FINANCE (No. 2) BILL.

HC Deb 14 July 1915 vol 73 cc933-68

Order for Third Beading read.

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

Sir F. BANBURY

I rise to move, to leave out from the word "be" to the end of the Question, in order to insert instead thereof the words, "recommitted to a Committee of the whole House."

I propose this Amendment on various grounds, the chief reason being to give the Chancellor of the Exchequer an opportunity of considering whether or not on the recommittal stage he cannot introduce a Clause to deal with Sub-section (2) of the Act of 1912. The House will remember that when we were in Committee it was not possible to deal with this Clause because the Chancellor of the Exchequer suggested that we should not deal with it at that time, as he was in the hope of some arrangement being made between those Members who wanted the repeal of the Clause and those Members who wanted the Clause or some sort of Clause retained. I do not think there was anybody who wanted the Clause retained in the form in which it stood. There was a general opinion that there should be some alteration, and it was for that reason that the Chancellor of the Exchequer asked us not to move our new Clause to repeal the existing one, but to consider whether something could not be done to meet the case. Since that meetings have been held, and it has been impossible to come to any agreement. Therefore the best thing to do now is to recommit the Bill and consider whether or not the Government can take the matter in hand and deal with it.

The question is urgent, and for this reason. Very large sums of money are being spent on litigation. That money is certain to be wasted, because sooner or later the Clause will be either repealed or amended. I have no desire to do anything to prevent my hon. and learned Friends from earning a legitimate living, but I am sure that they would be the last people to desire persons to go to law when it is known that the question about which they go to law is certain to be amended in this House. The right hon. Gentleman may say that he cannot agree to re-committal because he wants to get the Bill, but I would like him to give us some assurance that he will take action soon. I know that this Session is to be finished very shortly, but I understand that this year at any rate the right hon. Gentleman is going to introduce another Finance Bill. His predecessor has stated that this matter must be dealt with, and that if an agreement could not be arrived at the Clause would be repealed. I think the right hon. Gentleman recognises the injustice of this Clause, and if he will give us an assurance to deal with this matter—I do not mean a vague assurance, but an undertaking to deal with this matter seriously—very soon, my hon. Friends who are here to support me will probably not press the matter. [Laughter.] I do not know why that statement causes mirth, because there is a considerable number of hon. Members in this House who share the view to which I have given expression.

Mr. J. M. HENDERSON

I beg to second the motion of the hon. Baronet. Of course I cannot go into the merits of this question, but I can press upon the Chancellor of the Fxchequer that there is a duty upon him to follow the promise, for it was a promise, of his predecessor, to repeal this provision, if the hon. Baronet who introduced the Section into the 1912 Act did not produce an Amendment which would meet the views of my right hon. Friend the late Chancellor of the Exchequer. I do not think the right hon. Gentleman has gone really into this question, but I understand that he is going to abide by his predecessor's views upon it. I take the following quotation from the OFFICIAL REPORT of a speech by the late Chancellor upon the 29th July, 1913. The discussion began by the hon. Member for Ayr Burghs saying this:— The last point to which I wish to refer is with regard to Section 2 of the Act of last year. I regret very much that I am responsible for putting that Section into the Act of last year. Then the Chancellor goes on later on to animadvert upon it in the following terms:— I did say that it was the intention of the Government to bring in some amending provision in regard to licences, and I had this in my mind. The Clause was introduced on the initiation of the hon. Baronet last year, and I think he will admit it has not been a success…. It has inflicted injustice that is perfectly indefensible. I really have had two or three cases brought to my knowledge where the facts were very striking. It was a question as to amendment, or whether we should not get rid of it altogether. Efforts have been made to frame an Amendment. The hon. Baronet has been invited time and again to frame an Amendment, but has never been able to do so. Then later on the Chancellor goes on to say:— Here is a Clause which the whole House considered to be a perfectly fair one, and which the Government accepted and incorporated in an Act of Parliament. It has produced the grossest inequity. He goes on further to say that the wishes of the Government and the House were perfectly clear, but when the matter got into the Courts they gave a totally different interpretation, and then he says, failing a way out of the difficulty, that it must be eliminated out of the Act of Parliament altogether. Here is a distinct promise in the first instance in 1913. I suppose that, as the War broke out last year, the then Chancellor could not overhaul this matter by—

Sir F. BANBURY

May I remind my hon. Friend that the reason was that there was no Revenue Bill. It had been intended to put a Clause in the Revenue Bill.

Mr. HENDERSON

That is very likely. Here it is on record that the Clause is condemned root and branch by the late Chancellor of the Exchequer, who says that if he cannot get some Amendment to meet this case, then he must eliminate the Clause altogether. I have not the slightest doubt that if the right hon. Gentleman had been Chancellor of the Exchequer now he would, as he always did as far as I can remember, have carried out the pledge which he gave. We are in this unfortunate position, that a private Member cannot introduce a Bill to repeal a Finance Bill or any portion of it. It must be originated in Committee of Ways and Means, and unless my right hon. Friend can give us an assurance that he will deal with this question, we are helpless, and a very gross injustice will go on. I cannot go into the question, but I can assure him, and no one knows it better than the ex-Chancellor, that there is a gross inequity and iniquity going on in the case of people who are being mulcted in sums which were never anticipated, and which Parliament never would have sanctioned. I ask the right hon. Gentleman to give us some assurance that he will follow in the footsteps of the late Chancellor, and carry out the pledge which the right hon. Gentleman gave to take steps to put this matter right.

Mr. McKENNA

I entirely sympathise with my two hon. Friends who have made this Amendment. I agree with them that the operation of Section 2 of the Act, 1912, is most unjust, and I also agree with them that on the first available opportunity a remedy should be found. I do not think, however, that they have quite stated the whole of the difficulty in the way of finding a remedy. When the Amendment was introduced in 1912, how, why, or in what way I do not know—I have no recollection of the circumstances—

Mr. HENDERSON

It was past one o'clock in the morning.

Mr. McKENNA

It was introduced without a Resolution. No one thought of a Resolution; the matter was not called to the attention of the authorities, and no one thought a Resolution was necessary, and it was passed in that way per in-curiam. When we came to consider the Clause we found that it could neither be amended nor repealed without a Resolution.

Sir F. BANBURY

I do not know whether it is possible, Mr. Deputy-Speaker, to appeal to you, but perhaps you will remember that I had a conversation with you upon this subject, and there was considerable doubt, I believe, in your mind as to whether a Resolution was necessary, provided the repeal was proposed by the Government. It must be brought in by the Government, but it does not follow that you must have a Resolution.

Mr. McKENNA

It was held that either a repeal or Amendment of any sort or kind establishing a burden of charge from one subject to another could, therefore, only be effected by a Clause founded upon a Resolution. That was the condition in which we found ourselves, and to deal with the subject now would mean a fresh Resolution', so I understand and so I believe, and a reconsideration of the whole subject. An effort should be made, and it has been made, to find a way out between my hon. Friends opposite and behind me and the hon. Member for Ayr Burghs. No modus rirendi has been discovered, and therefore I most reluctantly have to take on myself to find a settlement of this question. I propose at the first available opportunity to introduce a Clause dealing with the matter. The principle upon which I would have to proceed would be that no charge shall be thrown back upon any previous earlier interest except in so far as such earlier interest benefits by the licence. I do not pretend now to give details of the proposed settlement to the House, but it will be upon that basis that any person upon whom part of the charge of the new licence duty is thrown back shall be, must be, a person—

Mr. DEPUTY-SPEAKER (Mr. Whitley)

The right hon. Gentleman is now entering upon the merits of the proposed settlement, but at present we are only concerned with the technical point whether the Bill shall be recommitted.

