HC Deb 23 November 1914 vol 68 cc869-908

Order for Second Reading read.

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


There are one or two questions which I should like to raise upon this Bill. First of all, I should like to ask why it is that the exemptions which were promised to us by the right hon. Gentleman the Attorney-General last Thursday or Friday with regard to the Super-tax, are not in the Bill? The right hon. Gentleman dealt with a case that might arise of an income not being as great in any given year as the return. He said that he would re-insert, with certain modifications, Clause 133 of the Act of 1842. He proceeded to deal with the Super-tax and he said that he would take similar steps in regard to the Incime Tax, always provided that the less income must be one-third of the total income. Though the promise with regard to ordinary Income Tax has been fulfilled I find there is nothing whatever in the Bill relating to Super-tax. I have heard it mentioned that the right hon. Gentleman has said that it is not necessary to put it into the Bill, because the collectors of Inland Revenue will have instructions to give this abatement should the circumstances arise. That is a very novel proceeding for any Government, most of all for a Government composed of right hon. and hon. Gentlemen opposite, who have always held that the House of Commons should have control over finance, and that a financial measure enacted by the House of Commons should be effective. The Attorney-General is proposing to override an Act of Parliament, and that is a thing which cannot be allowed for a moment. Therefore I wish to put in an Amendment which would include the Super-tax for exemption in a similar way to the Income Tax.

A very important question arises upon Clause 13. The Financial Secretary will remember that on Friday on the Resolution being read from the Chair I asked what was the effect of that Resolution. I had not a copy of the Resolution with me at that time, and the hon. Gentleman informed me that my suspicions were correct, and that the Resolution did authorise—and I am glad that certain hon. Members are present on the opposite side because unless they have made a very careful study of the Resolution they would not know what was in it—that that Resolution did authorise the Government to raise any sum of money they liked without the authority of this House. The hon. Member said that the Clause probably would not be so bad as that. I have a copy of the Clause, and though on the face of it it might be held by anyone who reads it not very carefully through that the amount which could be borrowed was limited by the War Loan Act of 1914, if you look at the War Loan Act of 1914, and study the Clause carefully of that Act, you will find that this Clause actually gives power to the Government to raise any sum of money they like by way of loan, without the authority of the House of Commons.

I do not know what the Leader of the Opposition and others will say upon this matter, but I must say that though I have hitherto given a loyal support to the Government, and have raised no objection to any of their measures, I cannot allow any Government to come down to the House of Commons and to take power in this way. The Clause is so drafted that unless you are very very careful and read it up with the Act of 1914, and are suspicious by nature, that it would be considered all right. The ordinary innocent Member of Parliament would look at this and say that it was all right, but it is not so. My hon. Friend for one of the Divisions of Middlesex was taken in by it. He said, "Oh, you are wrong. It limits the amount to the amount authorised by the War Loan Act of 1914." That is apparently what it does, but it does nothing of the sort. It allows them to raise any amount of money they like by loan up to £1,000,000,000 or £2,000,000,000 without coming to this House. Such a thing was never known in this House before, and the right hon. Gentleman opposite admits it, and he admitted it last Friday. I say that no Government or the House of Commons should allow such a thing to pass. It is not necessary at the present moment, when the Government have no opposition from this side of the House to their financial measures. It is not treating the Opposition with courtesy, when they have been so kind and have abrogated their powers of opposition, and have accepted everything the Government has done; it is not treating them fairly that the Government should come down and in rather a surreptitious way try to obtain vast powers of this sort. I am surprised that the Government should have done it, when we know that only a short time ago they said that so important was the interest of the House of Commons in retaining control over finance that even the House of Lords should have nothing to do with it. Now they come and say, "The Government can do anything they like without consulting the House of Commons. At a time when we have borrowed £350,000,000 we ought to be allowed to borrow any amount we like." That is a power the House of Commons has always refused to give to any Government. I did not intend to speak so warmly upon this subject, but I do not think that we are being treated well in return for the support we have given to the Government when Clauses of this sort are being put into the Bill, and I shall certainly, when the Question is put, "That this Clause stand part of the Bill," vote against it if I can get anyone to tell with me.


It has been indeed a unique experience in the House of Commons to find all the usual forms of criticism of a Government's financial proposals abandoned, and the whole House, irrespective of party, prepared to make all necessary financial sacrifices to provide the money needed by the Government to-day for the successful prosecution of this War. To have the sum of £535,000,000, either to raise or to borrow in one year, is indeed stupendous, especially when our national income is supposed not to exceed £2,300,000,000 a year. We have a deficit of £339,000,000. I believe that in all quarters of the House the determination of the Chancellor of the Exchequer that whilst we must resort to a large extent to borrowing powers, yet that, on the other hand, it is our duty in the interests of sound finance and the best interests of the nation that we should largely impose taxation, even if the current financial year is approved of everywhere, but the question is as to how those financial provisions can be most justly and equitably made in the interests of the whole body of the taxpayers in this country.

I agree with the hon. Baronet the Member for the City of London in his statement the other day as to the great variation in the financial effect of this terrible War upon the various districts of the United Kingdom. In Northumberland the whole of the collieries in that county depend upon export trade to the Continent of Europe, and I do not hesitate to say today that they are losing most heavily, whilst, on the other hand, the steam coal collieries of South Wales are reaping a rich harvest. On the one hand, we have the cotton trade in the same unsatisfactory position, whilst, on the other hand, the various woollen manufactures in Yorkshire are working night and day, and, I have no doubt, reaping a harvest. The important question the Chancellor of the Exchequer is bound to consider is how nearly he can go in the levying of this new taxation to give effect to that sound principle of the equal incidence of taxation. It certainly cannot be contended for one moment that the coal owners of Northumberland are in the same position to pay an equal amount with the owners of the steam coal collieries of South Wales, or that the cotton traders of Lancashire can pay with equal ease the same imposition of taxation as can readily be borne by the woollen manufacturers of Yorkshire.

If I might venture, with all humility, to make a suggestion to the Government it would be this: that they should levy their new taxes in the simplest possible way. With regard to both Income Tax and Super-tax, up to the 31st March next, the ordinary assessments have, I believe, been agreed upon. Why should they not allow these assessments to stand both for Income Tax and Super-tax, and become payable as provided by law on 1st January next, and then turn their attention, as a separate question, to the special War Taxes which they are going to impose upon us for the last four months of the present financial year. Why should not we adopt the principle and simplify the whole financial situation by determining that these special War Taxes shall be imposed upon the actual income of the year on the taxpayers of this country. I know that the Chancellor of the Exchequer might say that that would cause delay in getting in these new taxes. There is to be delay in getting in the new taxes. What is it that is proposed at the present time? As I understand it, the Income Tax as assessed is to be paid in January, but we are always to be enabled to make a reclaim if the income of this current year is less than the average of the three years past, including the current year. Then, with regard to the Super-tax.

Bearing in mind that the only right principle of taxation is that every man should be taxed according to his ability to pay, and that there should be an equal incidence of taxation so far as it is possible to obtain them, what does the House think of financial proposals which in the case of two men who enjoyed an income of £6,000 in the year 1913 worked out this way? We are told that if for "circumstances attributed directly or indirectly to the present War," the taxpayer can establish before the proper authorities the fact that his income through these circumstances has been reduced by one-third, then the payment of the Super-tax to the amount of that one-third shall be cancelled. In the case of a man who is able to prove that his income in 1913 has fallen in 1914 to £4,000, he is only asked to pay £79 3s. 4d., but if by any chance another man who had an equal income in 1913 is only able to show that his income has fallen to £4,001, he gets no relief whatsoever, and he has to pay £245 16s. 8d. In these two cases, of two men with equal incomes the man who establishes the fact that his income is reduced by one-third pays only 4¾d. in the pound, whereas the other man with practically the same income only £1 more, has to pay 1s. 2¾d. in the pound upon his actual income. I leave it to the Chancellor of the Exchequer and his advisers to say how far that principle of taxation satisfies the true principle of equal incidents of taxes. I say it is most unequal and unjust. And I say more, that you are doing it in a most complicated and inconvenient fashion, and that it will cause trouble and heartburning to the Super-tax payers in this country.

