man who is assessed at £9,000. This man assessed for Super-tax under the Finance Act of six months ago would pay £306 5s. as Super-tax, and if you add the one-third now proposed, he would pay £408 6s. 8d. I desire to deal with this case. There are many cases where the Super-tax payer this year, apart altogether from this extra duty, finds that his income is woefully short of the income attributed to him for the purpose of charging the tax. The income attributed to him is the result of the average income which he has really had, and it is not some fancy figure, but it is based upon his past experience. But however that may be it does not follow that a man who is this year assessed to Super-tax upon an income of £4,000, as a matter of fact, has that income this year. Within limits that is again due to the principle of averages, and it must be so. Sometimes a man is above the figure and sometimes he is below it; but the average is rightly worked out, although in any given year you are just as likely to be above it as you are to be below it.

No doubt, in the present year, there are a great many people who feel that their averages do not work out and that their incomes are below rather than above the average. We propose that the concession we are making must be limited to cases in which the actual income of the year is reduced and caused by circumstances arising directly or indirectly out of the War. We propose that where a Super-tax payer can show that in this year of charge his total income from all sources, as he actually received it this year, is substantially less than the income upon which he is assessed for this year, he is to get relief, which I shall explain. It is obvious that it would never do to allow such relief for merely trumpery variations. It is obvious that a man ought not to be allowed to say, "I am £10 less or £20 less this year and you must make arrangements for me." Super-tax payers must put up with the fact that averages leave them charged with more than they have got for the moment, as long as the strain put upon them is not too great. We do not propose to make any provision except for those Super-tax payers who, in this year of charge, can show that owing to the circumstances in which we now stand, their actual total income has been reduced by one-third of what their assessment stands at. If the £6,000 man can show that his income has really been reduced down to £4,000, and if the £9,000 man can show that his income has been reduced to £6,000, then, assuming that he satisfies the conditions I have indicated, we think he ought to get this relief. It might be given in one or two ways. We are not saying in connection with the Super-tax that he is permanently to get relief. The view we take at this moment is that with all the uncertainties that the next few months will bring out, the question of what should ultimately be done is a matter which would be better settled in the ordinary financial proposals next year. But we propose that the relief shall be that he shall be asked in this year of charge to pay upon the lower and actual sum and not upon the higher and average basis.

Let me give an illustration. Take the man who is assessed to Super-tax at £6,000 this year, and let me assume that his actual total income is £4,000. Then we propose to say that in this year we are only going to ask him to pay Super-tax at the higher rate on the £4,000 this year. The difference between that and what he would have to pay if we gave him no such postponement, is to be treated as postponed liability from which he is not discharged, but which he will not be asked to pay in this financial year. That might be done simply by saying that as he has lost one-third of his income he is going to be relieved of one-third of his tax. We propose to do something which is a great deal more generous. We propose to provide, not that he is to be relieved of one-third of the tax, which he would otherwise have to pay, but the tax he has to pay this year is to be collected as though he had the smaller income. The rate of charge rises as your income increases. If hon. Members will take down my figures I will show them what I mean. Take as an illustration a man who this year is assessed for Super-tax as having an income of £6,000. I have pointed out that under the Finance Act passed earlier in the year, he would have to pay £122, and under the additional one-third duty he will have to pay £163. But if he can come forward and show that under the circumstances connected with the War his actual income this year is £4,000, I am proposing that he should this year pay only £52 15s. 6d. That is the amount which would be got at the higher rate from a man whose total income was £4,000. I am not going to make him pay two-thirds of what he would otherwise have to pay, but I am treating him this year as if he were truly assessed at £4,000 only, and these figures I think will be found to be right. If a man is assessed at £6,000 and he shows that owing to the War his income is £4,000, instead of having to pay £163 Super-tax this year, he will have to pay £52 and the rest will be postponed until next year. If he is assessed at £9,000 and his income has dropped to £6,000, instead of having to pay £408 this year, he will have to pay £163. Of course, if his income has dropped not merely by one-third but by more than one-third to a half or a quarter, the same principle will apply; and as far as this year is concerned, Super-tax will not be collected on more than the income he has actually got. I think the House will see that is really a substantial concession.

Mr. CHIOZZA MONEY

May I ask the right hon. and learned Gentleman if, in the case of a Super-tax payer just over the margin, he will be taken out of the ranks of Super-tax payers?

Sir J. SIMON

I will assume a man assessed at £6,000 who shows that this year he has not got more than half his income owing to circumstances connected directly or indirectly with the War. He has therefore this year less than £3,000, and he will consequently this year have no Super-tax collected from him at all. I think the Committee will agree that in view of the special circumstances in which we find ourselves that will at once be a fair provision for him and a proper provision for the revenue to make

Mr. BUTCHER

Can the right hon. and learned Gentleman say when he will be liable to pay the balance?

Sir J. SIMON

We propose to provide this. There is only to be collected from him, in this present year of charge, the smaller sum. The rest for the time being is to remain chargeable against him, but by regulations which we intend to issue we propose to direct that none of it is to be collected this year. We do not propose, at this moment, to provide one way or the other as to what is to happen when the present fiscal year is over, for the reason that it is only by doing that we shall really be able to judge in the light of the actual financial situation and the actual strain falling upon Super-tax payers what is the proper course to take about it. Therefore, to repeat one of my illustrations so as to make it quite plain, a man who this year is assessed for Super-tax at £9,000 and who would therefore have to pay £408 6s. 8d., will have collected from him this year not £408, but only that sum of money which, calculated on the income he actually got, the reduction being due to circumstances connected with the War, would have been charged if he had been assessed on the actual income.

Sir JOSEPH WALTON

A man will not ascertain what is his actual income for 1914 has been until March or April or May next, and the full amount of this tax is due on the 1st January. What is to be done with regard to that matter?

Sir J. SIMON

I am much obliged to my hon. Friend. That difficulty, which is a perfectly proper one to point out, is one which we have to face. The proposal is that this arrangement shall be made by Inland Revenue Regulations. We are directing that certain Super-tax is not to be collected. We are not altering the incidence of the tax. I should like to leave for the moment the more accurate description of the regulations. It is obvious, of course, that we cannot excuse every Super-tax payer in the country from paying any Super-tax because of the chance that it may turn out his income falls below the amount assessed, but I think it will be possible to suggest in outline regulations which while, of course, not completely meeting the difficulty to which my hon. Friend refers, will none the less make it possible to substitute the figure which is appropriate for the actual year of charge for this ascertained figure in cases where hardship really arises. I must apologise to the Committee for the length of time I have occupied, but it is always difficult to steer a middle course between the unnecessary explanation of something which may be already obvious and passing over what are complicated matters without an explanation sufficiently full. I hope I have succeeded in making plain, in outline, what are the proposals which we would hope to make, responding, as we wish to do entirely, to the spirit of the appeal which the hon. Baronet and other Members made two days ago.

Sir F. BANBURY

May I ask the right hon. and learned Gentleman one question with relation to the Super-tax? The right hon. Gentleman rather treated the question of Super-tax as if it were one of average, but may I point out that there are a large number of incomes which come from investments with a fixed rate of interest. A considerable portion of those incomes may not be paid at all owing to the War. There will be no question of their being paid later on, because it is a fixed rate of interest and the dividends are not cumulative. I do not think that fact is present to the mind of the right hon. Gentlemen.

Sir J. SIMON

I am much obliged to the hon. Baronet and grateful to him for pointing it out. The Super-tax is a tax upon all your income, and I dare say in the case of some taxpayers the greater part of their income, and in the case of other taxpayers the whole of their income, is not based upon any averages at all. That is perfectly true, but, of course, that circumstance makes the scheme which I have endeavoured to explain rather easier to work, because it means that you have only one element with which to deal. In some cases it is the only element which enters into the total, a thing which does not depend upon fluctuating conditions. I was addressing myself more particularly to the Super-tax payer who does find in the present year that there is a sudden drop in his income, not because of dividends which have ceased to be paid, but because owing to circumstances connected with the War his own business or profession has dropped in so sudden and alarming a way. It does not seem to me that what I am suggesting needs to be modified because of what the hon. Baronet mentions. It does no doubt go to show that when we are considering this matter further next year there may be some different considerations for the case which he puts and the case of the man earning an income from day to day, but I do not think, for the purposes of the present proposal, which is confined to the collection within the present year, that it really makes very much difference.

Sir P. MAGNUS

Will the right hon. and learned Gentleman tell me what would happen in the case of a man whose income, we will say, is £3,200 and just comes within the Super-tax limit, and which in consequence of the War has fallen to £2,800?

Sir J. SIMON

Certainly; I will tell the hon. Gentleman at once. I hope hon. Members will not think that I am complaining of interruptions. It is merely for the purpose of continuous exposition. It is a little difficult if one only gets through half a sentence before there is a new suggestion. The hon. Gentleman puts the case of a man who is assessed this year at £3,200, that being the amount of his dividends received last year. He says, "Supposing this year, in point of fact, that Super-tax payer only gets £2,800?" In that case he will get no relief, on any view, for this reason: The actual income that he receives is not one-third less than the income on which he is assessed. He would have to have a reduction of £1,066 before he would be able to come within these provisions at all. I think that is quite right, because, after all, though no doubt it is aggravating to have to pay on an income larger than you have received it is one of the consequences of averages, and it is a thing which corrects itself as time goes on. We cannot at a time when heavy sacrifices are being called for from all kinds of people in our own community, both in the field and here at home, take this opportunity of adjusting what is a comparatively trifling burden.

The result of the concessions which I have endeavoured to outline will be this: Although we are already in the month of November, and although we put on this extra taxation only for one-third of the year, the concessions which I have outlined for ordinary Income Tax, excluding the Super-tax, will in this present year of charge, 1914, it is calculated, involve a loss to the revenue of just under £1,000,000—£950,000—and the extent of the loss to the revenue is the extent of the advantage to the taxpayer. As regards the Super-tax, the concession which we propose to make by regulations of the Inland Revenue Commissioners, limiting the amount to be collected, will, it is calculated, mean this year a loss to the revenue of £500,000. I do not claim that in making concessions of this sort the revenue is generous or anything of that kind. We are all here engaged in the common object of seeing by what proposals we can fairly meet the special claims and difficulties which fall upon our country. For my part, I perfectly recognise that the proposals we make under the head of Income Tax and Super-tax are proposals that do mean throwing an extra hardship and burden upon citizens who might well wish that they had lived in happier times; but I am equally certain, while I recognise this burden which is thrown upon him, that the Income Tax and Super-taxpayer who lives here at home will think it is right that the burden we throw upon him should be worthy of the gallantry of our troops at the front and commensurate with the determination of the whole people to which we belong.

Sir GEORGE YOUNGER

I do not rise to address the Committee on the interesting speech to which we have just listened, and I do not intend to make any general remarks on the Financial Statement of the Chancellor of the Exchequer; I am content to leave that in the hands of my right hon. Friend the Member for West Birmingham. But I rise to give the House such information as I possess on one particular proposal of the Budget—the proposal in connection with the increase of the Beer Duty—and I am afraid I must ask the Committee to permit me to trespass for some little time on its patience, in view of the very serious position which is caused in connection with that proposal. There could be no more ungrateful task at the present moment than to appear in any kind of way to be unwilling to make reasonable sacrifices in the position in which the country is placed. I am, however, free from any feeling of that nature, because there is no antagonism between the Chancellor of the Exchequer and myself as regards the propriety of putting a tax on beer. The only question which arises is as to the proper margin there should be between the increased price which the retailer is asked to put on the public and the amount he is called on to pay. I will try to put my case as clearly as I can. It must be understood I am dealing with the particular circumstances of the present moment. There may be in the future, when we get the boon the Chancellor of the Exchequer hopes to see arise, very proper reasons for reconsidering the whole question in the light of the changed circumstances, and the exceptional causes arising out of the War, such as the diminution of trade and other reasons.

The increase of this duty is, I should think, quite an unusual and unique proposal. It is an increase of the existing duty by no less than 225 per cent., and it will carry results of a very grave character. I wish therefore to state shortly why I think the tax which the Chancellor of the Exchequer proposes is a quite impossible one in the circumstances. I think it rather a pity in a case of this sort, when everybody is anxious to make such sacrifices as patriotism demands, that the Chancellor of the Exchequer should not have had a conference with representative members of this trade in its various branches before he actually tabled his proposal. If he had done so, I do not think he would have laid the proposal in the present form, and I do not think he would have asked quite such a high percentage of the enhanced price which the licence holder is expected to charge. I find no fault whatever with his claim that in the present emergency the public should pay something more for its beer. That is quite a natural thing in the circumstances, and so far from finding fault, I am ready to admit that the Chancellor of the Exchequer must take advantage of every available source of revenue and exhaust it to its fullest extent, in reason and fairness to the present generation of taxpayers. But I would remind the House that in dealing with the Beer Duties the Chancellor of the Exchequer is dealing with a trade which in all its branches has been so harassed in recent years as to have reduced it in many cases almost to a state of insolvency, and in others to a condition in which profits have been seriously depleted. He comes to it now no doubt in quite a fair spirit, but I fear with an unfortunate disregard of this condition, and if he does not largely modify his proposals those to whom he looks for the collection of his new revenue will, I fear, hardly be able to shoulder the burden. If they made any such attempt it could only end, and that very soon, in financial disaster for themselves.