Mr. McKENNA

I am much obliged to you, Sir—rather relieved, in fact, from the necessity of stating now what will be the principle on which I think we ought to act. It is sufficient for me to say that I can give the assurance to my hon. Friend that on the earliest occasion possible I will do my utmost to find a settlement of this question.

Mr. POLLOCK

I am very glad to hear from the right hon. Gentleman that he will at the very earliest possible moment introduce a Clause dealing with a great industry which, it is now agreed on both sides, is affected by this Section 2. I am sorry that the right hon. Gentleman committed a breach of order in telling us, in some measure, what he proposes to do, but I hope that we may cast aside what he has stated, and that he will not feel himself bound by it. As I understand him, he is prepared to consider the difficulties which are occasioned by this Clause. I do not understand him to say that he has fully considered them in all their depth and in all their bearings, and I think it unfortunate therefore, if by merely being out of order, and his not being able to proceed further, he should be regarded as being committed to a particular course, before he has had a full opportunity of considering the question in all its aspects. It should be remembered that the Chancellor of the Exchequer during the past few weeks has been engaged in financial transactions which are very important indeed, and which have happily been very successful, and it is impossible to suppose that he has had an opportunity of giving consideration to what is a technical difficulty and a tangle of Statutes, which in- volve very careful consideration before we can form, an actual judgment upon the matter.

For my own part I hope that the Chancellor of the Exchequer, even after this, will consider the matter de novo, and will give full representation to the various views that may be presented to him in reference to the Clause. There is one other point which I hope the Chancellor of the Exchequer will consider and perhaps give us an assurance upon to-night. We are really all agreed on the injustice that is being done, and day after day claims may be made which cannot be resisted, because to do so would be costly. In any Clause which the right hon. Gentleman introduced for the purpose of the modification, alteration, or repeal of this Section, I hope he will, having regard to the inequity of the Section, deal with what has taken place from the time before the intervening period right up to the time of when the alteration of the law is made. I trust that the right hon. Gentleman may find time at the very earliest possible moment to consider this matter in all its bearings. I think we may leave the further pressing of the hon. Baronet's Motion, but I only hope that the observations which the Chancellor of the Exchequer has made may not be held to bind him as to the particular scheme he will adopt.

Mr. HENDERSON

Can the right hon. Gentleman see his way to deal with the matter in his Finance Bill in the autumn?

Mr. McKENNA

I will take the earliest opportunity which I may have.

Mr. HENDERSON

The Bill in the autumn would be a good opportunity.

Mr. POLLOCK

Can the right hon. Gentleman give us any hope that he will be able to deal with it soon?

Mr. McKENNA

I will take the earliest opportunity.

Sir F. BANBURY

Under these circumstances I beg leave to withdraw my Amendment.

Amendment, by leave, withdrawn.

Question proposed, "That the Bill be now read the third time."

Sir JOSEPH WALTON

Perhaps I may be allowed to congratulate the Chancellor of the Exchequer on the splendid response made to his new War Loan. There has been contributed £585,000,000, from over a million subscribers, which is indeed an impressive demonstration of the practical patriotism of the whole nation. I hope that a further large amount will be subscribed through the Post Office before the 1st December. I venture to suggest to my right hon. Friend that this would be largely promoted were the instructions that are to be found in every Post Office made simpler and clearer. There is one hindrance to small investors piling up their savings, and that is the Clause in the printed matter which says that if the small investor finds it necessary afterwards to realise his small investment that he shall only receive through the National Debt Commissioners the market price of the day, less a commission. That leaves the small investor absolutely in doubt as to how he is going to stand if in a short time he requires the five or ten pounds he has invested. If the Chancellor of the Exchequer could see his way to definitely state the price that was to be paid by the National Debt Commissioners to small investors, say, up to a maximum of £50, that would greatly stimulate interest in the matter on the part of numbers of small investors. On the 30th June last I asked the Chancellor whether he would endeavour to provide a scheme of war taxation which would, as far as possible, impose equality of sacrifice on all the taxpayers of the country. He replied, that is a very valuable principle of taxation which should always be borne in mind. I think I shall be able to show that that principle was not sufficiently borne in mind in arranging the taxation dealt with in this Finance Bill. Not only was it not borne in mind, but this Finance Bill, in my judgment, largely violates the principle of equal incidence of taxation to which his predecessor declared himself to be profoundly attached, and to which I am sure he himself is equally attached. I have no objection to paying 2s. 6d. Income Tax, and indeed I look forward in the not remote future to paying an increased amount, and in present circumstances I fear that is inevitable.

All that I object to in the present Bill is that the assessments are not made on an equitable basis. The making of assessments on a three or four years' average in normal times worked out not too unfairly, but we are not in normal times, we are in absolutely abnormal times, and to proceed on the same lines to-day operates with great unfairness on some of the taxpayers of the country. Let me give an example and let me take the coal trade. The collieries in Northumberland and Durham had largely taken on pre-war contracts at low prices, and the completion of those has been spread over a far longer period than was anticipated by reason of the patriotism of the coal miners, 230,000 of them having joined the Colours. The output of the collieries has thereby been enormously reduced, and that has caused the prolongation of the low-priced contracts many of which are running at prices much below the cost. The result of all that, and of the commandeering of the ships which carry the coal by the Government, and of the heavy war bonus which through State intervention we gave, and rightly gave, to the coal miners to cover the extra cost of living, all that has tended to place the collieries of all those districts at a great disadvantage, with the result that since the War began many of them have lost money instead of making profit. As an example on the other side, in the case of the steam coal collieries of South Wales most of them have reaped, I have no doubt, a rich harvest since the War began. They have to pay double Income Tax, which is no burden whatever for them on the immense profits, but the extra tax of 1s. 3d. is also levied upon the coal-owners of Northumberland and Durham, and on the five years' average they have to pay that additional taxation, not out of profits but out of capital.

There is much to be said even for taxation of capital under certain urgent conditions, and if it were applied all round equally objection to it would be largely diminished. But to have at the present time one set of coal-owners paying Income Tax out of large profits and another set of coal-owners paying it out of capital is not equal incidence of taxation. The woollen trade, the Army clothing trade, leather and boots, are enjoying a war boom. The same is true of armaments, shipbuilding, engineering, munition factories and the shipping trade. On the other hand, the cotton trade of Lancashire, except the tent canvas department, has been having a bad time. I say that this large increase in the Income Tax could not be foreseen. It is something entirely unexpected, and therefore the best managed concerns could not have made provision for it beforehand. Therefore I submit that the only fair and equitable way to levy this War taxation is to drop the average of years system and to levy on the profit of the preceding year. I know we have the right to reclaim a certain amount if the estimated profits for the year are lower than the average profits of the years upon which the assessment has been based. That is a very small redress indeed. In the interests of sound finance I am strongly of opinion that it is necessary to impose additional taxation. So far it is estimated that we shall get from new taxation in this financial year £68,000,000 sterling towards the enormous expenditure on the War, which is estimated to be 1,293 millions. I submit that that is quite an insufficient contribution from taxation towards this enormous and unprecedented expenditure. I suggest to the Chancellor of the Exchequer, therefore, that be should exercise his influence to prevent State intervention and interference with the trade and commerce of the country, and that he should boldly declare that no taxpayer ought to be allowed to enjoy additional income owing to the War.