You have to go and prove before the Commissioners of Income Tax that "circumstances attributable either directly or indirectly to the present War" have caused that reduction in your income. I venture to say it would be past the wit of man to show in many cases how far the diminution in income is wholly or partly attributable to the circumstances of the War. It is absolutely impossible, and therefore the only sound and equitable principle upon which these War Taxes ought to be imposed is to tax every taxpayer upon his actual income. What would be the financial effect? Leaving the assessment for Income Tax and Super-tax already agreed upon in force, three-fourths of the Income Tax and Super-tax would be received in January next, whereas by the postponement of the payment of the new special War Taxes until say the end of April of next year it would be quite possible that each taxpayers' income for 1914 would be actually and correctly assessed, and that it would be quite possible for the Government to levy these special War Taxes upon a man's actual income for the year. That seems to me to be a much simpler method of dealing with the matter than that proposed by the Government, and it has this great advantage that it is absolutely equitable. I venture, not as a financial authority, to make that suggestion to the Government, and I ask them to give some consideration to the aspect of the question which I have presented. I also hope before long that we shall be able to take all the taxes off the breakfast table and substitute a graduated tax on income, and a tax on wages earned above a certain limit throughout the whole country. But that time is not yet. The new taxation arrangements proposed by the Government are much more complicated than is necessary, and they would vastly simplify and facilitate the getting in of the National Income were they to determine that they would brush aside all the complicated arrangements for agreeing as to assessments, and would say once and for all that the true principle of taxation is to tax every man on a graduated scale according to his precise income for the year.


With regard to the very interesting speech made by my hon. Friend the Member for Barnard Castle (Mr. Henderson) I would like to say one or two words. He said something which would interest every Member of the Committee in regard to the taxation of wages, and his speech raised a great deal of interest and comment from all quarters of the House. Only one hon. Member opposite raised any opposition to the general proposal on its merits. The Chancellor of the Exchequer, in his reference to this subject, said the Government would postpone consideration of it for the present. I am glad that postponement was announced, because whatever the merits or demerits of a tax on wages may be, I am convinced that so far-reaching a proposal as that ought not to be carried into effect in time of war. When the Chancellor of the Exchequer uttered the words "for the present" I hope they covered not only the present financial year, but at least the next financial year. No country in the world at the present time levies a tax on wages. It is not always a good thing to be guided by what other countries do or do not, and this obviously is a proposal which ought to be considered on its merits. It certainly is suggested that no other country has yet done this, and before we rush into it we ought to consider it carefully. On the face of it it sounds attractive. For these indirect taxes, which some of us deplore, we feel that something has to be substituted. The wages bill of the country is estimated by some people at £750,000,000. If you levy 1d. in the £ on that total you get, roughly, £3,000,000, so that a 6d. tax would yield about £18,000,000, but directly you are faced with the direct taxation of the working classes of the country you are presented with a very great problem.

I would like to refer to what was said by the right hon. Gentleman the Member for Spen Valley (Sir T. Whittaker) in his speech on this subject the other day. In accepting this principle he laid down a proviso that he would not consent to the direct taxation on wages below a certain level. Let us see where that leads us. It is a very old principle, some people think it is a principle of modern Socialism, but it is nothing of the kind, because it was accepted by Mill in 1848, who accepted the verdict of Bentham. There is in our society a very large number of people who are too poor to bear taxation in any shape or form, with regard to whom you have no right to levy taxes. When you take a society like ours, and take up the question of what persons should bear or should not bear taxation, you have to consider the whole wealth of the country and what social life is at the present time. When you take the wages bill of £750,000,000 and take out of it the people who ought not to be taxed, you will find that it makes a very great difference in the total. For example, you cannot tax the part of the wages bill which is drawn by boys and girls or women, and when you take those out you make a very great inroad into the total. If you take the case of the men then you are faced with a number of agricultural labourers earning less than £1 a week, and you do not feel that they are fit subjects for taxation. If you take 25s. a week as the level below which you do not feel it possible to go you take a large amount out of the total and you will find your £750,000,000 of wages very seriously diminished, and that will take a very large amount of the gilt off the gingerbread, and you will begin to wonder whether the rest is worth while.

You will begin to wonder whether it is worth while to do this in the case of the workmen earning from 35s. to £2 per week. You have also to consider the cost of collecting and difficulties and natural suspicions which are bound to arise. I think it would be wrong for us to sum up for or against this proposal at the present time, and I should not have troubled the House with these remarks but for the way in which so many hon. Members have committed themselves to this proposal. I have made these remarks because I have just a fear in my mind that next year in March, when we know a little better what this War is going to cost, and when another War Budget will have to be framed, there is just the fear of a hasty proposal being put before the House of Commons, and it is with that fear in my mind that I have ventured to address these few remarks to the House. I suggest that there is one other way of taxing wages, which is, perhaps, a better way, and that is to lower your Income Tax level to the old level, which I think is a much better one. You might lower the scale down to £120 or even £105 a year, and then do your best to bring every working man in the country above that level.


I intervene to ask a question which was raised when one of the Resolutions upon which this Bill is founded was before the House last week. It is the question which was asked by the hon. Member for Oldham (Mr. Denniss), whether, in respect to the increased Income Tax, any consideration is going to be shown in the cases of members of the Force serving in the field? The increased Income Tax bears very hardly upon some of these men, who certainly have very exceptional claims upon us. Some of us have received letters giving some idea of the dismay on this subject which those who have enlisted will feel if they are going to be asked to pay upon this terribly severe scale. I do not wish to hurry a reply, because the right hon. Gentleman was kind enough to say last week that consideration was being given to the matter, but if that consideration has made any progress, I should like to know what is going to be done in the matter before we reach the Income Tax Clause.


I wish to raise a point in connection with the relief promise in respect of the diminution of income. I raise this question in connection with small property owners. I think Clause 12 is very complicated, and it is difficult for every Income Tax payer to understand it. I think we ought to utter a very strong protest in a matter of this kind, when it is proposed to give relief to Income Tax payers, that we should have so many references to past Acts of Parliament or to Sections of Acts of Parliament. The speech of my hon. Friend the Member for East Northamptonshire was a very interesting one, but it was a speech by reference, because he referred us to Mill and then from Mill to Bentham. But this Clause is worse than that, because it really refers us back to an Act of 1842, then to Acts of 1865 and 1907, and then to Sections 34 of the Act of 1842. I should like to know how any Income Tax payer in this country—whether he is an ordinary Income Tax payer or comes within the definition of my hon. Friend who is so much concerned about the Super-tax payer—will really understand how to obtain his relief without referring the matter to a solicitor for explanation. Under this Bill I think there is a section of the Income Tax payers who will be hit very hardly indeed, and I should like to appeal to the right hon. Gentleman the Member for West Birmingham (Mr. Chamberlain) on this point, because he raised a similar point when the Emergency Powers Bill was under consideration. I think the right hon. Gentleman has a great feeling for the spinster and the widow. There are a large number of ladies who live upon an income derived from property, and I am speaking in the sense of small property owners.

Take the case of a woman who is in receipt of £200 a year derived from property. She has to pay an Income Tax of 1s. 2d. in the £, and she gets a rebate of £160, and that leaves her a net £40 upon which she has to pay Income Tax. If she has a reduction in her rents during the War, or under the Emergency Powers Act, some relief is given to the tenants and pressure is not brought to bear upon them; if there is a further reduction of £20 to £30 per year in that income of £200 caused by loss of rent, that woman would have to pay on her £40 as long as those tenants in default remained in her property. I have put this question to the Chancellor of the Exchequer and also to the Attorney-General, and there is a very strong feeling indeed that during the War there will be some very large losses in rent. I think if these property owners can in any way show that in any given year a loss of rent takes place relief should be given for that loss, and the owner of such property should not be called upon to pay full Income Tax upon the £40 in such cases. I hope that we shall have some satisfactory reply from the Financial Secretary, because this matter is receiving a great deal of attention in the country, and I have been asked by several people to make this representation in the House with a view of obtaining relief for such property owners, and also of asking a man or a woman to pay upon the actual amount received in the form of rent. I concur entirely in the point raised by the hon. Baronet the Member for the City of London (Sir F. Banbury). Clause 13 is another Clause by reference, and in order to ascertain what it means with regard to disqualification we should have to search the Act of 1872. If there is anything in this Clause which gives power to the Government to borrow beyond £350,000,000 I agree that no such power should be given. Whenever the Government require to raise money beyond the £350,000,000 which we have already sanctioned, they should come back to the House. I understood from the Chancellor when he made his speech upon the loan that it was his intention to ask the House to give him money to go right up to July, and that then, when the loan was completed, he would come back to the House and ask for further powers. We all agree with the point raised by the hon. Baronet, and I hope that we shall have a satisfactory reply from the Under-Secretary.


It is well known on all sides that we are most ready to contribute to the enormous expenditure we are now incurring, and therefore much criticism is altogether beside the mark. If we had any doubts about our readiness or willingness to contribute this sum of money it would be right that the nation should remember how very much worse off we should be if the Germans ruled over here. I want to put on record one or two views. It must be admitted that the taxes that are now being put on are enormous. After all, a 2s. 6d. Income Tax is one-eighth of one's income, and in the case of a double Super-tax it may mean, as the White Paper has shown, even more than one-fourth of a man's income, and we know not what more may come in the future. The fact remains that they are enormous and ought to be diminished as soon as a reasonable opportunity occurs. I have often urged, inside and outside this House, that the Income Tax was, and ought to be, really an emergency tax, that it was a war tax, or a tax for some great emergency. No doubt it comes in at the present moment, but it is legitimate to say that if the Income Tax had not been so enormously raised by the present Government in the past few years there would have been a much greater margin for us to call upon now in our dire need and necessity. It is necessary also to observe that the greater proportion which is being charged to direct taxation as against indirect taxation seems to me to be going a very long way. I know there are some hon. Members opposite who would do away with indirect taxation altogether. I am not sure that is the general view of all Members in this House, or of all parties, but if the old tenets of taxation are going to be maintained I do not think we ought to encroach more upon the proportion of direct taxation to that of indirect taxation, and I hope future Chancellors of the Exchequer when they have to deal with more peaceful times may bear out that general proposition.