There are two different classes of traders concerned in this matter—the brewer and the licence holder—and to each the Chancellor of the Exchequer desires to leave a sufficient margin to help them in some degree to finance this new tax and to leave them something to make good the loss which will arise on the turnover. Take the case of the licence holder first. He is told to collect from the public one halfpenny per glass of beer. Let us see how he has to fare. First and foremost, he is expected to lose at the present time 35 per cent. of his trade, a factor of such vital importance in fixing his margin that it might have been expected to receive its full weight from the Chancellor of the Exchequer. The enhanced retail price, coupled with much unemployment, the expected absence of so many men at the front, and the increasing restrictions upon the hours of sale, make it fairly certain that the estimated loss of trade is not too extreme. At the present time, and without any impost at all, there is to my knowledge already in many cases a drop of from 15 to 20 per cent. in the turnover, and that state of things alone is making a serious inroad on such profits as remained before the War.

With an additional halfpenny on the retail price in consequence of the new duty, and the further expected contraction of sale, the financial result will be disastrous. Take the case of a beerseller doing before the War a trade of six barrels per week; take the net profit at 11s. per barrel, he would be making £3 6s. per week. But when you take 15 per cent. off his sales, his weekly profit is at once reduced to £2 4s., and if you make it 20 per cent. reduction, it drops to £1 3s., for the very simple reason that he cannot, from the nature of his business, save a single shilling either on the Licence Duty, rent, taxes or labour. He only saves by the restriction of hours, in regard to which he is going to get a small concession on his duty, and although that concession in the aggregate seems a large one, it is in no way comparable with the loss which the retailer will sustain through the reduction of sales. If you add to these burdens this additional impost, and take into account the drop of 35 per cent. on his returns, and if you further assume that he is only asked by his brewer to pay that duty without a further addition to the cost of his beer, then his original profit of £3 6s. per week falls to £1 14s. 6d., and he will be left in a very sorry plight indeed. I think these figures are perfectly accurate, and they present to the House the case of the licence-holder in its true light. The truth is, that the elementary results involved when there is a large reduction in sales have been left out of consideration by the Chancellor of the Exchequer, and this vitiates his calculations and destroys the fabric on which he justifies his proposal as it stands. I am rather surprised that such an omission was possible.

We had a case of this kind in this House a few years ago when the Chancellor of the Exchequer increased the Whisky Duty and put a duty of 3s. 9d. per gallon on whisky, at the same time as he was proposing heavy new Licence Duties. The right hon. Gentleman told us then that the retailer would have to put a halfpenny per glass on his whisky, and as that would bring in an additional 7s. 6d. per gallon, the difference between the two would help him to pay the new licence duties. Looking at it from an uninformed point of view, that seemed to be the natural result. But the Chancellor of the Exchequer entirely forgot the drop in the amount of trade. The spirit trade fell off, and the retailer's loss was so tremendous that, so far from having an increased sum of money in hand with which to pay the new duty, he actually had less than he had under the old system with which to pay the smaller duty. The right hon. Gentleman admitted on Tuesday that the trade reeled for two years under that impost. Let me tell him they are reeling still, not from the consumption of the article, but from the want of consumption, and we believe they will continue to reel for a long time to come. That ought to show to the Chancellor of Exchequer that the moment you put an extra tax like this upon an article the ordinary tendency is to reduce the demand. With reduced sales you get reduced profits, the fall in profits being very much in excess in proportion to the fall in sales.

Let me shortly summarise what I believe would be the position of the licence holders if this proposal is to be enforced as it stands. The huge drop in the sale of beer will so reduce his profit that it is certain he will in many cases be even unable to pay the Licence Duty. Many will be driven to close their doors, a result which I am sure everyone would wish to avoid at the present moment—even, I think, the hon. Member for the Rushcliffe Division (Mr. Leif Jones). That hon. Gentleman might wish to close them afterwards, but I am charitable enough to give him credit for not wishing that they should be hurt by a duty of this kind under the present circumstances. Yet such a catastrophe can only be avoided by fixing the duty at a figure which, while enabling him to increase his price, will also increase the profit on his sales, That is the essential difficulty, and it is the only way in which he can possibly make good his position. But this the Chancellor of the Exchequer has not done, for the reason that he has not provided a sufficient margin between the increased selling price and the new duty, and because the retailer will require not only to pay the increased duty, but, owing to the obligations which are to be placed upon the brewer, there must at the same time be an increased charge for his beer if the brewer is to be in a position to finance this huge operation and carry on his business. That is the position of the licence holder. The margin is not sufficient to satisfy the brewer, who has to finance the operation, or the publican, who is to collect the tax and who will, in consequence, lose trade to a large extent.

I now come to the brewer's case. That is much more complex, but it is equally serious, as his profits will be greatly affected by the fall in turnover, and he will be unable to bear any additional strain. The Chancellor of the Exchequer says he does not want to put any additional strain on him, and I am glad to think that is so, because, undoubtedly, he will not be able to bear it. A drop of 35 per cent. in the sales of beer will, in many cases, wipe out the present profit altogether. There are three classes of brewer: the tied-house brewer, whose houses are run by himself under management, the tied-house brewer who either lets his houses to tenants or ties them by way of loans—and he, of course, is in a different position from the other—and the free trade brewer whose case is the only one I know very much about, and who is to be largely found in Burton, Scotland, and Ireland. I wish the Committee to understand that I cannot speak for the other classes from personal knowledge. They will, no doubt, speak for themselves, and will state their case to the Chancellor of the Exchequer in private. I can only really profess to have a knowledge of the situation so far as it affects the free trade brewer, who is the hardest hit of all by this arrangement. Where the brewer runs his house under management he, of course, receives his duty promptly, and there will be no cost to him financially. There are very few, however, of that class, although there is one very large and important firm in the North-West of England which I have in my mind. I can only say in that case there is no serious difficulty in financing the operation, notwithstanding the fact that an enormous sum is involved in the case of a very large business. The other English brewer who lets his houses to tenants and to whom credit is given will, of course, have to find much more capital to finance the duty. The Chancellor of the Exchequer is offering an amount of credit which is not sufficient to cover the credit which is given, or anything like it. Then the brewer has also the risk of bad debts which the managed house does not bring with it at all, and he has not the same control over credits and customers generally, and the returns of beer and so on that the man has in the house he rune under management.

When we come to the free trade brewer who has to find his trade with very severe trade competition, he will have to finance this huge sum of money that he has to pay extra. He will have to take a largely increased risk of bad debts, and he will not be very well treated in connection with faulty beer. Altogether, his position is very serious, difficult, and, indeed, an impossible one from the point of view of the proposals of the Chancellor of the Exchequer. I tell the Committee that in all seriousness. I do not wish to evade the burden at all, but I wish to persuade the Committee and the Chancellor of the Exchequer that this matter ought to be reconsidered in the light of what the Chancellor of the Exchequer has said, that neither he nor any Member of the Government desired to penalise anyone. Consideration ought to satisfy them that there is a blot on this scheme. That, I think, deals with the three cases of the brewers. Of course, there is a very great difficulty and an added difficulty that the free trade brewer has in the question of the credit to his customers, he has to give longer credit than others. In Scotland we used to give three months' credit before the Chancellor of the Exchequer increased the Licence Duties. Those duties required that a certain amount of assistance should be given to the trade, and they required extended credit, which is now four months instead of three. The Committee will see what a serious matter this is for those who have to pay these heavy duties. Let me take a case in Scotland of a medium-sized brewery, half way between the larger and the smaller ones. At the present time that brewery pays something like £3,720 per month in Beer Duty. Perhaps the Committee does not realise that under the taxation proposed that payment will be raised from £3,720 to £12,000 per month. That man gives four months' credit. The Chancellor of the Exchequer is going to give him one extra month. He is to make up the accounts of one month, to be paid on the 15th of the next, and the Chancellor of the Exchequer will give him a month's credit. The Committee will see that if that particular concern has its duty raised from £3,720 to £12,000 per month it will have to pay, first, all the extra duty on the stock it holds; and, second, the new-duty on three months' credit with one month added. This means that that particular concern will have to find £30,000 extra to finance the scheme of the Chancellor of the Exchequer. That is forgotten.

Where is that money to be got? There are very few people who have sums of that kind, and who can, at a moment's notice, add it to the capital of their business. It is going to be in some cases a terribly serious burden. At the moment, taking the case of a Scotch brewer, if he goes to his banker and asks for an advance of £30,000, it is very doubtful whether he would get it. Even supposing the banker were prepared to lend it, what would the terms be? The banker would charge him 6 per cent. if he had security for the loan, and 6½ per cent. if it is provided on an unsecured overdraft. I speak with some knowledge, because I am connected with Scottish banking. Those rates would only last while the Bank of England rate remained at 5 per cent. If that rate rises, so in proportion do the rates on cash credits and overdrafts rise. The Chancellor of the Exchequer will see that in interest alone on the money to be provided to finance him, that unfortunate brewer will have to pay at least £1,800 a year. That is at the present rate, and provided always that he finds a banker sufficiently kindly in the circumstances to lend money to him. I think that will show the Committee that when you come to very large concerns the sums required, where large credits are given, will be enormous. I do not myself see how the brewer is to find them at all.

Let the Committee note what the Chancellor of the Exchequer is asking these brewers to do. They are to collect for him a largely increased revenue. They are to find the additional capital to finance that operation. They are to incur a greatly increased risk in guaranteeing the payment of this duty by an exhausted trade. Let the Committee ask themselves whether they can possibly accept that situation and continue their business with the remotest chance of getting anything out of it. They cannot do so, and it would be an extremely foolish thing to pretend that they could. The proposal as it stands is the most perfect scheme for killing the goose that lays the golden eggs, and it would effect that result when co-operation and helpfulness should go hand in hand, and when everybody should be treated, as I am sure the Chancellor of the Exchequer honestly wants to treat the brewers, with every possible consideration. He does not in any way mean to harm them, but from lack of appreciating the real situation he is running the risk of inflicting a grave injustice, unless he alters his proposals. Does he think that he and the Government are consistent in their financial proposals? What has the Chancellor been doing during the last three months? He has been pledging State credit to finance nearly everybody. He bas been financing the bankers, the brokers and merchants who traded with Germany and Austria, with large sums of money. He has been financing even German accepting houses, and has pledged the credit of the State to do so, and incurred great liabilities. It is quite right he should have done so. The case was a serious one, and the Government acted courageously. They grasped the nettle, and did everything that was right and proper. That is all very well. But when the Chancellor of the Exchequer comes to ask an important trade to find some £17,000,000 or £18,000,000 per year, does he finance them? Not a bit of it. He says, "You have to finance me." That is the position he takes up. It is a perfectly impossible position from the point of view of the vast sum involved. Why should it be so? I personally do not think that the action is consistent, nor do I think it is at all fair to the interest involved.

I should like to ask the Chancellor of the Exchequer, and I am sure he will consider it, if he cannot receive certain representatives of the trade who will speak for each branch and put before him their own difficulties. I can only put before him, and I am ready to do so, the difficulties I understand myself, which, of course, affect only a certain class. I have no doubt that if the Chancellor of the Exchequer and the Prime Minister would very kindly look into those figures, and into the position from the point of view of the Chancellor's own declaration, I am certain they will come to a reasonable decision on the matter, and that they will treat the trade quite fairly. I am sure they intend to do so, and I have every confidence that if they receive the representatives, concessions will be made. I have made suggestions myself to the Chancellor of the Exchequer as to a way in which he could get out of the difficulty in this matter. I suggested that instead of using the brewers as his banker, he should charge his duty directly on the retailer. The Chancellor of the Exchequer's answer to that is a very obvious one. He says, "There would be great trouble to collect that money, and I should have to collect from 109,000 or 110,000 people, and lose a lot of money in collecting it." He says, "The revenue would suffer, and I must protect the revenue, and the trade is going to get an advantage." It is the State that is going to get the advantage. It is not the brewer or the retailer. Why does not the State shoulder the burden? The State is putting a burden on me which for reasons of that kind it will not shoulder itself. That proves my argument that some other than the present scheme is required in justice to the trade and should be suggested to the House of Commons. I have said all that I want to say on the subject. I do not want to go deeply into the difficulty or to weary the Committee. I have endeavoured to state the case with perfect moderation and reasonably. I have no desire to make extreme statements, and I can assure the Chancellor of the Exchequer that I have made no statement which I cannot substantiate. I am quite prepared to satisfy the Chancellor of the Exchequer in private by giving him figures and other information. So far as I am concerned, I have made a perfectly plain statement, confident that we can satisfy him and the Government that this duty is too extreme, and that it is impossible in the circumstances of the case to finance it now in the present emergency. In conclusion, I desire to thank the Committee very cordially for listening so kindly to a rather long, uninteresting statement, but I hope I have persuaded them that I have made out a case for reconsideration.