No system of taxation will prove entirely equitable, but I suggest that some approach to equality of sacrifice would be secured if my right hon. Friend imposed an excess Income Tax on every taxpayer during the War—that is, on excess incomes as compared with average of the two years preceding the War, which is the basis taken in the Munitions Act for controlled undertakings, with an allowance of one-fifth for increased cost of living— and, under some equitable arrangement, a war tax on the wage-earning classes who earn more than a living wage. In addition to taking the excess profits of every trade undertaking in the country, and paying them into the National Exchequer, we ought to consider the practicability and the desirability of imposing some graduated and equitable scheme of taxation on the whole national income, at any rate above what may be regarded as a living wage. I am aware that I shall not draw from the Chancellor of the Exchequer to-night any statement of the additional taxation that he will impose in his next Finance Bill, but I have ventured, very humbly as a private Member, to submit to him these suggestions, believing that he has an open mind, and that he desires to levy equitably the enormous taxation to which in present circumstances the country must submit, and to which everyone is patriotically willing to submit if it is levied on an equitable basis. I hope he will be encouraged to tackle what must prove to be a most difficult and intricate problem. If he can only solve that problem at all in the same fashion as, by his comprehensive, equitable, and broad-minded scheme, he has solved the question of the National War Loan, he will indeed deserve well of the country, and stand high amongst our most successful Chancellors of the Exchequer.

Mr. GORDON HARVEY

I also desire to compliment my right hon. Friend on his assumption of an office which I venture to say is second in importance only to the office of commander of the troops in the field. My right hon. Friend has many Friends in this House who remember the brilliancy and success with which he filled the office of Financial Secretary to the Treasury a few years ago; and we who admired him then look with confidence to his holding his present position and conducting the finances of the country with prudence and wisdom. The Finance Bill to which we are about to give a final assent is not, as we all know, the work of the present Chancellor of the Exchequer, and for its defects and shortcomings, so far as they may exist, he is not responsible. Having said that, I hope I may say very frankly that I feel greatly disappointed with this Finance Bill. It was framed and introduced at a time when there ought to have been great boldness and promptness of action; but boldness and promptness of action are quite absent from the Bill.

I, for one, cannot understand why there are no new taxes in the Bill. I remember what the late Chancellor of the Exchequer told us on its introduction. He said that he was hampered, because he did not know whether the War was likely to last six months or twelve. That point is just as uncertain to-day as it was then. At the time the statement was made, I entirely failed to see the force of the argument, because, at the time my right hon. Friend spoke, for the liabilities that had then been incurred no adequate provision had been made. Those liabilities were going on. Whatever the duration of the War, even if peace had been signed the day after the Chancellor of the Exchequer spoke, the liabilities would not have ceased. I venture earnestly to appeal to the Chancellor of the Exchequer rapidly to mature his plans for extra taxation, to act quickly and with determination. I, for one, stand here and ask the Chancellor of the Exchequer to take money, to take it quickly, and to take it in large bulk. In speeches that he has recently made, he has given to the country most excellent advice. I hope that every Member of this House will begin a crusade throughout the country, with those speeches as the text, inducing the people to save and to be economical. My right hon. Friend urged thrift and saving. I ask him to add the spur of necessity, and to do something to compel a steady stream from the resultant economy into the National Exchequer. I think that this House and the financial controllers of the country have a duty to the nation—to endeavour to bring home to the people the enormous financial difficulties which confront us.

We are constantly told that there is in the country an apparent lack of appreciation of the situation. Perhaps that is only natural and to be expected. The first shock of war did alarm us. But that time has gone, and there is an appearance as if the nation was settling down to the idea of war. The economic life of the people is, after all, quite easy; and the whole picture, at any rate to people who do not bring their minds to bear on the situation, is in false perspective. We are like men— many of us—living on notes of hand. We are like people who have broken open their money-boxes, and, seeing their savings all round about, are using them as income. That cannot go on. Many of us must have noticed with regret—to some extent at any rate—the very unedifying scramble going on for the money which the Government is showering so lavishly abroad. Demands for commission, expectations, and demands for high profits, and, whenever something is to be done in the national interest, compensation. Now we are inundated with demands for war bonuses—to my mind a most hateful term. I believe that this presents a wholly wrong and mischievous conception of what war time should be. I believe it is only by taxation that we shall become steady in the situation as it really exists. I again appeal to the Chancellor of the Exchequer to put on taxes; to put them on all round, and make them as direct as taxation can be devised.

9.0 P.M.

War time should be a time of sacrifice, a time for unpaid and unstinted labour. The Chancellor of the Exchequer has two objects, I have no doubt, in view. He has to get more revenue, and he has to try to adjust the burdens of taxation to the capacity to bear those burdens. I quite agree with the hon. Member for Barnsley (Sir J. Walton) when he said that something might be done—should be done—as quickly as possible in this direction. Sometime ago I ventured to make a suggestion to the predecessor of the right hon. Gentleman. I suggested that the Government should boldly appropriate the surplus incomes that are being made at the present time. I am told that would be a very hard thing to do, and that it would press very hardly upon certain individuals. All taxation does that. We must be as fair as we can, but we must not be diverted from an attempt to do what is right by the fears of those who sometimes express those fears more loudly than other people who suffer with them. I would put a tax—on the greater part at any rate—of surplus incomes, so far as they are greater during the period of the War than they were before To all right-minded people it must be repugnant to make great wealth out of the nation's misfortunes. A tax on war contracts, I know, has been suggested. It would be most ineffective. It would be impossible to arrange. You might hit the direct contractor, but you would miss a multitude of others. By putting a direct tax or charge on those who undertake profitable war contracts you would possibly escape all the sub-contractors who work on these commencing parts of an article which he has to perfect, and you would escape those who make profits by the importation of raw material. You would escape, too, the profits of the mine-owner who supplies the coal, and you would escape also—this is very important —the profits of those—and there are many of them—who are working now on foreign war contracts which do not of themselves come before the eyes of the Government. We were promised in this House two years ago a Commission of Inquiry into the whole subject of the Income Tax. I very much regret that that Commission was not set on foot. I do not think it ought to be delayed even now, because in the press of increasing taxation nobody knows how important the Income Tax may be, or how heavy the charges upon it, and the heavier those charges become the more necessary it obviously is that full justice should be done to those who pay towards these taxes upon which the State now so much relies. I believe that the Income Tax might be much more fairly assessed. I believe it would be quite fair—as the hon. Member for Barnsley said—to take the Income Tax down to a much lower scale than it is at the present time. I hope that it may be done, and that as a quid pro quo to the poorer amongst us, then in return for their new contributions, may be relieved from indirect taxation.

I do not know that we shall see relief from taxation in any form, but I ask the Chancellor of the Exchequer whether he cannot see his way even now in the midst of all this turmoil and hard labour to institute a Commission on Income Tax law, so that he can see and have better knowledge—and so that we can all have better knowledge—how to make more easy and facile the taxation of the incomes of small people. We have to look at the future, not only to the requirements of the day. We have to look at the day when the War will cease and peace will return, when men will settle down to their own occupations, and when commerce again begins to flow. I do not know, I cannot imagine, how the nations of Europe will emerge from the devastation that faces them to-day. But I do venture to say this, that that nation will emerge with most hope and clearest prospects which most boldly faces the expenditure while that expenditure continues to go on. I venture to say that that people in Europe will emerge the worst, will be hampered and shackled most heavily, which defers its obligations until the lean years come and poverty and distress is over us all.