Something, perhaps, is to be said for imposing at this moment rather more of a capital charge by way of loan. I do not wish to press that very strongly, but it is right to call the attention of the House to the fact that those in trades and industries are bearing a very heavy charge at this moment, while they have complete uncertainty as to the difficulties in their trades which they may have to face immediately. If they were given somewhat longer notice of the great increase in taxation, they might be better able to provide for the uncertainties which undoubtedly await them. It is only from that point of view I venture to suggest that this moment is not perhaps quite opportune for suddenly raising the Income Tax to so enormous a figure. It might be that in a few months the trades and industries to which I refer would be better able to look round and consider their position, but this particular moment is one which, as I am informed, places them in very considerable difficulty in certain cases, and it might be worth while to endeavour to mitigate the charge in so far as it hampers British trade in this respect. I wish that other articles as well as tea and beer had been taxed. I think it is rather a narrow point of view to take to select these two articles only when imposing such vast taxes as we are at the present time, more particularly in the case of tea, when, as my right hon. Friend below me (Mr. Chamberlain) has already pointed out, much of it conies from India and Ceylon.

I do not want to say anything that could possibly be of any use to our enemies, but I cannot myself see any objection to placing on record my view that it would have been far better if more articles had been the subject of Customs Duties, and if, in fact, we had adopted Tariff Reform from a general point of view, if only to obtain the greater revenue which we desire. I know it is not necessary or perhaps right from a patriotic point of view to raise any controversial topic, but in so far as that can make no difficulty and give no help to our enemies I think that some of us on this side who have strong views on that policy are justified in stating that if we had had the framing of this Budget at the present time we should have expanded the area of taxation very much more considerably than is done in the present instance. I have very little to say as regards the loan that is proposed to be raised. The investor is to put out his money at 4 per cent., though, of course, the yield will be somewhat less with a very high Income Tax. Then he is invited at the same moment to borrow money for his investment from the Bank of England at 4 per cent. It is an ingenious and rather curious proposal, no doubt without precedent, and I hope certainly that under more normal conditions it will not be attempted to be followed. Under present conditions, however, I am quite willing to accept it as a patriotic investment, and, as such, I hope that the loan will be subscribed for many times over. I need scarcely say that it is as safe as it is patriotic.


I should like to draw the attention of the Financial Secretary to the Treasury to the question of the incidence of the Income Tax, especially with regard to Schedule B. The time has really arrived when the agriculturists of this country ought to be asked to pay a fair share of Income Tax, and I do not think they could, on this occasion, complain. They have had ten very good years to my knowledge, and at the present time they are practically escaping Income Tax altogether. I was talking at the tea table this evening with four Members of this House, three of whom are, I believe, right hon. Gentlemen, and not one of them could tell me how the farmer was assessed for Income Tax purposes. I believe a good deal of ignorance exists with regard to this matter. They are assessed under Schedule B. The farmer is supposed not to be able to keep accounts, and therefore he has to pay on one-third of his rental. What does that mean? It means that a farmer who is farming 500 acres of land at £1 per acre—he would be a considerable farmer to farm 500 acres—actually gets off Income Tax altogether. We have hundreds of farmers, I know in the Eastern counties, farming 500 acres of land and making £600, £700, and £800 a year, and yet not paying one farthing Income Tax at the present time. If we divide £500 by three, we get £166. Then they get the abatement of £160, a further abatement if they have any children, and a still further abatement for insurance.

Take the case of a much larger farmer. Take the farmer farming 1,000 acres at £1 per acre, which is a fair average rent. A third of £1,000 is £330. That brings him under £400, and he therefore gets his abatement of £160, a further abatement for each child under sixteen and a still further abatement if his life is insured. You may therefore safely say that a man farming 1,000 acres only pays Income Tax on £150 a year. It is absurd to suggest that our agriculturists do not make more profit than that. The Financial Secretary to the Treasury represents an agricultural constituency, and so do I. Probably I am a bold man in speaking on this subject, but I venture to say that the farmers in my Constituency are willing to bear their share of the burden at this time of crisis, and this is a fair opportunity, therefore, to revise that Schedule B. Before 1893 they paid upon half of their rental. We then had a succession of wet seasons, and Sir William Harcourt, who was Chancellor of the Exchequer, was appealed to, and, considering that the farmers had then had ten very bad years, he brought down Schedule B to one-third of the rental. Now, after ten good years, I think the time has arrived when it might be put up, at any rate, to where it was in 1893. If that were done, my own impression is that it would bring a very considerable sum into the Treasury. I venture to put this view before the Government. I believe our agriculturists throughout the country would be willing, and, as I say, anxious to pay their fair share of Income Tax, and I hope some revision of that kind may be made, if not now, at any rate when the next financial year comes into existence.

7.0 P.M.


The hon. Member who has just addressed the House has called attention to a very important point indeed with regard to the levying of Income Tax. It has appeared to me for many years that the agriculturist has not been called upon to pay a fair share. If he came under another Schedule he would be obliged to keep accounts, and would, as a result, I think, become a better farmer, because he would then know what his income really was. The principle underlying the present system is lax, and I trust that the Chancellor of the Exchequer will pay attention to the excellent speech of my hon. Friend. With regard to the general question of the Finance Bill, I find it distinctly difficult to realise the enormous cost of the war. I have endeavoured to make the matter clear to my own mind by estimating the proportion which the cost bears to the total income from all sources in the country. I understand that the total annual revenue of the United Kingdom is something over £2,000,000,000 a year. The cost of the War will represent, I believe, one-fifth of the total national revenue, or probably one-fourth—4s. or 5s. in the £ on the earnings of the country. I call attention to this because I think it will emphasise the fact that it is essential we should bring this War to an early conclusion, so as to put an end to this enormous drain as soon as possible.

Economic causes will be the chief means of bringing the War to an end. In Germany probably one-half of the total national income is being spent on the War. In this country it is costing us £1,000,000 a day. To Germany the cost is probably £3,000,000 a day, and I would ask how long can any country, even a wealthy country like Germany, which probably is about equal in wealth to this country—how long can it exist when spending half the national income on a war? Surely it must mean that, before very long, nearly one-half of the German people will have to depend upon charitable doles! With an early defeat at the front, I believe there will be popular discord and discontent in Germany, and revolution will follow.

The hon. Member for Barnard Castle (Mr. Henderson) a few day ago referred to the desirability of taxing the wages of the working people of this country. The Home Secretary, some few years ago I remember, standing at the Table, expressed the same opinion, and I think the whole of the Members of this House will agree that it is the best course to take, so far as the principle is concerned. It would be a good thing to have an Income Tax, graduated according to the incomes of those who constitute the community. But an hon. Member who spoke just now pointed out the difficulty of carrying such a proposal into effect, and I, too, am afraid it would be insurmountable. Still there is a way of meeting the difficulty by making the amount on which Income Tax becomes payable lower than it is at the present moment. In my opinion it would be far better for the working classes of this country to know exactly what they are paying in taxation. It would induce them to take a great deal more interest in the financial business of the country.

The hon. Member for Barnard Castle also pointed out the effect of the Tea Duty on the incomes of the working classes. He said there were 2,000,000 families whose income was about £1 per week on the average; that they used on the average one pound in weight of tea a week and that of course represents an Income Tax on them of 8d. in the £. An hon. Member near me says that they do not use that quantity. I agree, but the argument of the hon. Member for Barnard Castle is perfectly sound in principle. This duty is an exceedingly heavy Income Tax on poor people. In the whole of the United Kingdom there are 9,000,000 families. Taking the whole tax at 8d. as yielding £9,000,000, each family contributes;£1 per year; that would represent a tax of 5d. and not 8d. per week, as represented by the hon. Member for Barnard Castle. In calling attention to this matter, I only suggest that the hon. Gentleman rather overestimated the facts with regard to poor people. In Ireland, where people are generally poor, I believe, from particulars I have been able to obtain, the amount paid there amounts to about 6d. per week per family.