Mr. ARTHUR HENDERSON

May I express my satisfaction that by your decision, Mr. Whitley, you have made it, possible for us to have a more general discussion than the strict limits of the Resolution before the Committee might otherwise have permitted. We have listened to a couple of very interesting speeches. The Attorney-General dealt with one class of taxpayer, and put before us some of the difficulties with which the Chancellor of the Exchequer proposes to deal and, if possible, remove so far as those who are called upon to pay Supertax are concerned. We passed from those who pay Super-tax and listened to a very considerate speech from the hon. Baronet the Member for Ayr Burghs (Sir George Younger), pleading the difficulties of another class of taxpayers, of whom I might say without, I hope, introducing anything of a party character, that they are a class of taxpayers who, so far as I have been able to judge, have generally been able to look after themselves pretty well.

Sir G. YOUNGER

They cannot do it now.

Mr. HENDERSON

I rather think the hon. Baronet exaggerated the difficulties of the trade. Notwithstanding the high character of the new tax that is to be levied I have been told—I do not know how far I am correct, and I should like to put this to the hon. Baronet—that the margin is fairly substantial, especially as I understand that the duty is imposed upon what is known as the standard barrel, while the beer will be retailed from the bulk, and the difference between the two, I am informed, will leave the trade quite on the right side.

Sir G. YOUNGER

Perhaps the hon. Member did not notice that I said the margin might be sufficient for one but not for both.

5.0. P.M.

Mr. HENDERSON

I was asking more as a matter of information. As the hon. Baronet knows, the details of the trade are not very well known to me. I could not resist the opportunity of putting that one question to him. Coming to speak of the position generally, may I express my satisfaction and that of my colleagues that the Chancellor of the Exchequer decided eventually to grapple boldly with the financial situation at once. It would have been a great mistake to defer the imposition of taxes to the future. The present Parliament, and to a certain extent the people outside, are immediately concerned in the present crisis, and it was only right that this present House of Commons should be called upon to face the situation, and, in so far as the position had to be met by increased taxation, that the responsibility should be taken by the present Government, and I am glad the Chancellor of the Exchequer has seen his way clear to take that course. I have referred to two classes of taxpayers. I am sure the House will not be surprised if I ask the attention of the Committee to a third class which I consider is exceptionally hardly dealt with in connection with the new taxation. I refer to the increased duty upon tea. We have decided not to put down an Amendment to the Government Resolution on this occasion. We did so last year, and took it to a Division.

An HON. MEMBER

You did not divide.

Mr. HENDERSON

I beg your pardon, we did divide. I hope we are not going to have anything controversial. We divided, and though the hon. Member did not support us got thirty-eight votes. I am not introducing this for party purposes or to make it a subject of controversy. I think, however, that it is right for me to state our position and to give our reasons for not adopting the course this year that we adopted last year. We are as strongly opposed, in fact, we must be more strongly opposed this year than we were last. If we have found dissatisfaction in not being able to support a tax of 5d. upon tea, how can we look favourably upon a tax of 8d? But I am sure no section of the House desires that we should do anything to create a division in the country or a division in the House having regard to the very serious issues involved in the present crisis. What we feel is that unless we state our position and make a protest against this very serious increase we shall find out that in the days to come, when either the present Chancellor or his successor is endeavouring to continue the very high duty upon tea and we are endeavouring to get it taken off, we shall probably be told that we ought to have resisted its imposition on the first occasion, for I do not forget that some of the present duty on tea was imposed for war purposes — for the payment of the Boer War. Some of us have been hammering away at it pretty well from the time when it was first imposed, at any rate, from immediately after the close of the Boer War. I associated myself in the old days with the present Chancellor of the Exchequer, who could make eloquent and convincing speeches against the very unfair incidence of such a tax. I used to sit at the corner with him and he used to treat us to his fire and eloquence, dilating upon the very considerable hardship that it entailed upon the poorest of the poor, and we have been trying to take consistently the same course from those days until now. Therefore, it was absolutely necessary that we should explain our position.

Let us try to look at the position so far as the oppressive character of this increased duty falls upon the poorer of the community. However strong the arguments may have been in the past it must be perfectly obvious that they are stronger to-day. It has been estimated over and over again that there are some two millions of people in this country whose wage income does not exceed £1 a week. If that is the position under normal circumstances I do not think it will be any exaggeration to say that that number must be increased by about a million during the period of the War. There are a number of trades where the wage income has already been reduced by working short time. When the War began the Government and others rightly appealed to employers to keep the whole of their men going on short time rather than that a percentage of the men should be unemployed during full time. Many employers, I am glad to say, responded to that appeal, but it brings us to this position, that there are thousands of workmen who are taking home less money than they were doing before the War broke out. But in addition to that, before many months are over, if the War continues, there will probably be a million or a million and a half fresh troops on the Continent. Let us ask ourselves how many of these will have gone from working-class homes. Hundreds of thousands. It means that the home where probably 38s. or £2 or £2 4s. was the wage income before the bread-winner enlisted is reduced to what is obtained from the separation allowance. That means that in a great majority of those cases, whatever the wage income of the home was previous to the War, it cannot now reach £1 a week. It will have to be a very large family where it does reach £1 a week. That simply means that we have no longer two million but probably nearer three million of working-class families where the amount of wage income during the remainder of the War will probably be something like £1 a week. It is not easy to estimate how much tea goes into a working-class family. I suppose it is more in some cases than in others, but we can say, taking the average family, that it cannot be very much less than a pound of tea per week. That means that on a wage income of £1 there is going to be a tax, not of 5d., but of 8d., and that means that for every pound of tea that is purchased there is going to be a difference that might be valued in the first instance at 4d., or at the most 5d., levied in duty, and probably, with profit, not less than 10d. or 11d. For the purpose of my argument there is a distinct, clear duty of 8d., and that, I think, everyone must admit. But that resolves itself into an Income Tax which, in proportion to income, is much worse than the case that the Attorney-General pointed out when he was dealing with incomes of £4,000 and £6,000.

But I want to put this question to the Chancellor of the Exchequer: When he first decided to increase the duty from 5d. to 8d. I wonder why he did not keep in mind some of the interesting speeches which we heard in days gone by, both in connection with the difficulty of living and with a certain duty upon sugar and also upon tea? The poorest of the poor usually purchase their tea in quarter-pound packets. How is that 3d. going to be applied to the quarter-pound? I believe that if the levy had been 4d., so far as the application to the quarter-pound is concerned, the price would have been no more than it will be at 3d. I am taking it now that there is a certain price for the tea. In order to recoup themselves for the duty, having to put some increase, that increase on the present price is 3d. I want to ask, if there is a fixed price, how is the 3d. going to be so divided as to make the price on the quarter-pound fair and equitable—a third? It ought to be no more, and I am informed by those who ought to know that if 4d. had been levied the price would have been no higher than it will be on the quarter-pound now when it is 3d. Could not the Chancellor of the Exchequer see his way, even now, to make it 2d.? I think if he will go into the matter he will find that that would be more easily levied, and it simply means that he would have to find the difference which would be caused by the loss of the penny—one-third. If you proceed to levy the 3d., I understand it will realise this year something less than £1,000,000, and next year it will realise something less than £3,000,000.

I wish to ask whether, taking the maximum amount, the right hon. Gentleman will obtain next year from the imposition of the 3d. at £3,000,000, the amount which will accrue to the Exchequer is not altogether disproportionate to the hardship which will be inflicted upon the poorest of the poor, more particularly the three million to whom I have already referred, where the wage income during the War cannot possibly realise £1 per week? If he were to accept the suggestion and give up one-third from tea, it seems to me that there are other quarters where he might look to make up the difference. He was quite playful the other night at the expense of teetotalers. He thought that if he did not get at us by tea, he would not get at us at all. I do not think he was quite right in his conclusion regarding the uselessness of putting a tax on mineral waters. I do not mind saying—as pretty well a life-long teetotaler—that I should have preferred to see a tax on mineral waters, and less upon tea. I should have preferred to see a tax upon cocoa, and less upon tea.

Sir F. BANBURY

indicated dissent.

Mr. HENDERSON

I did not know the hon. Baronet was interested in cocoa. He is shaking his head.

Sir F. BANBURY

I thought you would have known that it was quite impossible to get a tax upon cocoa.

Mr. HENDERSON

I should have preferred a tax upon cocoa rather than tea, because I think there is no difference of opinion that the lower the wage income the more essentially does tea become the staple diet in connection with working men's families. If the income goes down to a certain point, they cease to live on meat, and they consume more tea. I could almost have wished that the Chancellor of the Exchequer had gone further with the suggestion to impose a graduated tax upon wage income. Since I began to study the question of direct and indirect taxation I came to the conclusion that there was only one fair way of treating the working classes, and that was to take the workman's wage, whether a day wage or for piece-work, and whether it amounted to £1, £2, or £3, and have a graduated wage tax. I am quite certain that some Chancellor will feel that that is the only fair and equitable course to take in dealing with the working classes. Of course, when I say that, I mean that some Chancellor will have to be bold enough to sweep away all indirect taxes and put a tax straight away upon wage income, and I should say, "Have it collected at the source through the employers." After our experience in connection with the National Insurance Act, I do not think it would be very difficult to do so. I do not at all agree with the Chancellor that there would be very great difficulty between the cases of men working on day work and men on piece-work. It comes to this: If a man is earning 35s. a week on day work, and he gets £2 5s. or £2 10s. on piece-work, the levy would be proportionately increased. I do say that we cannot possibly defend what we are doing to-day in asking our working people to give up 30s. or £2 a week, and putting them on a separation allowance of 12s. 6d., while we proceed to increase the Tea Duty from fivepence to eightpence. I do hope, therefore, that the Chancellor, if it is not too late, will see whether he cannot modify the proposal, if he cannot withdraw it. I am quite certain that, although he has taken a bold step in doubling the Income Tax — and more especially do I think this after the speech delivered by the Attorney-General to-day—we have shown just a little too much consideration for those who are called upon to pay Super-tax. I feel that those who have most at stake in this great crisis are those people, and if the Chancellor of the Exchequer had gone the length of getting from them the other £3,000,000 he is trying to get through the increased duty on tea, I think he would have been acting very wisely indeed.

We on these Benches are not very much interested in the raising of this loan, but there are one or two points I should like to suggest in regard to that matter. The first question I wish to ask the Chancellor of the Exchequer is whether he considers that the House has been quite fairly treated when all the conditions of the loan were public property in the City before they were announced through his own statement to this House? I am in a position to state that hours before anything was known through his Budget Statement in this House, the whole of the conditions of the loan were generally known in what we call the City.

Mr. WATSON RUTHERFORD

Why not?

Mr. HENDERSON

I am asked "Why not?" There are two hon. Members opposite, one the hon. Member for the West Derby Division of Liverpool (Mr. Watson Rutherford) and the other the hon. Baronet the Member for the City of London (Sir F. Banbury) who have, time after time to my own knowledge, questioned the right to make statements to the Press before the statements conveying information were made on the Floor of this House. Surely that is the answer to the question asked by the hon. Member. It seems to me that on an important question like this, we should guard jealously against the possibility of information leaking out to certain people who may be interested to know, and who may make it their business to use the information. At any rate, even if they could get no advantage from the information, I think it is always well in these great financial transactions to let the information be stated by the Chancellor himself on the Floor of the House, so that the whole general public, rich and poor, even those not connected with Stock Exchange, should know at one and the same time through official channels. I hope we shall have some answer on that point.