Mr. MOLTENO

I join in the request of the hon. Gentleman who has just spoken that the imposition of special taxation should be considered, and considered at a very early date. Before I say a few words upon that subject I would also congratulate the Chancellor of the Exchequer upon the success of his great Loan. He has every reason to be congratulated on the amount which has been subscribed. When we remember the difficulties of transferring investments, in view of the want of market there has been over the whole world, and other circumstances, I think we must congratulate him most warmly upon his achievement. That very success leaves him in a very comfortable position. He has breathing time to consider what should be his next step. I do hope that he is not going to rest on his oars. I know he will appreciate that simile. I think I have seen him on the river at Cambridge when I was there. We know what it is to go easy. I am afraid he cannot but go easy. After all, our severest criticism of this Finance Bill is that it does not really grapple with the question of the contribution which taxation ought to make to the cost of the War. I might perhaps allude to what has been done in the past. It does not come up to our record or anything like it—at least, that is my reading of it. In the Napoleonic Wars 47 per cent, of the cost was paid out of taxes and 53 per cent, was provided by loan. Coming down to the Crimean War, there taxation has a better record, because taxation and loan contributed about equally to the cost of that war. Coming to a still later period, the South African War, there again we find a substantial and considerable contribution from taxation. The amount roughly was about one-third. So far as I can make out by the present Finance Bill, we are not going to approach any of these precedents. I may be wrong, but taxation so far proposed seems just about meeting the increased interest charges, leaving out, of course, all questions of pensions and items of that kind.

There is a very peculiar hiatus in regard to this question of taxation. The late-Chancellor of the Exchequer, in his speech last May, led us up to the point of expecting him to announce at once fresh taxation. He entered very fully upon the gigantic liabilities which were in process-of being incurred, and pointed out that, even if the War stopped within a period of six months from the date at which he spoke, we should have to provide for a deficit of some £516,000,000. And he then entered upon a consideration of how the money was to be provided—what were the sources to which we were to look for the actual provision of the money — and he pointed out there were three sources. There was realisation of our securities. He pointed out there was only one market in the world, America, which was free to-purchase, and, therefore, that could not be relied upon to any great extent. Then, again, there was the question of paper money, and I think he very properly turned that down at once with very little further consideration. Then he told us the true source from which we ought to get a very much larger contribution was the income of the country, and that we must rely upon that to a much larger extent than we had done in the past. He also made the interesting forecast that income was perhaps a little inflated to-day because of the enormous war expenditure. All this pointed to an immediate demand being made upon the income of the country. I think everyone was ready for it. Certainly the whole country is ready practically to contribute all that is necessary, and that it can contribute towards meeting the enormous cost of this War. I think the wonderful response to the Loan we have just seen shows how widespread and determined is that feeling in the country, and taxation imposed now would be paid readily and willingly by a patriotic people.

We cannot forget that expenditure is going on. Every day that passes has its share of expenditure. We ought to get an increased sum from taxation to meet that expenditure day by day. Every day lost is a misfortune. We have the money to-day; there is no question that the country to-day can bear increased taxation infinitely better than it will be able two or three years hence. That is the alternative; it is either now or later on. Why not step in while there is ample money and anticipate some of the stream for the most necessary purposes of the Exchequer? As I said, there was an extraordinary hiatus; but we are in a worse position now than then, because the late Chancellor of the Exchequer pointed out that if the War went on beyond six months it was absolutely imperative we must have more taxation. To-day we are in July, and it is perfectly clear there is no termination of the War immediately at hand. Therefore the pressure of fresh taxation is now with us, on the showing of the late Chancellor of the Exchequer himself, so that I share the regret of the hon. Member who has just spoken that this Finance Bill does not include some greater and more adequate provision from taxation for meeting these enormous sums spent daily.

I should like to be allowed to congratulate the Chancellor of the Exchequer on the note of economy which he has struck from the first assumption of his present office. I welcome that note, and I do indeed think it is most important that economy should be realised now the right hon. Gentleman is at the head of that great Department the Treasury, which is, or ought to be, the watch-dog of public expenditure and the guardian of the public purse. It is for him to see to it that the proper steps are taken to secure an adequate economy in public expenditure. I want to draw attention to this fact, that we have had withdrawn from the control of this House the greater part of this gigantic expenditure, which is, of course, incurred for the purposes of the Army and the Navy, and we have had token Votes of £15,000 and £17,000 to represent the sums spent by the Army and Navy, and naturally, as I say, the great expenditure, the character, the details, have been entirely withdrawn from the House of Commons. What I want to put to the right hon. Gentlemen is this: Here we have two Departments which in the ordinary course of peace time have been dealing with an expenditure of £80,000,000 a year. That expenditure has suddenly leapt up to something like £800,000,000 a year. There surely is a need and necessity for some machinery adequately to supervise and control this expenditure. We have seen the very ordering of munitions, which, of course, causes this great expenditure, placed in a separate and newly-created Department of itself. The mere ordering of that gives us an idea of the magnitude of this expenditure.

I know the right hon. Gentleman will tell me, and very properly tell me, that, of course, the Army and Navy must have what they want. I do not suggest there should be control of that character, but what I do suggest is that there should be some proper and adequate machinery, very similar to the ordinary Treasury machinery which prevails in peace time, which should be in active operation to-day, just as in a great business with its accounting department, which verifies expenditure, sees that value is got for the money, that accounts are not paid which are not due, sees that orders given by the head of the executive are carried out, and that whatever cheques are paid are paid for solid and substantial service. That is the character of the control which we want, but I am very much afraid, from the remarks of the late Chancellor of the Exchequer on the 4th May, that that control, so far from being imposed, is being entirely relaxed, and that hardly any control from the point of view of accounting is now being made. Let me read the language he used. He said:— Therefore we propose that the whole expenditure of the Army and Navy shall practically be covered by Votes of Credit. You cannot burden the officials of the Army and Navy with a system of book-keeping at the present time which would force them to keep two separate accounts. Therefore, we are only putting what are practically token votes for the Army and Navy, £lo,000 for the Army and £17,00u for the Navy."—[OFFICIAL REPORT, 4th May, 1915, col. 1008, Vol. LXXI] That seems to me to indicate that the accounts are to be so confused that neither the Army nor the Navy are to know what they are spending. I do suggest to the right hon. Gentleman that an entirely opposite course should be followed: that you ought to have most careful and accurate accounts kept as distinctly as possible of these vast items of expenditure. After all, what are accounts? They are the means and instrument of intelligence for the heads to ascertain exactly what is being done. If you do not do that, everything will be in confusion. It is very difficult to bring in evidence that there is extravagance, but it is known that there is very great extravagance. Take the question of the wastage of food both in the camps at home and abroad. When these great Armies were first improvised, naturally it was impossible to organise at once a system to adequately control a matter of that kind. Of course we do not know whether the War may go on for two or three years, but we have now the means to deal with this question of wastage and it ought to be dealt with, for in this way we could effect savings of hundreds and thousands of pounds per week. Everyone knows that once we lose control and grip of matters of this kind and our control becomes lax, money will be poured out like water. When those who have the spending of this money feel the control of Parliament, then you naturally get economy setting in which will save you an enormous sum. I urge upon the Chancellor of the Exchequer that inasmuch as the House has given the Government an absolutely free hand to spend these gigantic sums of money, it does expect the Government, and particularly the Treasury, to put its best foot forward and see that full value is obtained by the country for this gigantic expenditure.

It occurs to me that it may be very difficult to finance this War. The liquid assets necessary for the raising of £3,000,000 a day expenditure are so gigantic that it is very difficult to say how any system of finance can stand this strain for any great length of time. In every way it is most important that everything should be done to-day, while a great deal can be done, to secure adequate economy. While we grudge no money to carry on this War successfully, we do grudge that any waste should take place. I do not think the House of Commons is altogether free from blame in this matter, for I think that we ought to set an example to the whole country in economy and readiness to sacrifice ourselves. I allude now to the fact that a considerable number of Members of this House — all honour to them and I think we owe every gratitude to them—have gone and joined the fighting forces of the country. At the same time I think they receive the remuneration which members of those fighting forces receive, and they share it in common with all the other members in their respective grades and ranks. They are, however, now receiving a considerable sum for their membership of this House, and I think it is impossible for them to discharge these two duties at the same moment. I think we should show in this House that we are ready to realise the seriousness of the situation and the need of economy and I think hon. Members of this House ought to be in the same position as civil servants who have gone to the front. They ought not to suffer in any way by what they have done, but they should not receivs two salaries when they can only discharge one duty.