As regards the incidence of Income Tax, at the present time one-tenth of the income of Income Tax payers goes towards the revenue, this including Income Tax and Death and Estate Duty. The very rich pay one-fourth of their income, when you include Income Tax, Estate Duty, Death Duty, and insurance. Although this tax appears to be extremely heavy when put in that light, I think the Chancellor of the Exchequer has taken the absolutely right course in throwing the largest burden on the wealthy rather than in taxing the poorer members of the community It is sound policy, because I believe that by taxing the rich, you prevent a great deal of expenditure on luxuries, which means the employment of less labour than when the same sum of money is spent on necessities which, as is well known, involve the employment of more labour. May I also call attention to the position occupied by the French Government, and compare it with our own. The French financial position is this: They have about £1,200,000,000 of debt. In this present War they have a very large saving of expenditure as compared with ourselves, inasmuch as their soldiers only receive 7d. per week, as against the 7s. and upwards paid to our soldiers. That, of course, represents a very large saving which amounts, including their separation allowances, to about £70,000,000 a year. The French separation allowance for the wife is 1s. per day, with an additional 50 centimes for each child, and before this allowance is payable the recipient has to show that she is without the indispensable necessities of life. I should like the people of this country to realise how much better we can afford to be generous than a country like France. It is interesting to be able to point out the extraordinarily better position we here are in with regard to those who are righting for us at the front. We are able to treat them much better than our Allies can treat the soldiers who are fighting for them.

There is one interesting fact which the Chancellor of the Exchequer referred to the other day, and that was with regard to the loan which has just been issued, and for which there has been such a great rush. I am glad it should have been so. It is apparently a 4 per cent. guaranteed loan, and, therefore, I am not surprised at the demand for it. Some hon. Members, however, thought it would have been wise if the Government had allowed their Savings Bank depositors to invest in the loan, but, as the Chancellor of the Exchequer pointed out, that would have involved a great national loss. In Germany the depositors in the Government Savings Banks were allowed to invest in their loan, but then they were in a different position. They were entitled to 5 per cent. interest on their savings up to the sum of £200, and, therefore, the German Government would have made no loss in allowing them to invest their money in Government stock. In this country we obtain a very great proportion of our revenue from duties on alcoholic liquors, and these duties are further increased by the present Budget. I would like to call attention to what Russia is doing with regard to the sale of alcoholic liquors. In that country, a law was passed at the commencement of the War entirely suppressing the sale of vodka, the revenue from which had amounted to £90,000,000 per year. While we are endeavouring to get revenue from the sale of alcohol, Russia is taking the other view, and is entirely suppressing the sale with admirable consequences. I should like to read an extract from an article which appeared in the "Manchester Guardian" on Friday last:— The prohibition of the sale of vodka has had a most beneficial effect on the life of the peasants and artisans. All the money that is being earned goes into business for its extension. There are no longer drunken brawls in the streets, or scandals in the families..… People have become somehow different. Tramps are no longer seen in the streets, everybody is dressed in good clothes and has decent boots on his feet. Soon there will be the season of marriages. Formerly at each wedding spirits were consumed to the amount of at least £12. The article goes on to say: The material condition of the peasantry is perceptibly improving, the population is physically growing stronger, and is morally undergoing great change. Everything is new; there are fewer litigations at the courts, and the doctors notice that the number of sick is getting less. I am not asking the House to make any deductions from what I have read; I am only calling attention to a very important fact which is well worth the consideration of this House. I am not one of those who propose to do anything in the way of destroying the licensed trade or any other trade without proper compensation, but I do say this of the drink traffic, that it would be well if we considered carefully what the Russians have done in regard to the sale of alcohol in that country. The hon. Member for North-East Manchester (Mr. Clynes) made a suggestion that as there were so many wives whose husbands had gone to the front who had a certain amount of money coming into their homes, and who went into the public-houses to hear the news and so forth, the Government might buy up some of these public-houses in various localities and turn them into clubs or places where the women might go and get refreshment.


That could not be done under this Bill.


I am sorry if I am exceeding the limits of order. I have said all that I want to say, and I thank hon. Members for their kind attention.


I wish to ask a question, which has been put before me by many of my own Constituents and other people, with regard to the date of the payment of these largely increased duties. There are a great many people who are living very close up to their incomes who will find that these new and increased duties will come down upon them with exceeding severity. The suggestion I should like to make to the right hon. Gentleman is that some means should be found by which those payments could be spread over a period, in the same manner as Death Duties are spread over a series of instalments, although they may be paid down at once. I am sure it would greatly facilitate the collection of the duties, which fall exceedingly hard upon a considerable number of people. Indeed, there are rich people who may have to pay large sums upon a particular date who are not in the habit of keeping enormous balances beside them, especially at the present time, so that they are unable at a moment's notice to defray largely increased taxation. It would be in the interest of the revenue itself if some opportunity were given for paying these exceedingly high duties by instalments.

There is another point to which I invite the right hon. Gentleman's attention. A great many people find it exceedingly difficult to understand exactly what is meant by "loss or diminution of income due to the War." It may be perfectly easy to discover that if you are a trader or manufacturer, but in the case already alluded to by a previous speaker, namely, that of rents, it is quite clear that, owing to stringency, there will be during this War a large number of tenants which will go to their landlords and ask to have the payment of their rents postponed. Is that contingency contemplated, and will that be a diminution of loss of income which can be attributed properly to the War? Another point also arises in the case of people who have fixed incomes. I suppose we have all suffered in the last few months owing to the announcement made by a large number of companies that their dividends are postponed owing to financial stringency due to the uncertainty of the War. I would like to ask for some assistance from the Treasury as to whether postponement of payment of dividends either by companies in this country or by foreign companies or even by foreign Governments, due to financial stringency in this country, will fall within the general exemption which the Chancellor of the Exchequer is making in favour of the Income Tax payer when his income has been diminished owing to causes due to the War.


This seems to me to be an occasion of intense and great historic interest. My only object is to assist my right hon. Friend the Chancellor of the Exchequer, who is so very ably represented at this moment by the Secretary to the Treasury. Everyone who has listened to the Debate will agree that it has been most informing and full of the most useful suggestions for the Chancellor of the Exchequer. My right hon. Friend gave us a most concise and interesting historic summary with regard to the finance of wars when he made his statement the other night. He alluded to the three occasions on which this country was in a similar position to that in which it now is, and he told us in a few words what the Chancellors of the Exchequer did. He then derived from that an argument which we thought he was going to press to its logical conclusion. He told us that Mr. Gladstone, when he had a great war to face, provided six-elevenths of the cost of the war out of current revenue, and that when Mr. Pitt in the earlier part of the century was faced with a great European war he provided five-elevenths of the cost out of current revenue. In the later days within our own memories, when Sir Michael Hicks-Beach had to finance a very costly war, I think I am right in saying, although the Chancellor of the Exchequer did not mention the fraction, that Sir Michael Hicks-Beach provided two-fifths of the cost of the war out of revenue. The Chancellor of the Exchequer then gave us interesting figures as to what was going on now. Roundly, £100,000,000 has been spent, and the War has gone on three and a half months; yet we have paid nothing in taxation until Wednesday morning. The right hon. Gentleman explained that his difficulties were increased by the fact that his revenue would be £11,000,000 short. He said that we had been reminded that afternoon that the country was never so strong in a time of war as it was on this occasion. Therefore we all thought that the Chancellor of the Exchequer was going to do better than any previous Chancellor of the Exchequer. What was the end to which he seemed to bring us? That he is only going to pay 4.2 of the cost of the War out of revenue in the four months ending 31st March next. The whole of the taxation, he said, would only produce £15,500,000, and as £11,500,000 are required to meet shortage of revenue, there will be only £4,000,000 left.

That is to be the only immediate cash contribution of this rich nation to the cost of the War for the first four months. It is approved by the House generally, and by those claiming to be financial experts on this side of the House. It is an interesting position which might well be considered for a moment or two. The Chancellor of the Exchequer made an interesting statement in introducing his special taxes. He referred to the tax raised on spirits six years ago, which was a very heavy tax and shocked those who represented that trade. He said it brought him in no revenue for the next two years. We have not had that information given to us before, but it is obviously very important. I think my right hon. Friend may have forgotten the lesson that he ought to have learnt from that tax. He wants revenue now, and he thinks the way to get it is to raise the taxes suddenly to a large amount. If he will look into the history of this question he will see that at the beginning of the last century this House doubled the taxes, and, at the doubled rate, got less revenue than it would have received at the original one. Taxes are very subtle things, and you can raise them to a point at which they cease to be productive. I remember the very interesting Budget with regard to the war in South Africa.