I wish to ask the Chancellor of the Exchequer if he considers that in the conditions laid down the small investor has received that consideration to which we think he is entitled. I believe I am right in saying that in other countries when loans are being floated, it is possible for even the one pound investor to stand in. I am not going to make an appeal that we should come down to such a point as that, but what do we find? I think the amount last year in the Post Office Savings Bank was something like £180,000,000, and the average at the credit of the investors was £20. It seems to me that instead of making the minimum subscription for the loan £100, or making the subscriptions run in multiples of £100, a case could be made out, especially for the classes of the community who are affected by the crisis, to finance which the loan is being raised. I think a case could be made out for bringing the amount down to, say, £10. I shall probably be told that once the loan is floated it will be possible for a man to buy one pound's worth of stock by paying a little bit in the shape of premium. That is not what I want. I think the man with £10, and certainly the man with £50, ought to be in a position to apply in the first instance, and get the stock on the most favourable terms. I think the Post Office investor should have been in a position to transfer his investment from the Post Office and put it in the stock in connection with this loan. I know the answer will be that if the Post Office investor had drawn out his investment from the Post Office, for which he receives two and a half per cent., to put it in stock for which he would receive four per cent., the Government would have been the poorer, because it would be difficult to replace the money withdrawn from the Post Office Savings Bank. Even allowing that to be the position, I think it very hard indeed that people who have striven out of small incomes to put money in the Savings Bank, and who cannot raise £100, should be denied any opportunity of investing in the way I have suggested. I do ask the Chancellor of the Exchequer, before another loan has to be raised, to give some consideration to the claims of small investors, and see if it will not be possible to give to them—and especially to those who have money in the Post Office Savings Bank—the opportunity I suggest. I hope our position will be clearly understood, and that in days to come we shall not relinquish our attempt to get indirect taxation entirely removed, especially from the taxes upon the food of the people.

Mr. CHAMBERLAIN

There is much matter for reflection and for some difference of opinion in the interesting speech the hon. Gentleman has just made. I do not want to enter upon controversy now, but perhaps he will permit me to make two observations in regard to a portion of his remarks in no unfriendly spirit, but in the spirit which animated himself, and which is animating all of us inside and outside the House at the present time. There is room for infinite difference of opinion in regard to this or any other loan as to what is exactly the fair contribution to the whole expenditure of the State of trades, classes, or individuals. There is room for infinite difference of opinion, once you have agreed upon expenditure, as to the manner in which you can best take it from the people. We never shall entirely agree upon these matters because they are not capable of mathematical proof or demonstration. But I venture very seriously and earnestly to deprecate one phrase which dropped from the hon. Member when he was speaking about the Tea Duty. It may be that the additional Tea Duty will be a heavy burden to some of those who have to pay, but the hon. Member must not underrate what the direct taxpayer is asked to do for this War. And he must remember that in the year preceding the War the indirect taxpayer has received once and again relief, excluding always the consumers of alcohol, while the direct taxpayer has in the years preceding the War again and again had his burden increased, and even by this year's Budget—before any War proposals were before us—a large increase was made. We are all agreed that the richer a man the more he should contribute, not merely the more absolutely, but the more proportionately to his total income. The hon. Member does no service in any class of the community if he underrates the gigantic burden which is now being placed on the direct taxpayer. I should not have referred to this if the hon. Member had not said that it was the workman who has most to lose. I really cannot believe that in his heart of hearts he feels that at the present time. Look at Belgium. I do not know that we can measure the suffering as between class and class in that unhappy country in the midst of the people's agony. But when you know what they have suffered, you are quite certain that the least portion of what any man has lost is the loss of work. It is the suffering to the wives and children of poor and rich alike, and to the poor no less than to the rich, that has been the cruellest which that country has had to endure, and it is what we might have to endure if our Armies and Fleets were not successful. In days like these we stand or fall together. We cannot measure as between class and class on whom the heaviest burden falls. I hope that the hon. Member will not think that I have dwelt unduly on a passing phrase in his speech. But for that phrase I should have left his speech to the answer which he will receive from the Chancellor of the Exchequer.

My object in rising is to ask the leave of the Committee to make a very brief personal explanation which I think I owe to the Committee, as a whole, and certainly to the friends with whom I habitually act. It is within the knowledge of Committee that almost immediately, I think, after the outbreak of the War the Chancellor and His Majesty's Government asked me to co-operate on Government Committees under the Chairmanship of the Chancellor in considering many of the financial measures which had to be taken, and I took part in deliberations with regard to the moratorium and the assistance that had to be given to different interests in the community. I was not consulted about the proposals which the Chancellor made before the House the other day. The Chancellor felt, and if I may say so rightly felt, that it was impossible to ask me to undertake the responsibilities of co-operating in framing a Budget which I could not possibly mould to my own views, and from portions of which I was likely to dissent. We have been too widely divided in the past, as to what was the wisest fiscal policies for the country, to make that kind of co-operation possible, and the framing of the Budget had to be left necessarily to the responsible Minister and his Cabinet colleagues.

I do not pretend that the Budget is exactly what I should have desired to see had I occupied the right hon. Gentleman's place. I think that it gives rise to many reflections both on our past and future finance which at another time it might be fitting for me to make, but at this moment I do not feel that criticism of that kind would be helpful to the country, and, if it is not helpful to the country, I do not think that I ought to make it. As I said, I think the other day, in assuming the conditions which the present Chancellor of the Exchequer might consider to limit his action and his range of choice in the matter, I looked more to the spirit of his proposals and to the tone in which they were made than to the taxes themselves. With the principles which he laid down, and the spirit in which he spoke, I had no cause to quarrel and I made no complaints. When I had made the few observations that I did make the Chancellor asked me whether, now that he had framed his Budget and its lines were clearly laid down, I could not resume co-operation with him in working out its details, and in helping him to make the large new burden which he had to impose on various taxpayers as little onerous as possible, and to make his proposals work as smoothly as possible, I took a little time to consider his suggestion. I consulted with my right hon. Friend the Leader of the Opposition (Mr. Bonar Law), and the next morning I wrote to the Chancellor a letter, which I have his permission to read:— Dear Mr. Chancellor,—I have been thinking over your invitation to join your private discussions at the Treasury as to the details of the Budget. It is not very easy to decide what I ought to do in regard to this, for, as you know, my position would be necessarily somewhat anomalous, and my responsibility for a Budget which is, of course, not in all respects the one which I would introduce in like circumstances, ill-defined and difficult to explain. I understand, however, that the basis of your invitation is that I should accept, without prejudice to my own views, the main lines of your present proposals, and that I should co-operate in making these proposals as workmanlike as possible. I do not wish in the present grave crisis to refuse any assistance of the Government which it is in my power to give, and I am prepared, therefore, to accept your invitation and to do my best to help you. If, however, I should find my position an impossible one, you will, I hope, permit me to withdraw. I shall, of course, treat anything I may have heard as confidential. The Chancellor of the Exchequer was good enough to accept my co-operation on those terms and within those limits. I hope that those with whom I immediately act will feel that I have taken the right course in the circumstances, and the Committee will understand that, in these circumstances, I shall do what I can in co-operation with the Chancellor of the Exchequer, and will not expect me to take any part, which otherwise would have fallen to my lot, in the public discussions in Committee.

The CHANCELLOR of the EXCHEQUER (Mr. Lloyd George)

The right hon. Gentleman has explained to the Committee the position as far as he is concerned. I felt, as he has already pointed out, that it would be unfair for me to invite him to come in to our councils while we were preparing the Budget. It is an unpopular task and a difficult task, and, not only that, but I knew that his views and mine on fiscal questions were poles apart in some respects. Naturally, he would probably seek other sources of revenue for the purpose of financing the War. Therefore it would not be fair to ask him to proceed on the assumption that a Free Trade Budget was fundamental in these conditions. But I am very glad that he has seen his way to accept the invitation which I extended to him on behalf of the Government after the Budget had been introduced. He has stated his general views to the House, and therefore he is absolved from any acceptance of the principle which is assumed in the Budget—that of financing the War on Free Trade principles for the moment. I need only say on behalf of the Government that it will be useful to us to have his experience and his well-known skill and powers on this occasion. There are two or three very difficult questions to settle, among others the question raised by the hon. Baronet the Member for Ayr Burghs (Sir George Younger) in his extremely temperate and able speech. That is by no means an easy question to settle. I do not think that I should contribute to a settlement if I were to discuss his speech at present, but when he invited me to see representatives of the trade I think he made a mistake in assuming that I had not consulted those who knew something about the trade beforehand. But that is a difficult thing to do on a large scale.

The right hon. Gentleman knows very well the difficulty. The reasons are quite obvious. But the hon. Baronet asked me to see representative brewers, and I hope to see them within the next twenty-four hours, and I hope that the right hon. Gentleman will be able to be present and hear what they have to say. As I said on behalf of the Government, when introducing the Budget, the view which we take with regard to this duty is that we must get money to finance the War, but we would like to do it with as little detriment as possible to any particular industry. After all taxation was bound to be hurtful, and indirect taxation is bound especially to hurt the particular trade taxed. That is one objection to indirect taxation in any shape or form. But, assuming that the hon. Baronet is right on this occasion and that it involves something not far removed from ruin for at least a number of persons in that trade, it is a case for reconsideration if he can make it. I am quite willing to hear what they have got to say on the subject, and to examine the views which they will submit. He has been good enough to furnish figures of a very confidential character to myself. I am sure that he will extend that to members of the Committee who are assisting, and then we shall see to what extent the case which he makes out has been established. I cannot agree with him that there is no very substantial margin. There is a substantial margin. We are charging 17s. 3d. extra. That 17s. 3d. is on the standard gravity. When you come to sell beers in London I believe that beers are sold at 50 degrees, which is pretty high. It is higher I believe than the average throughout the country. The standard barrel is 55. On that the charge, I think, is little more than 16s. Though nominally they are paying 17s. 3d. on a barrel of beer, yet when it is sold in London they are really only paying a little under 16s. In other parts of the country they are selling beer of a lighter kind. I do not know what the average is in the North. There are parts of the country where the beer is somewhere about 40 degrees, and that leaves a very substantial margin indeed. What it really means is that the brewers, in parts of the country where they sell beer of a specific gravity of 55, undoubtedly are allowed a small margin. But that is part of the policy of the House of Commons. It always has been the object to discourage the heavier beers, and rather to give a pecuniary interest to the brewer and the publican in selling the lighter beers. I hope, whatever happens, that the House of Commons will not depart from that principle. Another point is that, in some parts of the country where they are selling the heavier beer, they sell a glass for a 1d., in other districts for 1½d., and in other districts again for 2d. I am told that the charge in Scotland is 2d. for half a pint.

Mr. J. M. HENDERSON

A pint.

Mr. LLOYD GEORGE

There is a difference apparently, but I will not go very much further into that question. All these things will have to be gone into, and I do not think we will gain much by entering into a detailed discussion of this subject at the present moment. I understand there is to be a brewers' meeting tomorrow, and some of the leading representatives attending it, I believe, are going to meet me and the Committee with which I am associated to-morrow morning, so that there will be opportunity to hear what our respective views are on this subject. I should like to say one word as to what fell from my hon. Friend the Member for Barnard Castle (Mr. A. Henderson), who made a very temperate and a very powerful protest against the increase of the Tea Duty. I really must associate myself with what was said by the right hon. Gentleman the Member for West Birmingham (Mr. Chamberlain) by way of objection. My hon. Friend assumes that the issue of this War, which concerns all classes, affects the working classes more than any other class. I decline absolutely to accept that view. I cannot think of any class of citizens which is more deeply concerned in the triumphant issue of this War for Great Britain and her Allies than the working class. We are fighting against militarism in its most aggravated form. No class suffers more from that than the working classes, and, without entering more into the issue of the War, I think my hon. Friend, on reconsideration will come to the conclusion that the class he so ably represents in this House is as deeply interested in the victory of the British Army as any of the other classes in the community—I do not say they are more interested, but certainly they are as interested.

Mr. A. HENDERSON

I never referred to any lack of interest, so far as the working classes are concerned. I made use of the phrase "more to lose," in the sense that while all classes of the community were interested in carrying the War to a satisfactory completion, those who have property must, in proportion to their property, have more to lose. That was the sense in which I used the words, and I did not use the phrase in any controversial sense. I think I have shown in connection with the War, and I think the working classes generally have shown in connection with the War, where we stand, and I am sorry that the interpretation has been put upon my words by both right hon. Gentlemen.

Mr. LLOYD GEORGE

I am very glad to hear that from my hon. Friend, for I should have thought that nothing was of greater importance for any class than liberty, national integrity, and independence.

Mr. A. HENDERSON

I admit all that.

Mr. LLOYD GEORGE

And every class is as deeply interested as the other. My hon. Friend has only to look at what happened in Belgium to the working classes, who have suffered from the oppression which has over-run and desolated their land. I should not have taken notice of this at all had it not come to my knowledge quite recently that this view has been elaborated—not as my hon. Friend has done it—rather discouraging the help of the working classes. I know my hon. Friend has been working hard, and no one has displayed greater devotion than he in this War; and I know that he does not intend his observation to be used in any sense that would be detrimental to the co-operation of the working classes in bringing this War to a triumphant end. Another question which my hon. Friend put to me had reference to the loan. He wants to know how the City knew all about it before the House of Commons was told. I do not think the City did know more about it, and if my hon. Friend will look at the various City articles, he will find that they differed; as a matter of fact, as my hon. Friend behind me points out, there were representatives of finance who were waiting here to learn the actual terms of the loan. My hon. Friend must know that we were bound to enter upon the process of consultation and to confer with some of the leading bankers, and he surely does not say that when originating the greatest loan this country ever floated in the market, we were not bound to consult the great interests of the City.