I want to draw attention to this very remarkable fact, that the fiscal system of this country has stood the strain of the war in a way which the fiscal system of no other country has been able to stand it. It may be within the knowledge of hon. Members that all the other countries which are fighting in this War have all had to take off their food taxes. France, Russia, Germany, and Italy have all had to abandon their food taxes, and therefore, at a crisis like this, their taxes, instead of yielding a greater sum, are yielding less. The result will be that at the end of the War they will either have to reimpose those food taxes or sacrifice a most important portion of their fiscal system. What is our position? I do not think even the Chancellor of the Exchequer realises the strength of our position, because in November he estimated for a loss of some £15,000,000 not already estimated for in the taxation of 1914–15. When we came to the end of the year, not only had that £15,000,000 been made good, but the Chancellor of the Exchequer had a surplus of £4,000,000, so responsive had the taxes been to the strain which was put upon them. Therefore, it comes out that we are the only country whose system of taxation has absolutely withstood the strain.

My object is to urge upon the Chancellor of the Exchequer when he considers his new taxes that he should keep within the limits of that system. I know that in times of war you cannot be absolutely certain that every item of financial purity can be observed, but when we look to the history of past wars we find that our financial system did respond, and was able to produce those very considerable sums which I have alluded to. In the Crimean War just half the cost of the war was made good by taxation. What were those war taxes? The tea duty was raised from the very high figure it then stood at of 1s. 6d. to 1s. 9d. per pound. The sugar duty was raised from 12s. 6d. per cwt. to 15s., and a tax was imposed on coffee and malt which yielded £2,450,000. The Income Tax was increased from 7d. to 1s. 2d., or just double. Those were the taxes which produced the very large sum to which I have alluded. In the case of the South African War we may really claim that the additional taxes which produced one-third of the cost of that war were very closely on the lines of our existing fiscal system. I think that is evidence that within the limits of our existing fiscal system we may be able to provide very large sums of money still towards the cost of this gigantic War. I do hope that when the Chancellor of the Exchequer comes to formulate his proposal he may find himself able to forecast a very large and substantial increase in the contribution of our taxation towards the cost of the War.

Mr. GODFREY COLLINS

I desire to congratulate the Chancellor of the Exchequer upon the ability and success with which he has launched the new War Loan. The most gratifying feature about the Loan is not so much the amount raised but the large number of subscribers. For the first time in the history of this country the public as a whole have invested their savings with the Government, and I think we can therefore rely upon the public investing further savings if necessary in the near future. In that connection, as the public have been invited, they have voluntarily supported the Government in this matter, thereby showing that once the facts are put before the country, whether it be in regard to joining the Forces or lending their money to the Government, we may rely upon the voluntary efforts of the people of this country. I desire on the Third Reading of this Bill to raise, and in some respects to challenge, the financial policy of the Government. The Prime Minister during the last ten months has frequently quoted the example of Pitt and exhorted his fellow-countrymen to follow his example. How far and in what degree has the Prime Minister followed the example and the successful policy of Pitt of a hundred years ago? Last month in this House, when moving for a large Vote of Credit, he justified it by pointing out that the cost of the Napoleonic War amounted to £800,000,000, but he omitted to point out that the Government of the day raised by taxation fully 50 per cent, of the cost of that war; and, so far as I can judge, the deliberate and definite policy of the Government is to finance this War by borrowed money.

Pitt a hundred years ago financed his Allies on the Continent. Not only are we financing our Allies on the Continent, but we are financing our great Dominions as well. Pitt a hundred years ago maintained only a small standing Army on the Continent with miserable pay and small separation allowance. To-day we have raised, and raised successfully, an Army rivalling in size the Continental Armies, far outstretching in expense, in pay, in equipment, and in allowance the armies of our enemies on the Continent. Pitt a hundred years ago did not require to divert from, productive labour millions of men to make, munitions of war. Pitt enabled Great Britain a hundred years ago to increase during that war her exports, so as to permit her easily to pay for the imports she required; while it is well known that under the present policy of the Government our imports are increasing and our exports are steadily decreasing. These several striking divergencies from Pitt's policy forces me to ask the Chancellor of the Exchequer two questions. Has an estimate been prepared and questions of ways and means considered for providing, if the War lasts for a further twelve, twenty-four or thirty-six months? Let us by all means pour out all our resources, but a fundamental difference of opinion may arise as to the best use to which we can put our resources, and as finance must ultimately determine our policy, I desire to challenge the wisdom of the policy of the Government in continuing to withdraw men from the productive industries, such as the coal fields, iron and steel, and other productive industries.

The hon. Member for Dumfriesshire (Mr. Molteno) argued in favour of more strict accounting of the large sums being spent on the Army and Navy. This causes me to ask the Chancellor of the Exchequer another question. How far and to what extent is the policy of the War Office and the Admiralty dominated and controlled by the Treasury? The Chancellor of the Exchequer may laugh, but he has ultimately to pay the bills of the Admiralty and the War Office, and as he has to pay their expenditure, finance must ultimately determine the policy of these two Departments. The spending power of Armies in the past has brought down monarchies and overthrown constitutions. What effect the spending of these millions of money on our Armies to-day will have on this country no one can tell. I desire to ask these two questions of the Chancellor of the Exchequer on that point. This leads me to another question in connection with their attempts and their successful attempts to inflate credit. At the outbreak of War, through the moratorium and other measures, credit was undoubtedly inflated, and for many months after the outbreak of War the cry of "business as usual" undoubtedly tended to create cheap credit by stimulating industry, and by encouraging the public to spend as usual. You increased on the one hand the manufacture of unnecessary articles at home, while, on the other hand, you increased purchases from abroad of commodities which were not essential. The natural restriction of trade which the War is bound to bring is now slowly resulting, and this policy of inflating credit has undoubtedly delayed the placing of business on its natural foundation.

May I, as another instance of this matter, draw the attention of the Chancellor of the Exchequer to the terms of the November War Loan? Under that Loan the Bank of England offered to lend to the public the full value of the scrip, at 1 per cent, less than the Bank rate. Under that offer a man of straw and of no substance could borrow from the Bank of England and lend that money to the Government. He did not require the power to pay for that money. He did not require to invest his own money in that Loan for three years. The broad result of that policy was to postpone for three years the actual loan by the individual and the investment of his money. That offer in that Loan undoubtedly created false credit, and it did not tempt men naturally to invest their savings at that time. Few would seek to justify that particular offer in that Loan to-day. The terms were also so complicated that the public at that time did not fully realise that the terms offered were a clear 4 per cent. Loan, and the tempting terms of that Loan, I believe, forced the Government in this last War Loan to offer such tempting terms to owners of the November Loan to convert their stock into the new War Loan. Otherwise, I do not think that the terms offered under this Loan would have been justified.