I remember Sir Michael Hicks-Beach coming down here with some marvellous Budgets. I admired the way in which he did it, and I congratulated him on the success of his financial proposals. One of the new taxes he proposed was a new tax on cheques of a penny per cheque. He said that the original penny on the cheque produced £1,500,000, and that if the rate was doubled he would get £3,000,000. The House was amazed that his advisers at the Treasury should have allowed such an idea to develop in the mind of the Chancellor of the Exchequer, and was able to show him soon that, instead of the produce of the Cheque Tax being doubled, people would abandon the use of cheques, and the product would probably fall to half. My right hon. Friend the Chancellor of the Exchequer might have remembered, and I would suggest it to him if he were here, that it is possible to raise a tax suddenly and not get the money at all. The House has accepted the proposals of my right hon. Friend. What are his proposals? A doubled Income Tax, a trebled Beer Tax, and an addition to the Tea Tax of 60 per cent. I say no more about the Income Tax payers than that the taxation of the rich may be raised to a point where it can hardly fail to be productive.


Then there will be no more rich.


Then there will be an end of it. I leave the right hon. Baronet's suggestion to be considered by the House. With regard to beer, here the tax is trebled, which is far more than was done in the case of whisky. Yet the result of the experiment of the Whisky Tax was no money. How do we know that my right hon. Friend will get any money out of the gigantic tax on beer? There are special reasons which affect this Beer Tax which one cannot but see at this moment. Public-houses have to keep short hours now, and quite rightly. I like to see experiments in restriction. I do not believe that any nation would be ultimately the poorer by it, but the Chancellor of the Exchequer estimates that the takings of the beer industry will diminish by 35 per cent. How can it stand a diminution of 35 per cent. at this moment? If the object is to get revenue, I should not be surprised if there is a great disappointment there, and equally so with regard to the Tea Tax. At this very time, the export of tea is forbidden. That is a great blow to the industry. At the same time you raise the tax by 60 per cent. We had an eightpenny tea duty in 1904; it could only be kept on a year. The diminution in consumption was so serious that it was suddenly abolished within fifteen months of its imposition, so that this tax, too, may be disappointing in its yield because of the heavy amount that is laid on. It had previously been raised from 4d. to 6d., and that caused an immediate decrease in productivity. That is a matter which wants to be watched in the most subtle way if you are to get revenue. I know my right hon. Friend would say that this criticism is all very well, but we must make other suggestions to him. But we are not asked for suggestions. The thing is brought down and laid before us complete and we are going to swallow it with the most wonderful patience. I have nothing to say against it. I am only making these few suggestions from a helpful point of view.

Some most interesting suggestions have been made, and one put forward by the right hon. Gentleman (Mr. Chamberlain) was so important that I must allude to it. It is a suggestion which is not generally received on this side of the House, but it ought to be listened to with more patience now. He said that we must, if we are going to raise indirect taxation, find more subjects of taxation. We immediately suspected that he was suggesting Tariff Reform, and an hon. Member, less discreet than himself, used those very words this afternoon. But you can increase the subjects of taxation in accordance with Free Trade principles. There is no need to bring in Tariff Reform. The principle of Free Trade only requires that if you lay on a heavy Customs Duty and the object is produced in this country, there should be a corresponding Excise Duty. Once you observe that principle you might increase the number of subjects of taxation as much as you like.

Why was not the Tea Duty raised more moderately, say, to sixpence, and a email duty imposed on cocoa and coffee? Sixpence a pound on cocoa would produce £1,250,000 of additional revenue, and sixpence on coffee would produce more than £500,000, and these two articles, especially coffee, we should hardly have noticed as being any dearer. They are mainly luxuries consumed by the rich, and there is an ample margin in both the articles, while the poor old dead horse of tea has been so taxed and worried and the trade competed for, that there is very little money in it for the Chancellor of the Exchequer or for anyone else. But these other articles have still some revenue attached to them. There are other great imports, like rubber. Why not sixpence a pound on rubber or rice? You could look at the Customs imports and get plenty of large articles, and you might apply a tax within the principles which Free Trade sanctions, just as easily as the tax on dried fruits or tea or sugar and raise revenue, I believe, much more safely than you have done it here. I know my hon. Friend (Mr. Montagu) is very clever, and if there is anything in it, he and his advisers will consider it, because we are only at the beginning of this matter of finance, and we shall have many heavy burdens and many ingenious suggestions put before the House before we are through the work that we have undertaken.

I disapprove of the big borrowing altogether. This idea of our spending £325,000,000 in eight months and only contributing £4,000,000 out of taxation is almost ridiculous. It is not worthy of the dignity of this nation. It only means that while Mr. Pitt paid nearly half, Mr. Gladstone half, and Sir Michael Hicks-Beach nearly half, the Chancellor is paying only one seventieth-fifth up to 31st March. I know that next year we are to have much larger taxes, at least this will go on for the full year, but we do not know what the Bill will be next year, and sufficient to the day is the evil thereof. It seems that we have such a large amount to pay within this part of a year that remains to us that we ought to have been more courageous, and paid a great deal more in taxation. Does the House consider that when you say the War costs £325,000,000 up to 31st March, what you mean is that the War will cost £325,000,000 if you pay cash for it. But if you take credit and borrow at 4 per cent., in twenty-five years it will cost £650,000,000. The burden is doubled by borrowing. What my right hon. Friend has been doing in this great emergency is not undertaking our share of the burden at all, but ingeniously passing it on and arranging that another fellow should pay for the War. I seems to me a pity that that should be done when the nation is in such good spirits with regard to bearing burdens as it is at present. I do not think any Chancellor of the Exchequer ever had a time when almost any suggestion would have been taken so agreeably by the nation, however onerous. But it ought to have been remembered that we could only get through these times by strict economy. I got into trouble in the early part of this afternoon with an hon. Member because I was always talking about economy. This is the time in our home affairs to consider wherein economy can be effected. We are doing this year what we have always done in the last four or five years. We are making huge expenditure to relieve the burden which should be carried by our Poor Law if we had a humane system of Poor Law. But we could not, because it is a most inhuman system. Why do we not economise £10,000,000 or £15,000,000 out of the old, worn-out derelict Poor Law system or in some other way effect economies? I hope this suggestion will not be taken in bad part by my hon. Friend. I should like the House to do what the Chancellor of the Exchequer has told us to do, to carry out his principles rather than follow his precise proposal, and I believe if we do not do it on the present occasion—and there may be a reconsideration sooner than we think in the financing of this War—we shall have to take the burden more freely upon our shoulders than is proposed at present in this Bill.


I wish to call attention to the question of the exemption of the pay of officers serving with the Colours from Income Tax. There appears to me to be a very strong case for it. The pay of officers is notoriously small. Further, in a time like this, these men contribute sufficiently to the War by giving their services and by sacrificing their lives, and it is for us who stay behind to pay their share of taxation. I hope when the Bill goes into Committee, they will take this into their most serious consideration and relieve officers on active service from payment of Income Tax, so far as their pay is concerned. I suggest also that some further exemption from Death Duties should be given in the case of officers who are killed in action. An Act was passed in August giving exemption, and I may be told that having considered the question so recently we ought not to raise it again. But that was three months ago, and a good deal has happened since then. We now know something more about the real dimensions of the War. We know a great deal more than we knew then about the number of lives which are likely to be lost in action, and I urge upon the Government that they should give some further exemptions from Death Duties than is provided by that Act. It is really lamentable to think that when these men die in action they should be contributing for the purpose of exempting from a share of taxation the men who stay behind and do not fight. You actually have this fact, that when they are killed the result is to relieve those who stay behind of part of their taxation. I am sure those who stay behind do not desire that they should suffer in that way, and we should do well to shoulder whatever increased taxation may be required if this exemption is given to the families and relatives of officers killed in action. Whereas the relief given by the Act of this year is only in respect of property which passes to the widow and the lineal descendants of the deceased, I suggest that it should be given in the case of all property passing at the death of the officer. I hope the Government will consider these suggestions and accept appropriate Amendments on the Committee stage.


I am sure the House does not wish that I should answer in detail all the very valuable considerations which have been put before us this afternoon. Many hon. Members, I take it, did not expect a reply to the suggestions they threw out, and many of them, particularly my right hon. Friend (Mr. Lough), frankly confessed that they were offering suggestions for future Budgets rather than desiring that this Bill should be amended. The hon. Baronet (Sir F. Banbury) however, raised two most important points. I regret very much that we should have wasted so much indignation on Clause 13. All the time he was speaking about it, I was regretting that I was so thoroughly agreed with him because it would have been so much nicer for him if he had accomplished something by the indignation that he so rightly felt to the Clause as drafted. The Clause as drafted permits the Government to raise any sum of money it likes—not to spend it, but to raise it—and it is due to the fact that in the desire to put the Bill before the House at the earliest moment, we have more or less copied the Resolution which the House has passed, instead of narrowing it, as we intend to do on the Committee stage. The difficulty arises very simply. The Treasury has power to borrow money from time to time by Treasury Bills, Ways and Means Bills, and so forth. When they pay off money that they have temporarily borrowed they do not thereby renew their borrowing powers. The Treasury may raise £50,000,000 by Treasury Bills in the early part of the financial year. It may later raise £5,000,000 for the space of ten days in anticipation of revenue that has not come in—total borrowing £55,000,000. In ten days it repays the £5,000,000 out of revenue, and a few months later borrows £50,000,000 to replace the Treasury Bills which it has issued for six months. The total borrowing has been £105,000,000. The actual amount it has is only £50,000,000, but it has exhausted £105,000,000 of borrowing power. As a consequence of that sort of process at present, the Treasury, after the issue of the War Loan and after the borrowing which has taken place under other Acts, has only unexpended a gross borrowing power of £4,682,000. Having regard to the fact that it is certain that the money which we shall want to spend, in accordance with the directions of this House by their Votes of Credit and other Votes in Committee of Supply, will not be forthcoming out of the instalments of the loan, it may be necessary from time to time during the War to obtain, in the ordinary way, short loans of small amounts in anticipation of revenue or instalments of the loan which are coming in.