Mr. A. HENDERSON

Confidentially.

Mr. LLOYD GEORGE

Yes, confidentially.

Mr. A. HENDERSON

They gave you away.

Mr. LLOYD GEORGE

I do not think, as a matter of fact, that they did. It was vital, I think, for the success of the loan, that I should be in a position to state something about the price of the loan and about its terms. I did not go into the details which I gave to the House of Commons. I indicated generally about the price of the loan and its character; otherwise, how could I have got the great banking institutions of the country to say that they were prepared to take £100,000,000. That, as my hon. Friend will see, was of great assistance in starting the loan. The articles which appeared in the newspapers convinced me that the bankers kept confidence, and that they really did not give away what they knew, and, as the hon. Baronet knows perfecty well, the newspapers were thoroughly ill informed about the facts which were necessarily communicated to the bankers. I do not think that my hon. Friend is doing justice to the great banking community when he says that, they disseminated in the City information communicated confidentially to them. In regard to another observation of my hon. Friend the Member for Barnard Castle, I agree with him that it would be very much better if we could impose a direct tax upon wages. I doubt very much whether that could be done, though we have experience of it in connection with insurance. But the speech which the hon. Member has made is a very helpful one. I have repeatedly invited the Labour party to give their opinion on the subject, and I have always thought it would be far better for the working classes of this country if they made their contributions to the State direct and in proportion to what they receive. They are not paying in proportion to what they receive now. They very often pay in proportion to their burdens. The larger the family the greater the contribution, though the wages may be low. A man who is earning £1 a week, with a family of six or seven, contributes more than the man earning £3 per week, with a family of two or three. That is obviously an unfair basis, and I agree with my hon. Friend that the only fair basis is the actual earnings of the working man, and, if you could collect it week by week by means of stamps, I am sure that would be better than the present system. But I also agree with the view that you cannot work the two systems together,

Mr. CHAMBERLAIN

There are the small shopkeepers.

Mr. LLOYD GEORGE

That is really what makes it impossible for me to introduce the system at the present moment. There are some hundreds of thousands, I may say millions, of people who do not belong to the wage-earning classes—small shopkeepers and men who do odd jobs of all kinds. How are you going to collect from them? The collection from them would cost the Exchequer 70 per cent. of what it actually got, which is the conclusion of the Inland Revenue; and they would not be able to collect anything between now and the 31st of March, while the machinery would have to be gigantic. To collect from the classes to which I have referred, and who ought to contribute would require some of the most elaborate and expensive machinery. The system of direct payment can only be carried out if everybody in the State supports it. The working man does not like, naturally, the reduction of his wages, and I am not sure that the employer cares very much for the position of being a tax collector, although I am sure that the employers have not complained. The speech of my hon. Friend on the subject is, I think, a very useful contribution. I am very glad that he has considered it his duty not merely to criticise but to make a practical suggestion for dealing with the problem, and I feel grateful to him for having had the courage to take such a step.

6.0 P.M.

One thing my hon. Friend suggested was that we should tax mineral waters rather than tea. But a tax on mineral waters would produce nothing comparable to what we get out of tea. I discussed the question in 1909, and I was surprised to find how very little was got even by a very stiff tax from mineral waters. Of course, in bringing in a big Budget and in raising millions of money, we have to consider every possible subject of taxation. We inquired into the matter on that occasion, and we found the result disappointing. However, I will take note of what my hon. friend says, and he is a high authority on the subject. With regard to the other questions that have been raised, I think for the present the best plan would be for me not to say anything further on the subject of the Beer Duty until I have had the opportunity of consulting with the hon. Gentlemen and their friends, which I shall be prepared to do to-morrow, and upon Monday we shall be able to resume the discussion, having received more information on this very important subject.

Mr. A. HENDERSON

May I ask the right hon. Gentleman to give me an answer to another question which I raised, namely: Whether in raising loans it would not be possible to reduce the sum below £100, to show some consideration for the small investor?

Mr. LLOYD GEORGE

As my hon. Friend probably knows, there is a way for the small investor to do so—and in fact, two or three ways—and, as a matter of fact, I think some of them will do so. But when you are raising money for the purpose of carrying on a war, you are not raising money for the purpose of benefiting investors, you are raising money for the purpose of carrying on war, and it does not help us at all if people will draw money from the Savings Bank, where we pay 2½ per cent., merely to have the satisfaction of paying them 4 per cent. for exactly the same money. In doing that you are not getting money to carry on the War, but you are increasing your burdens. I believe that in the German Empire they were driven to that resort, but I think we can raise our money without that. I am sure that if the small investor is really anxious to have a share in this loan that he will find no difficulty in making arrangements through his bank, or otherwise. The other difficulty with regard to the £10 investment is as to the Income Tax. It makes the task of Income Tax collection an extraordinarily difficult one, and, inasmuch as we are about the only country which taxes at the source, that is a very serious difficulty indeed. I do not mean to say that later, if the War goes on, it may not be convenient to reconsider our plan. At present, however, we came to the conclusion, after a good deal of consideration, that it was undesirable to do so, and mainly for the reason which I have indicated. I do not know that there are any other questions to be answered.

Sir F. BANBURY

I should like to make a reference to what has been said as to the knowledge of the bankers about the loan. Naturally a small committee representing the bankers did know something about it, and it was absolutely necessary that they should, inasmuch as they took a considerable portion of the loan. There were only fourteen knew, and I am absolutely certain that none of them gave any particulars away, not even to their own partners or directors, upon the subject. I should like to say that the very clear statement made by the right hon. Gentleman did to a very considerable extent meet the objections which I raised a few days ago. There is one case which I would bring to his consideration. The Super-tax payer who has an income, say, of £15,000 per year, will not receive any benefit under this scheme unless he loses £5,000 out of his income. That percentage is, I think, too high. I do not pledge myself to the actual figures, but a man with £15,000 income pays, I think, in round figures in Super-tax £1,600, and if his income is reduced by £4,000, that means a reduction of £5,600. That leaves out of account altogether nearly £2,000 which he has to pay in ordinary Income Tax, so that in that particular case you get half, or nearly half, the man's income. I quite agree it would be impossible to make abatements in cases where there was a loss of three or four hundred pounds, but if you took something like a fourth instead of a third as the proportion of loss to be reckoned, I think it would be much more reasonable. I had down a few notes about taxation upon wages, so that I am probably for the first time in agreement with the Leader of the Labour party. I quite agree that a tax on wages would be a very good and fair way of meeting the necessities of the present War, and I did not see any difficulty in the collection, because employers already have to make a deduction from wages by sticking on insurance stamps, which the right hon. Gentleman inaugurated, on bits of paper. They have got to do so much, and I do not think they would object to do so again. It is quite true there is the difficulty as to the shopkeeper, which I admit did not occur to me. That is a very serious objection, but I have mo doubt the ingenuity of the Chancellor of the Exchequer is great enough to meet it.

The Chancellor knows, I think, what in ordinary times I would say, but on this occasion I will only say this: That the burden upon the Super-tax payer and Income Tax payer is very great. I am sorry the hon. Member for Barnard Castle (Mr. A. Henderson) is not present, and I do not know whether some hon. Gentlemen opposite quite realise that next year the Super-tax payer and the Income Tax payer will provide £98,000,000 of money to this country. Fifty-four millions is the estimate in the White Paper issued in May, and £41,000,000 is what the right hon. Gentleman told us is to be added, thus totalling £98,000,000. I can remember when hon. Gentlemen opposite held up their hands in horror at the instance of their then Leader, Mr. Gladstone, at a Budget of £100,000,000; but now we have one class in the community asked to pay £98,000,000 towards the expenditure of the country. It must not be forgotten that you have got to add to that the Death Duties, which amount to something like £28,000,000, so that next year £126,000,000 will be paid by one class alone. Excluding people with incomes of under £700, as they get exemptions, the people who pay Income Tax number between three and four hundred thousand, and not more than from 100,000 to 150,000 people pay these enormous sums. That is a fact which ought to be remembered by hon. Gentlemen opposite. Those who have to pay large sums are not shirking their duty in other ways, and I think it must be remembered that a certain number of members of this community are bearing at the present moment a very large share of the burdens which this War has cast upon them.

I do not know that I have anything further to say at the present moment, except that it must not be taken that I approve of the Budget, because at present I do not criticise it. Being naturally anxious to do what we can to work together, I think perhaps, on the whole, it is not wise for me to add anything more. I do hope that the suggestion I have made will be met by the right hon. Gentleman, namely, that the percentage of loss of income should be reduced. When the War is over, and when we come out victorious, as I hope we shall, I do not know whether the Chancellor of the Exchequer will kindly remember the burdens which the richer classes have borne, and that he will not continue, as he probably will be Chancellor of the Exchequer in times of peace, the taxation which he has imposed in times of war. I should like to point out—and these are figures which I have tested-that the amount of Income Tax in certain cases—and I am not talking of incomes of £30,000 or £40,000, and still less of incomes of £100,000, but of incomes of less than £20,000, the amount those have to pay in Super-tax when the new proposals are carried out will be five times what they paid a year ago. And with the Income Tax and Death Duties combined, taking it that 1 per cent. of the Death Duty should be as threepence, they pay nine shillings in the £ in Super-tax, Income Tax and Death Duties. I am prepared to verify those figures whenever the Attorney-General asks me to do so. I bring them forward, not by way of complaint, but in order to show what I think a great number of Members do not realise, namely, what this taxation means, and in order to show what a certain number of people, who are not extraordinarily rich, have to bear at the present moment.

Sir THOMAS WHITTAKER

There is great force in what the hon. Baronet opposite (Sir F. Banbury) has just said with regard to the extra burden of taxation; and it must be borne in mind that this great increase in the Income Tax accentuates very much the grievances and difficulties of the position. But we are not going to raise that question now. The Chancellor of the Exchequer does not wish those points to be discussed, and I am sure that the House would not. Therefore we will leave them until we have an opportunity of dealing with them. But it is an important matter. In regard to the interesting statement of the Attorney-General, there is one suggestion that I would make. The concession which is to be made to Income Tax payers in regard to failure of income during the War is to depend on causes directly or indirectly due to the War. It is extremely desirable that the position with regard to these taxes should be very plain and simple, and I suggest that it would be far simpler to make the allowance in all cases of failure of income during the War. In ninety-nine cases out of a hundred, the failure will be due to the War If this were done it would do away with all risks of interpretation as to what was or was not due directly or indirectly to the War. Before the allowance is made, the income has to be substantially down, and it will be a special cause which sends it down. It would much simplify matters if the allowance were made without the condition that the failure must be directly or indirectly due to the War.

Sir F. BANBURY

I think the right hon. Baronet is mistaken. The one-third refers only to Super-tax.

Sir T. WHITTAKER

Yes, in that connection. It must be a very substantial reduction. Like other Members, I was greatly interested in the speech of the hon. Member for Barnard Castle (Mr. A. Henderson). We all regret the tax on tea. But in the special circumstances in which we were placed I think the Chancellor of the Exchequer was bound to put a tax on something that would reach other people than Income Tax payers, and there was no time to arrange any complicated scheme for putting a tax on wages. I regret the tax on tea, but I do not regret it as an elusive teetotaler. The Chancellor of the Exchequer thought that in levying this tax he would catch the elusive teetotaler. He did expose one delusion which exists, namely, that teetotalers are consumers of mineral waters to a greater extent than other people. I do not like imbibing carbonic acid gas, either in mineral waters or in anything else. I am certain that teetotalers drink less mineral waters than those who are not Teetotalers. Therefore you will not catch them specially by any tax of that kind. I am quite willing that the Chancellor of the Exchequer should go in for a tax on mineral waters. My only fear is that it would not bring in much money. When you want to raise large sums of money you do not want to have a lot of fiddling taxes. Go where money is, and get it in lumps. The only way in which you can get it in lumps is either to go heavily for the rich people or to go for commodities in daily use by the great masses.

As to tea, you do not spell "teetotaler" t-e-a. We are not large drinkers of tea. Personally, I drink very little tea. [An HON. MEMBER: "What do you drink?"] I drink coffee in the morning. At my other meals I drink water. In the afternoon I drink a cup of tea. When I go into the Tea Room of the House of Commons to have my cup of tea I see there having their cups of tea a large number of other Members, not all of whom are teetotalers, and they drink as much tea as I do. Therefore you do not catch teetotalers specially in that way. So that is not my reason for regretting the tax on tea. I regret it as a necessity which cannot be avoided just now. But the most interesting point was the suggestion of a tax on wages. If we are to avoid some other kinds of taxes which we will not discuss, but which some of us would not like to see, it is obvious that we must get to a tax upon wages in some way or other, and I agree in thinking that the method of raising money for the Insurance Act has indicated the direction in which it might be done. My own feeling is that persons with an income below a certain level ought to pay no taxation at all. But so long as you have indirect taxation those are the people who will be hit by that particular kind of taxation more heavily in proportion to their income than any other people. Therefore I hope that in this one direction the present discussion will prove to be very fruitful indeed, and will be the introduction to an Income Tax coming down to a much lower level.