What were the terms which the Government offered to holders of the November War Loan if they would invest further money in the new War Loan? If they invested further money and converted their stocks, the Government offered them practically 5¼ per cent, interest on their new money. To the public they offered 4½per cent., but to owners of the November Stock, provided that further money was forthcoming and they converted that Stock, they offered to pay £5 4s. 9d. per cent. The Chancellor of the Exchequer shakes his head, but may I make my meaning clear; £95 of November Stock yielded £3 10s. interest. If one of the public invested a further £105, he was given £200 Stock of the new War Loan. £200 Stock in the new War Loan yielded him £9 per year interest. In other words, for an investment of £105 he received the difference between £3 10s. and £9. In still other words, for this investment of £105 he increased his income by £5 10s. a year, at the rate of £5 4s. 9d. per cent. If, on the other hand, he said to himself, in ten years time that £95 is worth £100, instead of the rate of interest being £5 4s. 9d., the old War Loan Stock yield being £4, he received practically 5 per cent, on the new money invested. I hope I have converted the Chancellor of the Exchequer to my reading of the matter. I put it in two ways. I say distinctly, if the man invested further money in this new War Loan, holding stock of the last Loan, by the investment of that further money to-day the Government pay him at the rate of £5 4s. 9d. in yearly interest for the next ten years.

The main argument I wish to address to the Chancellor of the Exchequer on that point is this. I want to urge the Government to place credit on a natural foundation, and allow the damages of war to be realised right off. Economic forces and economic laws are bound to assert themselves in time, and if credit is inflated the heavier will be the fall and the greater the hardship to all concerned. Previous speakers this evening have referred to the vital necessity for the Government increasing the present level of taxation. Before saying a word upon that point I desire to make one reference to some economies that might be effected in a Government Department. For the last three years in this House I have drawn attention to the loss on the telegraph service. That service to-day is a parasite service. It lives on the proceeds of the taxation to the extent of £1,250,000 per year. The telegraph service is unable to pay its way. Why should that loss continue any longer? The Postmaster-General, in introducing his Estimates three months ago in this House, pointed out—

Mr. DEPUTY-SPEAKER

The hon. Member really must not take this occasion for dealing with Supply. It is only in a very general way it is possible to refer to expenditure. We are now dealing with the raising of money.

Mr. COLLINS

I was going to point out that through certain services being run at a loss, the general taxpayer has to find money, and money has to be borrowed to meet the losses incurred in that Department.

Mr. DEPUTY-SPEAKER

If the hon. Member had spoken in general terms, I should not have intervened. But it is obvious that if illustrations are carried into detail, it might lead to a discussion on Supply Votes.

Mr. COLLINS

Having pointed out to the Chancellor of the Exchequer that the loss on a particular service and the diminished revenue received by the State from the Post Office this year, in the hope that the Chancellor of the Exchequer will press the Postmaster-General to effect economies, curtail the service, or increase the charges to the public, and so wipe out the loss in comparison with last year, may I say just one word on the subject of increased taxation? During the last four months the Government, with growing intensity, have urged the country to economise in its expenditure, but have not, by taxation, brought vividly before the country the necessity for increased economy, and until increased taxation has been brought into this House and passed into law the vital necessity for economy will not be realised by the country as a whole. I say deliberately the Government are allowing the country to live in a world of financial delusion. What is the position? At the outbreak of War we had 12,000,000 men working in civil occupations. To-day over 6,000,000 of those 12,000,000 men are employed by the State, either in the Army or the Navy, or in making munitions of war. In peace time these 6,000,000 men support themselves by their labour. Today they have to be supported either by the labour of the remaining 6,000,000 or by taxation, or by voluntary loans to the State. It is apparent that no man can do the work of two, and therefore these 6,000,000 men must be supported by the labour of the remaining 6,000,000, and we require to fall back either on a voluntary loan to the State or on increased taxation to pay for the services which these men are rendering to the State to-day.

In a time of high profits and big wages is it not fair and right that increased taxation should be put on by the Government of the day? I will put this point to the Chancellor of the Exchequer: Is it fair that when peace is signed, and when the men return from the front, they should find that this country has not taxed itself to pay for the cost of the War during their absence, with the result that, at the end of the War, they come back to this country and are asked to pay yearly, not only the interest on the money spent during the War, but also some share of the capital spent by the country at this time? Is it fair, when we are to-day borrowing money which past generations have saved, and distributing that money as we are doing amongst the present inhabitants of this country, we should ask our soldiers when they return to share with us and to suffer with us these financial burdens? Is it fair that those burdens should fall equally on those who have been fighting in Flanders and the Dardanelles? The policy of the Government in this matter presents a complete paradox. On the one hand, men are fighting in the trenches to-day; on the other hand, masters and men, making large profits and earning good wages, are not asked to pay a single penny towards the cost of the War.

The Government have taken strong powers in the Munitions Bill to stop economic waste and to check friction between capital and labour. Why do not the Government take powers by taxation to check the economic waste which is proceeding to-day at a rapid rate all over the country by the consumption of luxuries? It would be easy to point out, at the time of high prices prevalent to-day, that the financial position would be aggravated in the future through the largely increased sums which the Government require to pay for their services. It would be easy to point out that the state of prosperity to-day is completely artificial. Taxes should be high during a period of inflation so that they can be lowered when, unfortunately, bad times arrive. It would be easy to point out that with the rate of interest allowed under the War Loan—4½per cent.—the financial position would be still further aggravated and accentuated in the future. The interest on the National Debt alone on 1st February next year will be at the rate of £90,000,000 a year. The Estimates for this year only allow a charge for the National Debt of £51,500,000.

The time is long overdue when the Government should have asked the House of Commons and the country to realise the financial consequences of the War. I admit that the present Chancellor of the Exchequer is not responsible for the Finance Bill we are now passing, but the Government have shown a lack of courage in this matter. The country will not raise unnecessary objections to increased taxation. They will condemn the lack of courage, if courage is not shown by our leaders. The country are prepared to foot the Bill as readily as they are to join the Forces. As I know that destructive criticism is not expected either in the House of Commons or outside at this time, I do not desire my criticism to be destructive, but to be effective. Therefore I put these four points to the Chancellor of the Exchequer. I would urge him to consider the financial position of the future; I ask him if it is wise to-day to continue drawing men from the vital productive industries of this country; I ask him to check all artificial attempts to maintain our credit, and to take the country into his confidence and reveal the financial consequences of the War, and to ask the country to support him in largely increased taxation at the very earliest moment.

Mr. McKENNA

A very interesting Debate has been initiated by the hon. Member for Barnsley (Sir J. Walton)—I may say a Debate which could not fail to be of the most satisfactory kind to anyone holding my office. Let me, in the first place, thank my hon. Friends for the kindness of the observations which they have made about the issue of the recent Loan. I was not referring to that particular feature of their speeches when I described the Debate as satisfactory. The most unpleasant part of the duty of any Chancellor of the Exchequer must always be to tax. It is most gratifying to me to find that in his arduous labours he is going to receive not the criticism, but the vigorous support of the House of Commons. [An HON. MEMBEK: "Perhaps!"] I am warned to wait and to be cautious in my hopes, but I certainly anticipate, from the unanimity of the speeches on this subject to which I have listened this evening, that I have every reason to expect, when the time comes for imposing new taxes, that the House of Commons will be willing to give the country a bold and full lead. It will be very serviceable. I cannot help thinking, however, that my hon. Friend the-Member for Greenock (Mr. Godfrey Collins), who spoke last, has suffered from a slight lapse of memory. He spoke of our having made paltry or insignificant efforts to meet the cost of the War in some part out of new taxes. He, like my hon. Friend the Member for Dumfriesshire (Mr. Molteno) referred to the noble example of earlier Governments in meeting the cost of their current wars out of the taxes of the day. Before any percentage calculation of that kind is to be taken as a guide, you must have some regard to the totality of the cost and the relation of that cost to the total income of the year.