We have no intention of floating another loan of any dimensions without the consent and approval of this House. Therefore I propose in Committee to suggest, or my right hon. Friend will do it himself, that we should limit the excess of borrowing to £100,000,000 for the purposes indicated. With regard to the complaint of the hon. Baronet as to the Super-tax, I would remind him that my right hon. Friend the Attorney-General, addressing the House on Thursday last, distinctly said that it was the Government's proposal to proceed, not by way of legislation, but by way of regulation. His words, reported in column 582 of the OFFICIAL REPORT, were:— The proposal is that this arrangement shall be made by Inland Revenue Regulations. It seemed to us that it was better to proceed by regulations, but if the hon. Member prefers that it should be incorporated in the Bill, and if he puts down an Amendment, I need hardly say that I will take care that it is considered by the Chancellor of the Exchequer with the view of meeting the wishes of the House on this non-controversial subject. With regard to the proposal made by the right hon. Gentleman the Member for the Hallam Division of Sheffield (Mr. Stuart-Wortley) and the hon. Member for York (Mr. Butcher), I do not think there is very much in the proposal that we should leave out officers at the front. You cannot let off the soldier serving at the front from paying his share of indirect taxation. You have let off the soldier serving at the front—and I think very generously and quite rightly—from the Death Duties. My right hon. Friend the Prime Minister said the other day in this House that the Government proposed shortly to issue a scheme under which the pay of the lower ranks of officers in the Army was going to be substantially increased at a far greater cost than any remission of taxation would represent. It seems to me that it is better to proceed by increase of pay where it is very much wanted than by a reduction of taxation, which I do not think would act fairly and which would be very difficult to administer.

I would like also to tell my right hon. Friend that the suggestion that we should tax coffee, cocoa, and other things received very careful consideration. My right hon. Friend who sits behind me was very eloquent on the subject of taking care that in increasing taxation you do not diminish your yield. It is no use putting on a lot of small taxes that will not recompense you, after deducting the cost of collection, in the yield of the tax itself. I do not believe there is any substantial amount of money to be got out of a tax on cocoa or coffee. It seemed to us that the commodity which would yield money to us and would be a suitable means of doing what my right hon. Friend advocated, namely, the taxing of the elusive teetotaler, was to increase the tax on tea. The suggestion of my hon. Friend the Member for South-West Norfolk (Sir R. Winfrey) with regard to Income Tax, and indeed many other suggestions, all point to the one fact which I think has long been recognised in this House, namely, that there is a field ripe for exploration in the complication of our Income Tax law and many of its antiquated provisions. That exploration would have been undertaken if this War had not taken place. A Committee was about to be set up. I do not think it is possible to suggest now in this time of anxiety either that we should amend the Income Tax law so rapidly or that we can avoid the necessity of legislation by reference. We content ourselves by passing a stop-gap Budget to supply the revenue required up to 31st March next year, and I should most respectfully like to say that it does seem to me that this afternoon has added new evidence of what was evident on the day the Chancellor of the Exchequer unfolded his Budget scheme, that of all the many qualities which our countrymen have shown since the War brought them face to face with the national emergency, I think the one symptem we have most right to be proud of is the way in which all classes alike, called upon suddenly to bear at a time of great hardship enormous taxes—from the Super-tax payer down to the humblest teadrinker—have welcomed the new taxes and shouldered the burden without a single word of complaint or irritation or objection. It gives one an index of the determination of this country, and it augurs well for the success of the endeavours we are making.


I rise to deal with a matter which the hon. Gentleman overlooked in his speech. He was good enough to reply to as many suggestions as he could, but there was one made by the hon. Member for Wigan to which he did not reply, and which I wish to re-enforce in the hope that the Government may consider it. His suggestion was that Income Tax should be payable by instalments. I want the Financial Secretary to look at Clause 12 of the Bill, and to ask him a question, which perhaps, by leave of the House he could even now answer. I welcome the latitude which has been given by Clause 12, and the relief which is intended. I recognise that it is intended to be on broad lines, and I quite sympathise with the Financial Secretary's statement that it is impossible at this time to pick to pieces the whole structure of I the Income Tax Acts in order to make every Section perfectly plain to those who I are unfamiliar with them. Clause 12 is designed by the Government to give real relief, and the relief by a later Clause is made wider and freer in order to take away from Section 134 of a previous Act the narrow definition as to allowing relief in circumstances which are attributable directly or indirectly to the present War, whether these circumstances are a specific case or not. While I appreciate the spirit in which that relief is proposed to be given, am I not right in saying that the relief under Sections 133 and 134 cannot be obtained until payment has been made in January, and a case has been made out in three months from April. Sections 133 and 134 only do this in the cases within their ambit. Income Tax payers can apply to the Special Commissioners within three months from the close of the financial year, and if he is entitled to exemption or remission of the tax indicated in these Sections, repayment will be made. Let me take a concrete case. If Income Tax is collected in January, a person has under Clause 12 to make out a good case for reduction of Income Tax. On 6th April he makes his complaint to the Commissioners and upon that the Commissioners, who have a great number of cases to deal with, will have to go into the matter and determine whether it is repayable or not. That is a question of fact which has to be carefully dealt with. When they have gone into the question they will be able to make the repayment. I do not think it would be too much to say that, having regard to the amount of work the Commissioners will have to do, repayment is not likely to be made before June, and the result will be that the taxpayer, who has paid in January, will not be repaid the amount due to him until June. My hon. Friend the Member for Wigan suggested that the Government should collect three-fourths or nine-tenths of the Income Tax in January, so that in cases where it is intended to apply for exemption it should not be necessary to make an out and out payment in January with the expectation—perhaps the certain hope—that repayment will be made in June. It appears to me that if my hon. Friend's suggestion were carried out, it would be probably much fairer and the real relief would be granted, which I know the Government intend by Clause 12. I hope the Government will be prepared to look favourably at some of the Amendments directed to that end.

8.0 P.M.


My right hon. Friend the Attorney-General in his speech last Thursday directed most of his attention to a point raised by the hon. Baronet the Member for the City of London in regard to the diminution of income. As I understood his speech he was to meet this case to a certain extent. Under Section 133, as the hon. Gentleman opposite says, if your average for three years is more than for that particular year, you were entitled under the Act of 1842 to take that year and that year alone, and if the amount of your income had so depreciated as to be under the amount of the average of the three previous years, you were entitled to be assessed on foot of the actual sum and to be repaid the difference. I am glad my right hon. Friend the Attorney-General has come in. I would like to ask him whether I am right in the construction which I put on Clause 12? As I understood him he was going to meet the case to this extent, that he would go back to Section 6 of the Act of 1865, and would make the present year or any diminished year one of the three years on which you were to reckon. I understand from this that you revise Section 133 and amend Section 6 of the Act of 1865, so that all you grant so far as it goes is that you are to include the bad year, which we will call the present year, in the estimate of the amount to be paid. My right hon. Friend said, very wisely, that there was some relief, whether it was satisfactory or not. In some cases it may be satisfactory. There are other cases to which I would like to draw your earnest attention in which it is most unsatisfactory.

Remember that there are thousands of Territorial men—not officers, but Territorial privates, professional men, barristers, solicitors, architects—who on the 1st August, after only one-third of the financial year had passed, left their business, and from that day to this, during two-thirds of the financial year, they have not had the slightest opportunities, by reason of their military duties, of earning a penny piece. This may be something of a relief to the ordinary trader, who possibly during the whole year might be able to do something, but it is not fair to say to a man, "You shall leave your business on the 1st August; for two-thirds of the year you shall be cut off from all opportunity of earning a single penny, and yet I am going to make you pay on the average." See how it works out. I will take two cases within my own ken. There are two men in the Territorials. One of them is not even an officer. He has been at the front and is at home wounded now. His income earned was £2,100. The remedy offered by my right hon. Friend is, in taking the three years' average, to add for this year only £700, as he has only had four months of the year in which to make his income, and has therefore only made one-third the ordinary amount. Taking the three years, that would give a total of £2,100, £2,100 and £700—that is £4,900. Dividing that by three, you get an average of £1,633, on which he would have to pay tax to the amount of £136 1s. 8d. But if he paid on £700, which I maintain in this particular case is all you should ask him to pay on, he would only pay £58 6s. 8d. You are therefore saying in effect to this man, "You worked last year and the year before, and earned each year £2,100, but, by reason of the War, we called you from your business and shut you out for two-thirds of the year from the opportunity of making a shilling. You went to serve your country, and to show our gratitude we are going to ask you to pay £77 15s. more than you ought to pay."