Just a word with regard to the loan. I would suggest to the Chancellor of the Exchequer the desirability—not now, but shortly—of the House being given, officially and formally, definite information with regard to some of the directions in which this money is needed. If I may venture to say so, I think that the business and financial world owe a deep debt of gratitude to the Chancellor of the Exchequer for what he has done during this time of crisis. The Government has had practically a free hand. The right hon. Gentleman has entered into all kinds of engagements, nearly all of which have won almost, universal approval, without consulting Parliament—he could not. But I think we ought to know definitely what he has done in that way. A number of guarantees, involving possible liability to enormous sums of money, have been entered into. I wonder if we could have any information as to the estimated liability involved! In some directions that would be very difficult, but I imagine that the Government did form some idea of what was involved, and if we could have a statement on this point it would be very useful. With regard to the action of the Bank of England in promising to lend money on the War Loan, it seems to me that that it is a very valuable step from the point of view of supporting the loan, and our thanks ought to be given to the Bank of England for their undertaking in that matter. In connection with that arrangement one can see undesirable possibilities; but I think we may take it that the Bank of England so thoroughly understands its work that it will be able to guard itself against them. That is all I wish to say on this occasion. We are all in a mood to support the Government, not as party men, but as inhabitants of these islands and of this Empire. Therefore, we are not disposed to criticise unduly. What we want to do is to raise money, and win the War.

Mr. WATSON RUTHERFORD

There was one subject mentioned yesterday which, I confess, gave me some little shock. It was referred to by the hon. Member for Barnard Castle (Mr. A. Henderson), when he suggested that one method of raising money, probably for the purposes of the War, certainly for the purposes of the State, would be to put a tax upon wages I was disagreeably surprised to hear the Chancellor of the Exchequer approve of that suggestion, saying that it had received careful consideration in connection with the 1909 Budget, and that he had simply put it off because it was not possible in a short time to make arrangements for the proper taxation of the small shopkeeper. What was my surprise a little later when the hon. Baronet the Member for the City of London (Sir F. Banbury) actually gave his blessing to the same suggestion. I cannot hear a suggestion of that kind without making my strongest protest against it. I would never agree without protest to a tax on wages or to a tax on employment in any shape or form, I consider that to be the great blot upon the Insurance Act. I am opposed to taxing employment. It is the last thing that should be taxed. Tax anything the working man has to buy; tax anything whatever in the country; but do not tax employment. I would rather see property taxed than employment.

I desire to join in acknowledging the ability, the courtesy, and the devotion to duty which have characterised the Chancellor of the Exchequer since this crisis arose. I have listened, as I am sure the whole House have done, with deep attention and great respect to the speech with which this Budget was introduced, and I think the felicitous phrases which the Chancellor of the Exchequer used went home to the hearts of the people in the country when they read them the following morning. To-day, again, we have had an illustration of the ability and clearness with which these financial proposals have been put before us, and we are very grateful to the Attorney-General for the exceedingly lucid and able manner in which he explained the very complicated provisions that are bound to exist in respect of the incidence of the Income Tax. These proposals have given, every thinking man, and especially every Member of Parliament who feels the responsibility of his position, very grave food for thought and careful consideration. I am not going to object to any item of this proposed taxation. I would point out, however—I am not going to indicate classes, as it is not a question of classes—that it is going to fall entirely upon a section of the people to the benefit of another section. It is going to fall exclusively on the present income receivers, the people who drink beer, and those who drink tea. They are one section of the community.

I may be asked, who are the other section to whom I refer. I do not know whether this subject has been taken into consideration by the Treasury, or the advisers of the Chancellor of the Exchequer, but there is a very simple way of possibly curing the unfairness of the incidence of these taxes. I think it is a very important matter, or I would not have intervened in the discussion to-day. In my own experience and of my own knowledge, I have a series of illustrations of this difficulty. That compels me—as a matter of fact it makes it my duty—whilst acknowledging the indebtedness we all owe to the Chancellor of the Exchequer, and entirely disassociating myself from any carping criticism, to bring this point forward. I wish to put a typical case. That is a far better method than putting forward a lot of hypothetical propositions. Take the case of a settled fund consisting of £70,000. A widow lady enjoys the income from that to-day. On her death it goes to the brothers and the descendants of the brothers of her late husband. I have this case in my own experience. I believe this case of £70,000 to be typical of over one thousand millions of capital moneys in this country to-day. In this particular settled fund case the lady is entitled to the income, and on her death, as I say, it will go to the brothers of her late husband and their issue. What is the position? The lady is about forty years of age, and the ownership and the interest in that £70,000 is about equal—that is to say, her life interest is about half the sum, and the reversioners, who have a vested interest in the money, can sell it and own the other half. All this taxation is going to fall upon that lady, every penny of it—at least I have heard nothing yet from the Chancellor of the Exchequer or from the Attorney-General to show me that the people who are entitled to half that sum are going to contribute a single penny of this taxation.

The lady draws a present income. She will pay Income Tax and Super-tax, and it will bring about an enormous reduction in that income. She may live ten years or more, the period in which this loan is to be repaid, and if she does not die until after then the people entitled to half the interest in this fund will receive it without having contributed a penny out of it towards the cost of the War. I would also point out that there is a vast amount of valuable property in this country which is at present producing comparatively small income. That is another case where the owners of valuable property will not be contributing their share. On the other hand, there is an exceedingly large section of property which is producing a very large income in proportion to its value. I am referring to such things as valuable china-clay deposits, coal mines, and wasting assets of that kind, every penny of which is considered as income—which it comes out of—as against property producing the same income which will be contributing a very excessive share in the cost of this War. I listened to the speech of the Chancellor of the Exchequer and to that of the Attorney-General, and I agree with both of them in the principles they laid down. Those principles were enunciated in the clearest possible manner. The Chancellor of the Exchequer said: "This is a national matter; this touches every person in the Kingdom: it touches every pound's worth of property in the Kingdom: it has got to be met in an all-round fair way, so far as we reasonably can, everybody contributing up to the amount of their ability." I agree with all those propositions. But if you are going to get the whole of this taxation out of present income, then, as a matter of principle, unless you make some provision—which" I shall indicate—you allow to escape the man who has got valuable property which is not producing valuable income, and certainly let off altogether people who are entitled to reversions subject to existing lives.

An alternative method of taxation, such as the question of taxing the incomes of the wage-earners, has been allowed to be referred to in this Debate—I do not know with what semblance of order, but I dare say the Chair knows better. I will not develop any suggestion because it would be out of order, but just in one word I will say that if we met this tax with a tax on capital, instead of with a tax upon income, I believe we should get the whole of the money, and at once, and we should have got it in the fairest possible manner to the whole community. There are £12,000,000,000 of property in this country which can pay. A shilling in the pound on that would produce £600,000,000 of money, which would pay for the cost of this War. If the War, as I hope it will, is ended within any reasonable period, this would also leave a considerable balance towards paying for pensions. That tax could be collected, because if a man has a thousand shares in some concern or other, one hundred of them could be made over to the Commissioners, and the Commissioners collecting the tax could take it in kind, and also in the case of real estate. I am sorry that this great national emergency has not been met by a great national tax, however small the amount, upon capital. I believe that everybody who has got money invested in the whole Kingdom would have gladly parted with a proportion, with a small fraction, say—and 6d. in the £ would produce £300,000,000—which is half the money—they, at all events, would have parted with a small fraction on the assumption that the matter was finished with, and that they were not going to have this terrible demand upon income which is going to amount to a quarter of the income of many people. I can see the greatest possible difficulty and hardship in collecting these taxes. I would respectfully suggest to the Chancellor of the Exchequer—if he will kindly give me his attention for a moment—I do not want him to listen to anything else I say, but to a suggestion on this one point: He is carrying out a scheme that he must carry out. You cannot expect him to modify any of his schemes by any suggestion we may make when the proposition has been first made in Committee. But if he will put a Clause in the Finance Bill which will follow this Budget giving the people who have merely got a life interest in settled property the right to turn over the extra amount of this taxation by way of a charge on #be capital funds, it would be well. Unless something of that sort is done, it will be a terrible hardship upon everybody who is drawing income from a settled fund—a hardship about which they have a right to complain. Such a proposal would be some amelioration of the present position. I do not think it right that one section of the community should pay the whole share that should fall upon two sections. I beg to assure the Committee that a large section of business men with whom I am in communication, and whom to some extent I think I may say I represent—that that class is exceedingly grateful to the Government for their devotion, for the time and ability they are giving, for the way in which they are consulting the different interests in these matters. May I also be allowed as one of the Back Benchers on this side to say how grateful we feel to the right hon. Gentleman the Member for West Birmingham for sacrificing his own views and position—leaving us here to speak without a shepherd in these matters—and giving his time and his abilities in this national crisis. There is not one of us who in any capacity—and I claim not to be an exception—who, if we have the opportunity, would not give any time and take any trouble in any circumstances to be of any assistance possible to the country.

Mr. CATHCART WASON

I cordially sympathise with the Member for Barnard Castle in his proposition for taxing aerated waters. The Chancellor of the Exchequer told us that taxing aerated waters would simply be another means of taxing whisky. I can assure, the right hon. Gentleman on that point that he is mistaken. At all events, in Scotland whisky is drunk, either neat or with a small quantity of added water. In my opinion a halfpenny on each bottle of aerated waters would bring in an enormous revenue. There is also this point which he might also consider to divert his mind from direct finance: that is that these aerated waters press very hardly upon the poor people of the country. They are a very severe handicap in many humble homes in which they have to drink these instead of being provided with good super-milk. A diminution of these very deleterious drinks will also save many a child from stomach aches. But I rise, principally, with reference to the question which I put to the right hon. Gentleman yesterday with regard to taxation from football matches. That, I believe, would bring in a very large revenue to the country. It is not only from a financial point of view that I wish to bring this question forward, but it is also from the point of view of the community at large, whose feelings, I believe, are absolutely outraged by the" fact of these matches.

Since I spoke yesterday there have been two very good articles to which I shall direct the attention of hon. Members. One is from the Football Association themselves. They protest their entire desire and willingness to stop these matches, in the meantime, provided the War Office recommends that it should be done. Only the other day the right hon. Gentleman the Under-Secretary of State for War said he looked upon attendance at these football matches as exceedingly undesirable and very harmful; so that in that way I hope we will see something done almost immediately. What I contend is that we ought to have a tax of at least a half of the gate monies imposed upon these great matches. I take it that the decadence of a country arises when the people are so satiated with luxury and laziness that they employ people to amuse them and work for them. The arena in Rome, the bullfights in Spain, and now football here, make up the tale. I am glad to see that by a letter from no less a person than Dr. Robert Bridges, that he certainly voices the feeling of the country in declaring that it is high time professional football should be discontinued. Amateur Rugby footballers, he says, have set the others a good example in not only having discontinued their play, but in having volunteered a full complement of fighters. If the Chancellor of the Exchequer could adopt the suggestion I make of imposing the taxation of one half the gate-money where these professionals are employed, not only would be gained a very large revenue, but he would have the further advantage of getting a very large number of the very best possible fighters into the ranks.

Mr. ARTHUR FELL

There is one point I would like to put shortly before the Chancellor of the Exchequer, and that is as to how the new Tea Duty will affect our Dependencies in which this tea is grown. I have on previous occasions moved the rejection of the Tea Duty. That is the very last thing I shall be prepared to do on this occasion. Those growing tea will be prepared, as we all are, that this duty should be put upon it even though a reduction of the tea consumption will follow, because they are prepared to do their part in the cause of the country. But there is one point which they will feel is not fair, and that is, that this heavy duty is put upon them while rival drinks that compete with them are untaxed. It may be that the taxes to be derived from coffee and cocoa would be small—I believe that is what the Chancellor of the Exchequer suggested in regard to cocoa—but I do not think in this case you ought to look solely from the Treasury point of view at what you will get. You ought to consider to some extent the feelings of people who pay these taxes, and whether other people who compete with them should not also contribute. This is not quite so small a matter as people think. The value of cocoa and coffee imported into this country is about half the value of the tea, and the duties are very disproportionate. The duty on coffee is 2d., and the duty on cocoa is about 1d., while the duty on tea is 8d. If these duties on coffee and cocoa were doubled I am perfectly sure there would be a feeling throughout the Dependencies where tea is produced that, though they are heavily taxed, other people who supply articles competing with them were bearing some proportion of this tax. I will not go into other questions, such as Colonial preference, or anything of that kind, but I contend that in fairness, when one article is taxed, other articles competing with it should also be taxed. It might be done simply and easily, there would be no cost of collection, it might bring in £500,000 or £1,000,000 to the country, it would cause no hardships, and would remove what I believe to be a feeling of unfairness in our Dependencies.