What have we, in fact, raised in the first year of the War, by way of new taxes? No less than £68,000,000 sterling. It is quite true that that amount is a small proportion of the total cost of the War, but is it a small proportion of our total revenue? Those are the two figures which we must compare one with the other in the case of a war which, by the nature of its cost, must be comparatively short. We cannot anticipate for one moment that the War now waged at a cost of £1,000,000,000 a year to more than one of the combatants can be possibly maintained for the twenty years of the Napoleonic wars. If in those days 47 per cent, was paid annually out of the taxes, it is equally true that that the annual cost of that war was comparatively small. What is the true comparison we must take? We must compare the additional burdens which we have imposed upon ourselves during the War in relation to the burdens which we bore in peace. When that comparison is made, I do not think we shall stand in quite such an unfavourable light as that in which my hon. Friend presented us to be. If we take the most recent war—the South African war—we find that we have in one year raised very nearly as much in additional taxation as was raised in the whole three years of that war. It cannot be said that our annual revenue has anything like doubled, much less trebled, since the year 1900. We have indeed made greater proportionate efforts, I venture to say, than have ever been made before.

Mr. COLLINS

The right hon. Gentleman said we have raised by taxation £68,000,000 extra. How much of that money is to pay the interest on the debt created by the War?

Mr. McKENNA

My hon. Friend is going on to a totally different subject. I am dealing with the burdens we have imposed. He argued that our brave soldiers when they come back would be disgusted with us because we have made no effort to pay for the War. I retort on that argument that, whether the disgust be justified or not, we have at any rate made greater efforts than have ever been made before. The difference between now and other occasions is that this War is so vastly more costly than has ever been the case in the whole course of history. Still, I do not argue in this way in order to maintain the position that still greater efforts are not needed. Nor for one moment do I say that. As I said in opening, I welcome most warmly the support which I hope to obtain in this House for such proposals as may become necessary in the not too remote future. I only desire to say in justice to ourselves — I am not speaking now as a Government, but as the House of Commons—that our efforts have not been so niggardly and so mean as we might be led to suppose from the strictures of my hon. Friend. I quite agree with my hon. Friend that we are bound to make great 'efforts. We could never face without shame the prospect of not meeting, not merely interest on the Loans that we have had to raise, but also some fair share of the actual cost of the War. We shall have to meet those charges. We must meet the charges for loan and for Sinking Fund, and we must do our utmost to pay so much of the current War as is within our power. These duties impose a tremendous burden upon us. I do not see why we need aggravate those burdens by any undue self-depreciation.

My hon. Friend asked me whether I had formed any estimate of the cost of the War for twelve, twenty-four, or thirty-six months. Frankly I must admit I have not. I do not believe it is within the power of man to estimate the cost of this War if it lasted for thirty-six months. From day to day we cannot say what the progress of invention or the new requirements in the field may be. It is impossible to reckon the cost, and all we can do is to give such estimates as we have given, that is of the cost for one year. In due course we shall present Estimates to the House and I shall be prepared to carry the Estimate forward, but to give now any sort of rational estimate as to what it might be two or three years hence is entirely beyond the power of any general or any accounting officer.

Then my hon. Friend asked me how far was the policy of the Admiralty and the War Office dominated by the Treasury. I presumed to smile when he asked the question, because the question itself expressed a hope which I fear, in the actual circumstances of the War, cannot be realised. It is impossible for any Treasury to pretend to dominate the policy of the Admiralty and the War Office in war. It would lead to interminable friction. Our proper remedy is, if we have not sufficient confidence in those on the professional side who are responsible for carrying on the War, to dismiss them and put someone else in their places, but it is idle to expect any Treasury to be constantly interfering and deflecting the Departments from their proper duties in order to devote their time to explain the cost of this and that item of particular charges.

10.0 P.M.

My hon. Friend (Mr. Harvey) in a very powerful speech urged upon me the necessity for imposing extra taxes which he said should be done quickly and in large amounts and should be made as direct as possible. Of course, there is necessity for extra taxes, and I agree that when they come to be imposed they ought to be imposed with as little anticipatory discussion as possible, and should be of a productive kind; and I agree also that we should make them as direct as possible. But I would remind the House that there are very serious limitations to direct taxation. Several of my hon. Friends have expressed their wish to see a graduated Income Tax carried much further down than the present limits. I believe on examination it will be found that the cost of collection would render the amount collected hardly worth the trouble. When you get to the smaller incomes there is no practicable means of raising a proportionate amount except by some form of indirect taxation. With that qualification, I agree that taxation should be as direct as possible.

Then my hon. Friend (Sir J. Walton) developed a topic which he has alluded to more than once before, namely, the need for taxation of war profits. He is perhaps a little merciless, because, as I understand him, he wishes to take off all war profits. I have found generally a disposition, even amongst those who are earning war profits, to accept the proposal for a surcharge of the excess war profits, but I have not yet heard anyone, except my hon. Friend, who thinks it right that the whole of the excess profits should be absorbed.

Sir J. WALTON

I allowed 20 per cent.

Mr. McKENNA

Does my hon. Friend allow an increase of 20 per cent?

Sir J. WALTON

Yes.

Mr. McKENNA

My hon. Friend softens a little and allows the ox that treads the corn to get a bite at it. Then my hon. Friend (Mr. Molteno) asked me to pay special regard to waste in the spending department. I agree with him that it is a subject of the greatest importance, but, at the same time, of the greatest difficulty. I think—no one can be sure—that the charges of waste which are made are somewhat exaggerated. We all hear of the mistakes. We all hear of the particular cases of flagrant waste. They are reported from person to person and have become current, and as we all know and hear of the particular cases, we assume that they are general. In my observation, so far as I have been able to gather, while there have been undeniably specific instances of very great waste, that waste is not general. In nine cases out of ten, about which we never hear, the management is good and there is no waste. In the tenth case, of which we all hear, there exists waste. I am sure the War Office is most anxious to put a stop to it, and is most ready to consult with the Treasury and devise any means of which they or the Treasury may be capable, to put an end to it. No one wishes it, but we have to remember that the task which is now imposed upon the War Office is of a gigantic size. It is an improvised task, and the War Office has had of necessity to call in a vast number of men to aid them, not all of whom are geniuses, and some of whom may consequently, from time to time, let the War Office down. But the general work and the general attention to economy is, I believe, excellent, and it would be quite a mistake to suppose that there is any very great waste if the whole country is examined in its entirety. But still I recognise the force of what my hon. Friend said, and I can assure him that I am going into that matter personally with Lord Kitchener, and every effort will be made to avoid any possible waste.

I will not follow my hon. Friend into the subject of the analogy, or want of analogy, between Mr. Pitt's Government and the present Government. I believe that with care the want of analogy between us could be vastly extended. I think, on the other hand, that we might find some points of resemblance, but it would carry us a little beyond the scope of the present Debate to enter into a precise comparison of the Government of 120 years ago and the Government now. I can only assure the House, in conclusion, that I will do my best to act as a prudent Minister, safeguarding, as far as I can, expenditure. It will be my duty, with the assistance of the House, to devise taxation in order that we may be able to bear our fair share of the constant burden of this War. If I am to succeed, the support of this House is absolutely necessary. When we come to taxation it is unavoidable that we shall offend or alienate this section or that section of opinion. Everyone has his own favourite tax, and everyone his own principles of taxation. It is impossible in that most difficult of all discussions to please everybody and even to satisfy to a moderate degree everybody. But I shall hope, with the support of hon. Members, to be able to take reasonable and bold measures in regard to the taxation of this country.