I submit that it is most unjust to tell a man in effect, "We are very grateful to you for fighting our battle. You have done your duty nobly. You have been to the front and got wounded, and you will go back again, and for eight months' out of the financial year you shall not be able to make a shilling, and we are going to show our gratitude by charging you £77 on moneys which you have had no chance of earning." This is a case, if ever there was a special case, in which you should go back to Section 133 of the Act of 1842 and tax each man—you could draw the line if you liked at men on military service, where they have not had an opportunity of earning money for two-thirds of the year—only upon the amount actually earned. It is unjust to say to a man, "I am very sorry, but by reason of the fact that you made money last year, and we have shut you out from making two-thirds of your income this year, we are going to make you pay a much larger sum than you should pay." The only other case with which I will trouble the House is that of a man making £1,200 a year. This year he can only make one-third of that sum. The average for the three years, according to the Schedule of Section 12, would be £933, and he would have to pay a tax on that, as being his earned income, of £46 13s., whereas, if he paid on the actual amount which he made this year he will only pay £12, so that as a reward for his sacrifice for his country he is asked to pay £34 more than he ought to pay on some profits or emoluments of his business which he had not the slightest opportunity of making. I shall put down an Amendment on this point and shall go to a Division on it. I think it a most scandalous thing, if a man gives up his income for two-thirds of the year to serve his country, that you should make him pay on the income which he could not possibly earn.

With regard to the Super-tax, my right hon. Friend the Attorney-General had a very difficult task. His speech showed it. If you read it carefully you will see that it was a case of a great mind struggling with a very impossible proposition. I am not anxious to say much about it, but I will give the House a few figures that will show, I think, conclusively the tangle which they are weaving for themselves at the Treasury. My right hon. Friend's suggestion was this: If a man with £6,000 a year lost one-third this year, and his income is only £4,000, he is going to postpone it to the extent of a very large amount. The ordinary sum which that man would have to pay would be £168 17s. 9d., and all he is to be asked to pay is £52 15s. 6d. But the right hon. Gentleman never said when he was going to ask for the balance. Mark the absurdity of it. Another man with an income of £5,500 last year, loses less than one-third and is reduced to an income of £4,000 and he is allowed no abatement, and while the lucky man who has £6,000 gets off with an immediate payment of £52, the other man pays the full amount of £133 6s. 8d., and if he has £5,000 and has only lost one-fifth of his income and is still down to £4,000 he has got to pay £102 8s. 10d. Why make such a ridiculous discrimination? Why not charge the man upon the proper income that he has made? Surely that must commend itself to every reasonable man.

But just mark the Nemesis that is going to follow the Treasury. Everyone of these men according to the Act as it at present stands, will return his income for Super-tax next year at £4,000, though at the end of 1915–16, long before that I hope, the War may be over, a great many of the companies as we know, who could have paid dividends have kept them back in reserve because of the difficult times. They thought it prudent to do so and I think they were right. Once the War is over difficulties will disappear, and it may well happen that the men with incomes formerly of £6,000, £5,500, and £5,000 may all get back to these old figures, but next year when the tax is doubled they can only be charged on the £4,000. You go by the income of the previous year. That is the law. Therefore, instead of getting a tax of £599 10s. the Government will only be entitled to claim £237 10s., so that they will lose £362. Therefore it does not very much matter. The Super-tax men will get perfectly right. But I cannot understand why you should discriminate between the man who loses one-third and the man who loses one-fourth. The only real remedy is to go upon the actual income which the man has made. It may be that you will collect from him one amount, and when he shows you the actual figures you may be obliged to pay him back something, but you are only creating by this proposal of my right hon. Friend another of the anomalies with which this unfortunate tax bristles. While in theory the fairest tax that could be assessed it is, in practice, by reason of its enormous anomalies the most unjust in many cases in its incidence of any tax that exists. A Committee is going to be formed, and the sooner it is formed the better. Give them plenty of time to consider it and get rid of those anomalies which makes the tax very much disliked, and cause every man who can do so to try and avoid it. There is nobody who really complains about the taxes themselves, but one is bound to protest against any ridiculous inequality, and I must particularly once more refer to those men who have been taken away for two-thirds of the financial year and have not been able to make any money, and I say that in these cases they ought to be assessed on the actual money which they have made, and not upon a shilling more.


Whatever proposition the Government had come forward with on this occasion, having regard to the great calamity of the War, it would have been accepted unanimously on all sides of the House, and I think that in all the speeches to which we have listened to-day—and I have heard every one of them—there has not been one which has been made in criticism of principle, and I think they have all been really suggestions for modifications of some details, or have been criticisms of some of the methods of carrying out the imposition of the tax—matters which really could have been properly dealt with in Committee. I venture, however, to suggest that there are two aspects of this taxation which give one food for reflection and for some misgiving. I happen personally to be associated with some undertakings in the City of London connected with valuable properties abroad, and in which foreign money is to some extent invested, and I have no hesitation in saying that the increase of the ordinary Income Tax foreshadowed in this Bill for next, year to 2s. 6d. will be a very serious handicap to the working of those international companies in England. In illustration of that, I may point out that a few years ago, when the tax on the registration of companies in England was suddenly raised to a figure very considerably higher than that at which it had stood, the effect was to immediately cause a large proportion of these general cosmopolitan undertakings being registered abroad, and there was an outbreak of registration in Brussels to such an extent that we were deprived here in England of a very large proportion of the natural increase that we might have been allowed to expect. As a matter of fact, for some little time the extra tax produced nothing.

I am afraid that one effect of doubling the Income Tax for a period that is indefinite, and that may go on possibly for a good many years to come, will be that all companies that can be conveniently registered in less expensive countries, particularly in some countries on the Continent, will be registered there, and England will lose to that extent its position as the market of the world for those enterprises. I am old enough to remember the effect on the City of London of the way in which the Baring crisis was dealt with, and the way in which the Government of the day and the Bank of England in association with a large number of other banks carried over that crisis and inflicted it upon posterity, so to speak. Mr. Lidderdale and those associated with him at that time got great credit for what they did, but very shortly afterwards it was shown to be a mistake, making a big black cloud on the financial horizon of London, which was a terrible error. I look upon this doubling of the Income Tax in the same light. I am afraid it is going to be a very serious handicap for Great Britain and for London, as the financial centre of the world, and I am afraid that a larger number of people than ever before will endeavour to find sources of investment elsewhere than in London. I would have preferred, as I explained when we had the Resolution before us, that the Government had adopted a bolder policy, and since the observations which I addressed to the House on that occasion, I have received a very large number of communications on the subject, and I am bound to say that I have received an amount of support I could hardly have expected. The fact is that if the Chancellor of the Exchequer had come to the people of this country and said, "I want you all to contribute in proportion to your means in this great calamity, to meet the expenses involved by it," I believe the people of England would have readily done it. The communications which I have on this point satisfy me that it would have been so.

The suggestion I venture to make is that a shilling tax on capital should be boldly imposed, and 5 per cent. on all investments, taking shares that men own, and taking banking accounts, would have been readily responded to by the whole community. The people would have been glad to have faced this financial difficulty, and to have contributed according to their means. What would have been the effect of it? On the £12,000,000,000, which is estimated to be the amount of taxable property in the United Kingdom, we should have had £600,000,000 towards this financial difficulty. Instead of making a permanent difficulty for everybody who is going to follow us in business in this country for years to come we should have faced it now, and we would hardly have felt it in a few weeks. Then there is the temporary difficulty caused by this Bill. This, of course, is nothing like so important as the main general difficulty to which I have referred. Still, it is a serious one. I would point this out to the hon. Gentleman in charge of the Bill: The rate of deducted Income Tax, according to a man's income, is 1s. 2d. or 1s. 3d., and under Sub-section (3) of Clause 11 of the Bill you make the rate for the aliquot portion of the year yet to come 1s. 8d. Look at the effect of that on all kinds of incomes paid by instalments. You have the Income Tax deducted to 1s. 2d. or 1s. 3d. already, and in the next instalment up to the end of the financial year the rate is going to be 1s. 8d., and that would make an Income Tax for the year of 1s. 4¼d. If a man were to receive the whole of his salary in a lump sum on the 1st January, he would pay the rate of 1s. 8d. I suggest to the hon. Gentleman in charge of the Bill that this is a serious and an important criticism of the effect of the Bill.


I think the hon. Gentleman is in error. The rate of Income Tax for the whole year is 1s. 8d., and not for a third of the year.