Mr. MORRELL

My particular object in rising is to draw attention to one or two points with reference to the Tea Tax. Before doing so, I hope the Committee will bear with me if I join for a moment in the congratulations addressed to the Chancellor of the Exchequer, not merely upon his general conduct of the finances of this country, but upon the great War Budget he has introduced—a War Budget which I notice is described by the editor of the "Economist" as an ideal War Budget. I remember very well the last time I had the privilege of speaking in this House, just on the eve of the War, I did not find myself entirely in harmony with the majority of Members in this House, and it is an additional pleasure to me now to be able to feel in whole-hearted agreement with the Government, as I am, over this question of raising the necessary funds for carrying on the War. The Chancellor of the Exchequer, if he will allow me to say so, has shown what we all knew he would show, great courage, and he has shown what is not so generally associated with him, that he is an upholder of the very best traditions of our public life, and is carrying on the finest traditions of our finances in seeing that those who make the War shall also pay a fair proportion of the cost of the War that they have undertaken. I am certain that the appeal made the other day to the patriotism of the country at this time will not be made in vain, and that if he asked even larger sacrifices from the taxpayers than he has asked they would be cheerfully made. Those who, especially like myself, feel we are kept here at home and are unable to help our country in the field, would feel it indeed a poor thing if we did not contribute our money very willingly to the cost of this, great undertaking.

I speak also on this matter for constituencies in some of those parts of the country where the difficulty of the War is already making itself felt. In Lancashire the same spirit is shown to willingly bear the taxes, now imposed. For that reason I was very glad that my hon. Friends of the Labour party have decided not to divide in anyway against the duty on tea. Personally, I have always protested against a tax on tea and a tax on sugar, but I do feel this is an exceptional time and that it is right that all classes should bear their share in this great national emergency. I should like to refer to two points. In the first place, I wish to have some assurance that this extra 3d. on tea is really a war tax, and that it is not going to be kept on when the War is over. These taxes have a way of sticking on after being imposed, and I think people would pay more cheerfully now if they knew that this was only an exceptional tax for an exceptional emergency. The second point is this: I want to ask my right, hon. Friend whether he has really taken into account the position of the consumer in the amount he has fixed? In regard to the Beer Duty, he looked very carefully into the habits of the people, but I am not at all certain that the Tea Duty is equally well adjusted to the needs of the population. Hon. Members here buy their tea by the pound: that is not by any means the case with the great mass of the population. They very often buy their tea in quarter-pounds and ounces, and in some cases in the East End in pennyworths. What happens in the case of someone buying tea by the quarter-pound? I understand that already the retailer is putting up the price by 1d. on the quarter-pound to cover the tax. In other words, while the revenue is only getting 3d. per pound from the extra Tea Duty the consumer is paying 4d. in the pound. If that is so, it seems to me a very unsatisfactory way of imposing the new taxes, and I should prefer that the tax would be 2d., which would mean an extra halfpenny per quarter-pound.

Mr. LLOYD GEORGE

The eightpenny tax per pound on tea is a much better division for the quarter-pound than the fivepenny. It was one of the difficulties about the fivepenny tax that it was impossible for the small purchaser to have the benefit, whereas the 8d. works out at 2d. for every quarter-pound.

Mr. MORRELL

That may be so, but the increase is an increase of 3d. and therefore the quarter-pound is increased by 1d., which means 4d. on the pound. It may adjust itself, but I think 3d. is a wrong amount. I hope the right hon. Gentleman will consider that matter. I am informed that tea has already been raised in price by 4d. to cover the duty where it is being sold by the quarter-pound.

Mr. DENNISS

I rise to bring to the attention of the Chancellor of the Exchequer a case which I think will appeal to his sense of justice and also enlist his strong sympathy. I am going to ask him to make a concession with regard to officers serving their country at the present time and to see that this double Income Tax shall not be exacted from them. This double Income Tax is to be paid by those not serving their country in the field, bat by those who stay at home and whose money is being protected by our soldiers in the field. The officer himself should not be made to pay it. I have been in communication with the committee of which the late Lord Roberts was chairman—the Army and Navy Defence Committee of the London Chamber of Commerce—and they tell me there is an enormous amount of distress amongst the families of officers at the present time, and more distress among the families of officers than there is among the families of the working classes. All of us know that the officer has, as a rule, a very small income indeed, and that has been admitted by the House, which at the present time has delegated to a Committee the task of seeing how far they may be given adequate pay. I appeal to the Chancellor of the Exchequer to consider whether, not that the income of officers should not be taxed with this double tax when they have considerable incomes beside their pay, but that no tax should be levied upon the officer's actual pay.

Mr. LLOYD GEORGE

That is a point we are very carefully considering at the present moment.

Mr. DENNISS

I am very much obliged to the right hon. Gentleman, and I have no more to say on that point. I am quite sure many families will be very comforted to know this. Before I sit down I should like to make one more observation. I have always in the past spoken against the Tea Tax, but what I say now is, if you could make that Tea Tax 2d. and raise the rest from coffee and cocoa, it would give great relief in the country, and would be an enormous advantage to the working classes. It could be done quite easily. Of course the Government know better than I, but I make my appeal, and if it is not right they will not do it. I do not think it right to make any further criticism at this time.

7.0 P.M.

Mr. DUNDAS WHITE

There are certain considerations arising from the increasing and next year the doubling of the Income Tax that I venture to bring before my right hon. Friend the Chancellor of the Exchequer. I am fully aware that nothing can be done in regard to this matter just now, but it seems fitting that it should be raised in the Budget discussion, in order that its treatment may be kept in view. The particular matter I refer to is the effect of the doubled Income Tax in its operation under Schedule A in penalising the building of houses, and more especially the houses of the poorer classes in our midst. House building is one of the most penalised of investments. It is penalised by our present system of rating, and also under Schedule A of the Income Tax. I would be the last man to underrate the relief granted by the Chancellor of the Exchequer under Section 69 of this great Finance Act in which a rebate was allowed in respect of expenses upon repairs and maintenance of houses of certain kinds. I think I am right in saying that the maximum was only one-eighth, and so far as new houses were concerned the rebate hardly came in. With anything like a doubled Income Tax you would have a tax which, under Schedule A, taxes houses as they are built at more than two shillings in the £, which, together with the heavy rating, will penalise building and check the supply of accommodation, and will also send up house-rent. These are very serious matters, particularly in view of the fact that before long our men who are serving so gallantly at the front will be home amongst us again, and they will have the task before them of reconstituting their homes, and the demand for houses may become very acute. I know this matter cannot be dealt with now, but it should be borne in mind, because the increased taxation under Schedule A will increase the burdens on building to a far greater extent than it has ever done before.

I am not suggesting that the total taxation of landed property should be diminished, and I am not complaining of the amount, but I criticise the principle upon which it is levied under Schedule A, because the basis is not the market value but the income derived. Land may be of considerable value, and because those who own it are not using it they get off much more cheaply than they ought to do. I listened to the hon. Member for the West Derby Division of Liverpool (Mr. Rutherford) with interest when he suggested that a tax on capital would be preferable to an Income Tax, and with a great deal of what he said on that subject I agree. But any sweeping change of that kind is really not one to adopt at the present moment, and if it is to be applied it might be applied gradually. I suggest to the Committee that the first part of the Income Tax to which it should be applied is Schedule A. Under Schedules A and B there should be a clear distinction made between the land with natural resources and the land with buildings and other improvements which are the result of human industry. I would like to see that Schedule placed upon the capital value, and land itself taxed on the basis of its capital value in accordance with the principle which the hon. Member suggested. The hon. Member for West Derby and other hon. Members have spoken as if the Income Tax fell entirely on the Income Tax payers, but that is a proposition which I very much doubt.

It seems to me that when the Income Tax falls upon the Income Taxpayer one of the results will be that people will reduce their establishments and those who will suffer most by the Income Tax will not be the Income Tax payers, whose standard of comfort will be slightly lowered, but those who may be thrown out of employment and have to compete in a more congested labour market for lower wages than before. I only wish the Income Tax payer could pay, but I am afraid it may be passed on to the poorer classes who are not, technically speaking, within the range of the Income Tax. As for a tax on wages, I think the considerations I have mentioned should be borne in mind. To tax wages would be purely illusive, because wages are fixed by the state of the labour market, and wages would go down by the amount of the tax; consequently there is not much to be gained by that proposal. I join in the congratulations which have been offered to the Chancellor of the Exchequer, and to those who have assisted him, belonging to all parties in the House, in this great National War Budget. He has received the assistance of those who are generally opposed to him, and he has received congratulations from every part of the House. The criticisms which have been passed have been of the most friendly character, and none of those critics has attempted to point out a more excellent way of raising the money.

Mr. CLYNES

I find myself quite unable to share the views which have been expressed by the two speakers who last addressed the Committee. We have often heard what would be the effect of increasing the Income Tax. We have heard how it would be bound to fall upon the shoulders of the poorer people, how it would damage trade, and how those who had to pay would reduce their establishments and devise all manner of means for evading the tax. Arguments of that kind are quite new from this side of the House, and I regret to hear them expressed in this Debate. The speech of the hon. Member for Oldham (Mr. Denniss) evoked an answer from the Chancellor of the Exchequer which I was surprised to hear. As a constituent of the hon. Member for Oldham, I regret to say that I differ from him in regard to the point he raised. I understood the hon. Member for Oldham to appeal to the Chancellor of the Exchequer to take some steps whereby officers fighting at the front should be relieved from their share of the burdens imposed through the operations of this Budget, and I gathered from the interruption of the Chancellor of the Exchequer that he is considering whether something of that kind can be done. If any step is to be taken to exempt persons at the front from any of these burdens arising from the War, the same steps should apply all round and should not apply to officers any more than to the men. It cannot be an equitable arrangement to impose taxes upon private soldiers at the front and make them pay their share of the cost of the War and at the same time arrange to relieve those who would otherwise have to bear the burden of the Income Tax.

I would like to supplement what has been said from this side of the House by the hon. Member for Barnard Castle (Mr. Henderson) as to the wisdom of imposing upon this generation a very large part, if not the whole, of the cost of the War in which we are engaged. In the past posterity has been made to carry too much of the honours of war. We are providing great opportunities for those who have to follow us to apply their wealth and energies to other classes of social reform by accepting ourselves a large, if not the whole, of the share of the enormous cost of this huge undertaking. Although there is a certain amount of freedom in this Debate, despite the terms of the Resolution before the Committee, we all feel quite debarred from offering anything like the general terms of criticism which are naturally, offered at this stage of our deliberations.

We are concerned scarcely at all with the question of spending the money, and there is a common and unanimous agreement on the part of all parties in this House as to the necessity of carrying this great struggle through to a triumphant issue. But when we are considering the raising of the money we feel that in one or two respects the proposals put before the Committee are unjust and inequitable in respect of the very poorest section of the community, and therefore we offer a voice of protest from these benches. The Chancellor of the Exchequer appeared to me to fasten firmly upon the statement of my hon. Friend the Member for Barnard Castle, who suggested certain alterations to the present method of taxation, and hinted at the possibility of devising a scheme whereby taxes might be imposed upon wages. I feel myself entitled to say on behalf, not only of myself, but on behalf of all my colleagues who act with me on these benches, that we could not accept any unconditional, all-round and unregulated impost upon the wages of the working classes of this country. I am certain that it was not in that sense that the hon. Member for Barnard Castle hinted at what might be done. Undoubtedly, if such a thing were undertaken, it would mean not only the revision of our system of taxation, but an absolute revolution in our financial and fiscal arrangements, and I doubt whether for a long time to come any Chancellor of the Exchequer would agree to face so enormous a change.