That is exactly what I was pointing out to the hon. Gentleman. Under Sub-sections (d) and (e) of Section 11 all kinds of incomes that have been paid in instalments up-to-date have had the old Income Tax deducted, and now you say that in any further portions of the year the Income Tax to be deducted is to be 1s. 8d., not on the amount for the whole year, but on the portion that is to be paid. That I think is unfair on some people, and although it is a comparatively small point it is one which I think the Government ought to consider before the Bill goes into Committee. I was sorry to hear the Government going back on two promises they made. The first was when we had the Resolution. As I understood some arrangement was to be made with regard to a deduction of Super-tax in case there was a third dropped in the income for the current year—


The hon. Gentleman has accused me of making a promise in the House which I have not fulfilled.


You did not wait to the end of my sentence. The Committee generally got the view that the Government were going to give some relief to those in respect of Super-tax whose income during the year was reduced by more than a third. When we heard the later explanation of the Attorney-General we found that that was cut down, and that it was only going to be postponed, and that it was to be a postponed instalment. I am not quite certain how the Attorney-General put it, but I believe it was said it was not going to be in the Bill, but by Inland Revenue regulations.


Has the hon. Gentleman finished his sentence?


I have.


If he will allow me to say so, I confess I resent the suggestion that I promised something which I have not fulfilled.


I have not said so.


The statement the hon. Member referred to about the one-third allowance was made by me, and in the same speech in which also occurred the other statement which the hon. Gentleman says made the matter clear. The words I used in my speech were:— The proposal is that this arrangement shall be made by Inland Revenue Regulations."—[OFFICIAL REPORT, 19th November, 1914, col. 592.] I do not in the least object to the hon. Gentleman saying that that is not adequate, but I would ask him to state that he does not intend to impute to me that I made any sort of suggestion to the House which I did not to the best of my ability make plain was going to be carried out in the way it has been.


If I made, or had the remotest intention of making a suggestion that the right hon. Gentleman had not carried out every promise he made, words have failed me in some manner and I am at fault. I do not make the suggestion. We listened to a most carefully lucid and excellent speech of the Attorney-General upon the subject of the Income Tax, and I never listened to a speech which was clearer or more lucid on that very difficult and complicated subject. The Attorney-General did give us in a certain portion of that speech the idea that the payers of Super-tax were to have some relief in case their income suddenly dropped. In a later portion of the speech, and for the purpose of my argument it does not matter whether this was in the same speech or in two speeches, it would appear that that was only going to be a postponement of the instalment that was to be paid. What we have not had to-day, or on any occasion yet from the Government, is this, namely, a statement as to when the balance of that Super-tax is to be asked for. If it is only going to be put off for twelve months, or something of that description, and if we are to be asked for interest upon the balance of the money that is postponed, then in either of those events I do not think the concession would amount to anything at all. It would be a pity under those circumstances for the right hon. Gentleman to be wasting his time by explaining with such lucidity some relief that was not going to amount to anything at all, and especially when we open the Bill and do not find the smallest reference to the subject. There was another point as to which it was promised that the Government would give favourable consideration. We know, of course, that sometimes that does not amount to much, and therefore if favourable consideration has not been given, I do not know that I should be justified in putting it as high as to say that a promise has been broken, especially as we seem to be a little bit nervous and tender at suggestions—


Yes, I am.


We have all got to be very thick-skinned nowadays. A point was referred to by two or three Members in Committee, and it was that officers serving in His Majesty's Forces ought not to be asked to pay the extra Income Tax, not on their whole incomes, but simply on the amount they were paid for their services as officers. I understood, and I am measuring my words very carefully, the Government to say that they would give favourable consideration to the suggestion, but we do not find any reference whatever to it in the Bill, and as I understood the Financial Secretary to the Treasury in his speech just now he rather suggested that the Government had considered the point and were not goings to concede it. If it is dealt with by a flat negative, then there is an end to the whole point. But I trust that even yet the Government will see their way to collect either the whole or, at all events, half of this extra taxation which is going to fall upon us boldly from the property of the country by a tax on property. I am convinced that we would all readily pay a shilling in the pound, and that it would be best to establish a great fund of that kind rather than spread it over future enterprises and future earnings of the country, and than that such charges should be accumulated in order to pay the cost of this terrible War.


While I desire to express the view that the Chancellor of the Exchequer is to be congratulated on his courage in introducing this increased taxation, it is not taxation which we can regard as being permanent and beneficial in its nature. It seems to me that these are fateful times for the future of this country regarded industrially, because the way in which we levy this enormous burden of taxation must undoubtedly affect all classes of the community in the future. I do not think we can regard it as good theory or practice of taxation to finance a great war, which we are told is for the benefit of civilisation, by way of taxes on beer and tea. There is no principle underlying the financing of a great war on the thirst of the community. Leaving the Beer Tax on one side, the Tea Tax is a cruel impost, and certainly we cannot regard it as being one which we will permanently endure. The right hon. Gentleman the Member for West Islington (Mr. Lough), who is an acknowledged expert on taxation, suggested methods which he considered would be more beneficial than those proposed by the Government. He said that we should not tax tea so much, but should tax other imports as well. For instance, he said, "Why not levy a tax on rubber or cocoa?" If you levied an increased tax on cocoa, you would throw out of employment in this country men and women who are manufacturing that product. The increased tax on tea will throw out of employment people in Ceylon and elsewhere, but we are not so much concerned with them. A tax upon rubber would be a tax upon a raw material of British industry, and to increase the cost of raw material would again result in the diminution of employment in this country. I regret to hear arguments used from this side of the House in support of taxation which would undoubtedly mean the scrapping of the Free Trade policy of this country. The hon. Member opposite (Mr. Watson Rutherford) suggested that we should levy a tax upon capital. In a speech the other day he said:— I will also point out that there is a vast amount of valuable property in this country which is at present producing a comparatively small revenue. That is a fact which we have to ponder. There is a vast amount of property of enormous value in this country which returns little or no income whatsoever. That property is the land which is being withheld from use. When the Chancellor of the Exchequer brings in future Budgets of increased taxation I trust that he will move towards bringing under contribution those great values, which to-day escape taxation. It is only thus that we shall get towards any principle in this matter of raising money for the defence of the realm. There is no principle in taxing tea for the defence of the realm, but there is a principle in calling upon those who own the realm to be the first people to come forward to pay for its defence. After all, if we levied unsuccessful war, while we should all suffer perhaps by loss of liberty or by loss of life, there is one section of the community who would suffer more than anybody else, and they are the people who own the land, which would be taken in successful conquest. If we wage successful war, if this War is to end war, if it is to lead to a diminution of expenditure on armaments, the first people to reap the advantage will be those who own the realm. That, at any rate, is recognised in Germany. I was reading to-day a German land reform paper, and I find that a German landowner sent the following letter to her tenants in Stettin, in East Prussia. This was written when things were more favourable for the German Army than at present:— The great and favourable turn of affairs which has come about for our nation through the grace of Almighty God and our brave troops strengthened by Him, permits us to look forward to a great and blessed future. May our people never forget this mercy, never turn from the God of their fathers, who has preserved them from all evil. Your rent will be raised to thirty marks from the 1st of October. That is a rise of about a shilling a week in view of the victory of German arms. There is a great principle underlying that. Undoubtedly if we wage successful war, if the expenditure of these millions results in a limitation of armaments, the first result will be an enormous increase in the value of the land of the United Kingdom. Furthermore, this levying of a high Income Tax has to be taken into consideration as regards its effect upon employment. The great incomes, which are now to be taxed about 5s. in the £, are never earned by the men to whom they come. Nobody is capable of earning an enormous income himself. The great income must come from one of two sources. One is as the result of the ownership of land, or from offices or privileges of some sort. If it comes from that source, the best way is to tax it at the source by way of a tax on its capital value. If the income comes from industrial enterprise it comes from the underpayment of labour, and it belongs by right, not to the State, but to the workers who create the value which it represents. If the State takes this great income it only means for the workers that the State is absorbing in taxation wealth which they ought to take by way of increased wages, and any great Income Tax levied in that direction must have for its result the permanent impoverishment of the workers. For the defence of the realm, those who own the realm should be called upon to pay in proportion to the value of the realm which they hold. Then, and only then, shall we get to a just principle in the matter of taxation for defence. It is a return to the old principle of this country when land was held from the Crown, not in ownership, but in consideration of those who held the land paying and providing for its defence. The time has come for the gigantic burdens of taxation that are before us, burdens which we must see, if we allow them to fall upon industry, will impoverish and ruin this country and lower the great position it at present holds in the world—that the time, I say, has come when we must introduce a principle of calling upon the value which the community creates and which monopoly and privilege now take, for the benefit of the country.

Question put, and agreed to.

Bill read a second time, and committed to a Committee of the Whole House, for To-morrow.