But should it be faced in our time, I submit to the House that the principle commonly accepted in these Debates should apply to wages, and that principle is that taxation should be levied according to the ability of the shoulders which will have to carry the burden. Our view is that persons who are at or below anything like a decent standing of living, and whose weekly wages do not give them that level of subsistence which it is commonly agreed all people should enjoy, should not be called upon to carry any burden of taxation whatever, for the sufficient reason that they are quite unequal to it. If there is to be any change that class should be considered as a class, having the right of exemption because of its poverty and suffering, and because of the daily difficulties of meeting one's way and providing the ordinary modest necessities of existence. I regret to say that that class is a large one, and the present indirect system of taxation compels them to contribute largely to the national revenue. It is not fair that they should specially have to contribute money intended to carry through a war. The poor never made a war. It cannot be said that on any occasion in any part of the world the masses of the poor people have been the cause of a war. They have been led into it, and they have been persuaded that a war was necessary and just and righteous; but at no time can it be proved that the poor themselves were the cause of a war. Whatever may be said in this particular European War as to the concerns and interests of the poor in the struggle, no one will allege that they were the cause of it. The poor in the mass have had to fight a battle through, take their share of the risks, but I say that for the reason that they do not make wars, and have not any margin wherewith to pay for them, they should be treated delicately and justly in regard to all these imposts arising from all the enormous expenses that have to be incurred.

The hon. Baronet for the Ayr Burghs (Sir G. Younger) submitted a case which again, I understand, is to be considered by the Chancellor of the Exchequer. The hon. Baronet, I think, was quite mistaken in alleging that the Chancellor had called upon that particular section to provide him with revenue without in turn being assisted by him as he has assisted several other interests, classes, and sections in the land. The fact is that it is not the publican, or the brewer, or the trade who will provide the money. The money will be provided by the people who purchase the commodities disposed of at huge profits by those who are interested in the trade. It is the consumer—the buyer of the commodity—who will furnish the money to the Chancellor. I do not know whether the Chancellor in his further consideration of various points would be disposed to take into account a point that many of us think of very great importance. There are at this moment, as the Committee is well aware, thousands of women, young wives, left alone, some of them childless, and some of them with a few children, the husbands being away at the front. They are women for whom there is no public-house in the best or proper sense of that word. There are women for whom there is very little of a private house in the best sense of that term. Their homes, bereft of their husbands, are places they are glad to be out of. We find throughout the country that there are now discussions taking place as to the social, the moral, and domestic effects of the situation created by the husbands having gone to the front. There is talk of regulating and restricting and limiting the supply of drink to women.

I do not object to any rational arrangement or rearrangement in the matter, but I think that this is a moment when the Chancellor might consider whether some of these so-called public-houses could not be taken over by the Government, in the same way that the Government have taken over the railways, for instance, or have provided revenue in connection for certain other services. Could not the Government take over a certain number of suitable houses, recompense those who might thereby lose financially, and see whether they could not be turned into public-houses into which women could go with their children—places, in short, that would be transformed from mere drinking places into places of recreation and discussion, where there would be interchange of opinion, and where somebody perhaps could go frequently to give these women messages and counsel as to how things were going on in the interests of this country. Any money spent in that way would be well spent, and would bring in a dividend in the form of increased morality and a higher temperance standard, and would very much tend to brighten the lot and the lives of the women now suffering. That is a matter any Chancellor of the Exchequer might well consider. I know that it would be a great departure from the accepted standard of the rights of property, but those standards are always being departed from in an emergency, and it is the necessity of a case which should govern the action of any Minister.

I would like to say a word in defence of my hon. Friend the Member for Barnard Castle with respect to his statement that the rich have most to lose. It is true that the poor, equal with the rich, must share a common interest in the issues that are at stake, and we particularly are glad to see the way in which our public men and our political and national leaders of all classes are pressing to the front the issue of the ultimate destruction of the spirit of militarism in all the lands of the earth. I welcome from all parties the way in which they are recognising the enormous evil of the growth of that spirit in any part of the world where it has been able to grow, as it has done in Germany during recent years. We are quite at one with the Government as to the issues and as to the necessity of victory, but we say that the rich people are easily able to bear the burdens of this War, and that they should first and foremost be called upon to pay, because, from the standpoint of property, material interest, and position in the country, and so on, they have far more at stake than the poor people. As to comforts and as to distresses of a personal and physical character all parties are very much equal, but there certainly is a very great difference in loss of property and position as between the rich and the poor.

I have only one more remark to offer, and it is in respect of the appeal we have made to give that person described as the small investor equality of opportunity in regard to the loan which the Government is inviting. The Chancellor of the Exchequer is never at a loss for a sufficiently convincing reply, at least so far as his own supporters are concerned. I regard his answer on this occasion as an extraordinary departure from his usual line of argument. We have appealed to him to open the doors of this loan wide enough to admit the man who is able to invest less than £100. The Chancellor says, "Ah, what we want is a loan. We are not aiming at the object of paying interest. We do not want to charge 2½ per cent. obtainable at the Post Office for 4 per cent. obtainable in connection with this loan." I submit that is no-answer, for it leaves where it was the fact that those who can invest £100 get 4 per cent. with all the advantages of national security attaching to their investment while those who have their money in the Post Office are limited 23, per cent. In a sense the two persons are lending money to the same party, but they are differently treated, owing to the difference in the size of the sum they lend.

I submit that the right hon. Gentleman has not at all answered the appeal, and that some steps should be taken whereby the man with savings in the region of about £50—I would not say go down to the low level of £10—would be able to have his part in this common national loan. It ought not to be the monopoly of the man who, through very large means and resources, has the opportunity of making what is practically a very large profit out of the loan. I know, of course, the difference between a loan and the technical term that covers the money in the Post Office, but if you put the point to any ordinary working man it would strike him as being unfair. I hope the Chancellor of the Exchequer may give some consideration to that appeal we have made for some remission of the Tea Duty. It is an impost upon a very large number of poor women and their children. It cannot be classed as a luxury in the same sense as beer. It is a necessity of the table to many millions of poor people, children as well as women, and on that account there is much to be said for the appeal made to reduce it from 3d. to 2d.

Sir ARTHUR MARKHAM

The speech to which we have just listened makes me despair even in times of national danger of the Labour party ever rising to a better standard than endeavouring to make what, after all, is a purely platform speech, quite regardless of the real interests at stake. I have always voted against the Tea Duty, but this time I shall certainly vote for it, because we are living in a time of great national danger, when we cannot go into the merits of, as I have always contended, this direct tax on wages. I have hundreds of men in my employ earning from 16s. to £1 per day who pay no Income Tax. Those working minors are very much more able to pay a tax direct on their wages than the poor widow woman who has to purchase these small quantities of tea. I want to ask my right hon. Friend if he can answer me two questions. May I take the case of a limited company which makes up its accounts to December 31st. The company, say, on July 1st, declared an interim dividend, but owing to losses caused by the War it is not able to pay any further dividend for the year. That dividend was made in respect of the financial year—January 1st to December 31st. Will the Exchequer make a claim on that company for the dividend that is paid by the company on July 1st? Several business friends have asked me this question to-day, and, reading the Chancellor's speech, I am not quite able to follow. The dividend in July was an interim dividend in respect of the profits of the whole year. That is the first question I should like my right hon. Friend to answer. The next question is this: Did the Bank of England pay anything to the Exchequer for the moneys now being received in respect of the loan? My right hon. Friend knows that the bank gives no interest on customer's accounts. We have been told that £100,000,000 has already been taken on this new loan, and therefore a deposit of £2,000,000 must have been paid.

A very large amount of money has been taken from the banks during the last few days which was earning 3½ per cent., and has been transferred to the Bank of England. Is any payment being made to the Government in respect of this money, or is the bank getting the advantage of it, and, probably, lending it to banking houses in the City? Has there been any bargain with the Bank of England in this respect? Has the bank approached the Treasury to reduce the rate of interest on the loans? Is that part of the bargain which the bank is making in respect of this War stock? I do not think this is an unreasonable question. If my right hon. Friend says he does not want to answer it, I will not press it, but I have no information on the matter, and it really strikes me there must be some connection between the two things. I think very strongly the House should have, at the earliest possible date, a statement of the liabilities we have entered into in respect more particularly to the bills of exchange.

The bankers of this country, in order to have so-called liquid assets, have used the money of British depositors for the purpose, very largely, of discounting bills of German houses, and now they have had to come to the Government to help them, which, I feel, under the circumstances, the Government were bound to do. The fact of the matter is that for a long time past company banks, which formerly made advances to traders on wheat and other produce, have, in order to keep their assets liquid, for the last few years been lending money on bills of exchange to discount houses in Germany. They have, in fact, been using money which ought to have been invested in trade in this country in financing German commerce, and I want my right hon. Friend to see that the banks of this country in the future do not lend money on worthless scraps of paper, as most of these bills will, I fear, prove to be, but will revert to the old practice of making advances to traders—a practice which, to a large extent, has created the prosperity of our large industrial centres.

Colonel WALKER

I wish to refer to a remark which fell from the hon. Member for North-East Manchester (Mr. Clynes) who stated that the bulk of the War tax would be borne by working men. I would not like that impression to go forth from this House. Certain figures are to be laid before the Chancellor of the Exchequer to-morrow, when he meets a deputation of the trade, but I would like to forestal them at this moment, seeing that it is an opportune moment, and will give the right hon. Gentleman a chance of sleeping on the broad facts of the case to be presented to him. The working man is not going to pay the whole of these taxes. He will pay a great deal, of course. His share of the burden will be very heavy, but he will not pay the whole. I accept the estimate of the Chancellor of the Exchequer that there will be a diminished output of one-third, and I would like to tell him that, according to the simple figures which I have been at some pains to extract, the effect will be that, notwithstanding the heavy burden placed on working men, the wholesale and retail dealers will, in addition, also have to bear a considerable share of the burden. I will not give the figures in detail, but, boiled down, they amount to this: 17s. 3d. in duty is to be paid by the brewer. If he applies a flat rate to all kinds of beers the cost will be £1 to the retailer, and with one-third diminution of trade the actual War tax placed on the wholesale man will amount to 3s. 6d. per gallon, which he cannot get rid of in any way. Then, again, take the case of the retailer whose trade is to be diminished by one-third; the actual War tax to be paid by the licensed victuallers giving him full credit for every single half pint contained in the barrel will be 3s. 4d.

Mr. LLOYD GEORGE

One moment. Does this apply to beer of a particular gravity, or are you taking an average all over the Kingdom?

Colonel WALKER

An average over the Kingdom. I am taking a flat rate of £1, and there can be no question that per barrel the burden on the brewer in respect of this War Tax will be 3s. 6d., while on the retailer it will be 3s. 4d. That is what they will have to pay in addition to what is obtained from the working man. The latter, no doubt, will pay the piper, but he will curtail his expenditure, and hence the diminution of trade estimated by the Chancellor of the Exchequer.

Mr. OUTHWAITE

I want to say a very few words in reply to the hon. Member for North-East Manchester, who complained because the hon. Member for Bridgeton had pointed out that the Income Tax was a tax which could not be passed on. I am surprised to find a Member of the Labour party desiring to oppose such a view of the case. I take quite a different line—a line more in the interests of the workers. You have heard in the course of the Debate that one effect of the proposals of the Chancellor of the Exchequer is that too great an amount is raised by direct taxation and not sufficient by indirect taxation, and the view has been expressed that it is a great pity we do not extend the taxation on commodities. I think the right view to take is that it is absurd to suppose that Income Tax is paid entirely by the man on whom, in the first place, it falls. We have heard again and again from the Chancellor of the Exchequer, when dealing with rating questions, that the rates on houses are passed on to the occupier, and exactly the same economic process obtains with regard to taxes levied on houses. The tax levied under Schedule A—the Property Tax—is paid by the user of the house; the builder must get his profit, and the tax under Schedule A is simply passed on to the occupier, even in the case of the poorest people.

I have a case in mind of a small village in Scotland. I was talking to a builder who was putting up a few cottages to be occupied by men earning 15s. or 16s. a week, and he told me that the charge for rent included the taxes under Schedule A and the rates, ninepence being for rates and threepence for Income Tax under Schedule A. Consequently, when the Chancellor of the Exchequer puts on a double Income Tax, the workingman at 15s. or 16s. a week, instead of paying threepence Income Tax, will pay sixpence. I think it can be shown that Income Tax as a rule is passed on, and that is a reply to those who say that the people as a whole are not being sufficiently called upon to pay the cost of this War. While the Government are greatly to be congratulated on the bold step they have taken with regard to this taxation, it has to be realised that this is only the beginning. I do not believe for a moment we are going to have reduced armaments in the future. I believe this Budget, great though it is, high though the incidence of its taxation is, is only the beginning of Budgets to come in which the taxation will be greater still. Therefore I would make an appeal to the Chancellor of the Exchequer to use every effort in his power to enable us to widen the scope of our taxation and to hasten on the valuation of the land of the United Kingdom for that purpose.

Mr. MORTON

I understand that the loan is to be redeemable in thirteen years, or in ten years, at the option of the Government. With regard to the redemption in thirteen years, is that to be certain, or is it to be at the option of the Government?

Mr. LLOYD GEORGE

That is the undertaking by the Government. It is optional to pay it three years before, but payment at the end of thirteen years will be compulsory.

Mr. MORTON

That is what I want to be clear about, because it affects the market.

Question put, and agreed to.