Mr. DAVID MASON

If I join in the congratulations to the right hon. Gentleman I am afraid he would regard my congratulations as hardly sincere after the criticism I ventured to make when his Loan proposals were before the House. I will only say as to the criticism I made on that occasion—and I think he will readily admit it—that it would have no evil effects on the success of the Loan, but would rather help to stimulate subscriptions, and therefore would not in any way hinder the success of that operation. I do feel that nothing has occurred since to alter the opinions to which I ventured to give expression on that occasion, when I predicted that the Loan would be a monetary success, but that the terms, particularly of the conversion, were extravagant to an abnormal degree, and would place an additional charge upon the tax- payers, and particularly the poorer classes of this country. Subsequent events have not done anything to controvert that in any way whatever. A very interesting question was put by one of the labour Members, the hon. Member for West Ham (Mr. W. Thome), a few days ago to the Chancellor of the Exchequer as to what the cost to the country would be of these conversion operations, and the right hon. Gentleman stated in his reply, on the improbable hypothesis of the whole of the Consols being converted—I hope he will correct me if I am wrong—that the charge would be increased from £8,817,000 before conversion to £10,580,670, showing an increase of fixed charge which comes upon the people of this country of £1,763,470. If we take the increased charge on the old Loan of £350,000,000 that gives us an additional charge of £3,500,000, making a total additional interest charge of £5,263,470. As we know, that cannot be repaid before 1925 and possibly not before 1945. In the event of it running for ten years the additional charge to the people of this country will be £52,500,000, and if it is not repaid until 1945 the additional charge will be £157,500,000. In his reply on that occasion the Chancellor of the Exchequer pointed out that we had got compensation in the repayment of part of the consolidated debt, but even if we take that into account I think the figure he gave us of the reduction of the debt from £352,000,000 to £235,000,000 — that is a reduction of £117,000,000—the House will see that the additional charge is still a very large one indeed on the taxpayers, and presses particularly hard upon the poorer classes.

Another thing I would point out is that if this repayment of debt had not been provided for to-day there would have been no objection and nothing to hinder the Government later, by sinking fund or otherwise, redeeming the Consols at a low figure, which would probably continue to remain for some time. I submit that there is nothing to show that this conversion was necessary, and that we have as a result imposed upon the people of this country an additional burden of from £52,500,000 certain to £157,500,000 in the event of the War Loan running until 1945. It is unnecessary to labour that point because it must be evident to anyone, if they consider the situation. Let us take, for example, the position of a bank or insurance company with capital to invest. A bank or insurance company would have invested that capital at a rate of interest of 4½ per cent, if it were offered to them without the conversion terms. The Chancellor of the Exchequer may say, "I had to offer these terms in order to get the money." Let us take the example, then, of a bank or an insurance company. They have to invest their capital, and we all know that just now, owing to shrinkage of general trade, the figure works out at £100,000,000 a week, and the banks are finding great difficulty in employing their funds. As proof of that statement I would refer to the fact that when the right hon. Gentleman was issuing his Treasury Bills he was able to place something like £235,000,000 of Treasury Bills. The reason for that was that the banks were utterly unable to use their capital because of the shrinkage of trade. Therefore, they rushed at these Treasury Bills because they were offered by the Government as a means in which the banks could employ their funds. It is self-evident that if he had come forward with his Loan operations at 4½ per cent, he would have got the money, because the banks and insurance companies are bound to invest their capital and get a return upon it. As they have not got the trade bills—and we know that trade is badly disorganised and that our trade with the Continent has almost entirely ceased— they would have been bound to invest it in this Loan, because there was no other opportunity of investing these funds.

Mr. J. SAMUEL

Does the hon. Member say that the trade shrinkage amounts to £5,200,000,000 a year?

Mr. MASON

No, I did not say that. What I said was that taking the example the other day the bank clearing return showed a decrease of £100,000,000 in one week. That was a point which I had brought to my notice. The shrinkage is from £50,000,000 to £100,000,000 a week. If the hon. Member will study the clearing house returns I think he will confirm my views.

Mr. J. SAMUEL

It should not be misrepresented. That does not represent trade, that simply represents, as I understand it, the clearing house for cheques. It did not represent the actual trade.

Mr. MASON

It is a very good index, and if the hon. Member wants any further index, may I refer him to the large decrease in our export trade. It is self-evident that our trade with the Continent has almost disappeared, and that the only great trade we are carrying on is with the United States of America. I would like to refer to another point, and that is in regard to what has been said this evening as to the necessity for an increase in taxation. I rejoice to have heard from so many Members their enthusiastic support of the necessity for increased taxation, and that in the impressive speeches we have listened to they have urged upon the Chancellor of the Exchequer the necessity for facing the present financial position by an increase of taxation. When we consider this Loan of £570,000,000 and the Loan of last November of £350,000,000 and this great addition to the National Debt without any addition whatever to taxation, I think we have a very strong case against the present Government and the late Government for dereliction of duty in their utter inability to face this position of responsibility caused by the enormous amount that has been expended. It creates a position of apparent prosperity which deceives people and undoubtedly builds up an enormous amount of misery later on, more particularly for the poorer classes, who invariably suffer when there is a large proportion of the capital of the country drawn in the shape of Loans rather than in the shape of direct taxation. I think the right hon. Gentleman will be the first to admit this. I was very pleased, as we all were, to hear from him that—I suppose at a comparatively early date—he will bring forward some fresh proposal for taxation, and we can only wish him God speed in that direction, because as has been well pointed out by, I think, the hon. Member for Dumfries (Mr. Molteno), the hon. Member for Rochdale (Mr. G. Harvey), and the hon. Member for Greenock (Mr. G. Collins), it is right to do this now, and not to wait until the later months of the year. I also observe with great interest—and no doubt the House made a note of it, and I hope that there is some foundation for the opinion expressed—the anticipation of the Chancellor of the Exchequer that this War would be a short one.

Mr. McKENNA

No, I stated that in relation to the Napoleonic war this war would be a short one. I could express no opinion in a positive sense.

Mr. MASON

I do not wish to misrepresent the right hon Gentleman.

Mr. McKENNA

It is not a question of misrepresentation. It is a question of misquoting.

Mr. MASON

The last thing which I would desire to do would be to misquote the right hon. Gentleman. I appreciate the opinion which he has expressed in his interruption, but still I hope that we may read into it that he does wish for a short war rather than a long war. If he is seized with the grave financial position in this country he must, I assume, along with his colleagues, be prepared to bend every possible energy to the task of bringing this War to a close as soon as possible. When this particular Bill was in Committee we had some Debate on various Clauses, of which I happen to propose one. That was in reference to the cessation of the continued issue of the Treasury Currency Notes The right hon. Gentleman the Secretary to the Treasury (Mr. Montagu) on that occasion spoke of the issue being a stationary one, and conveyed the impression, I think, that we were not going to be faced with a very substantial increase in these notes. It was pointed out by the hon. Member for Dumfries that, in an interesting speech, the late Chancellor of the Exchequer said that the one remedy which the present Government, or any British Government, would not apply to the financial position, a grave one in many respects, would be to depend upon paper money. I find that so little effect has one's protest had upon the occasion when I ventured to move the Clause that the issue has been increased by £1,500,000, and is now just over £48,000,000, when we know that only £28,500,000 of gold is reserved against that issue. The point which the Secretary of the Treasury made was as to the convertability. I venture to warn the Chancellor of the Exchequer that there may come a time if he persists in the issue of this paper money, when we may approach the parlous condition in which Germany is, as a result of her action, in this respect.

I have referred to the position of our foreign exchanges and to the fact that gold was leaving the country, and will continue to leave, as the result of this policy, largely aggravated by the continued issue of these Treasury Notes. And therefore I again ask the right hon. Gentleman's attention to the point. He seems quite oblivious of the argument which I addressed to him. The Under-Secretaries to the Treasury, in their replies were entirely beside the argument which I submitted by continually urging the point of convertibility. It is impossible for the Bank of England, which endeavours to control the exchanges and money market, to bring about a higher rate in this country, to turn exchange more in our favour, and to put a stop to this gold outflow, if the Treasury is continually calling upon the printing press and issuing these Currency Notes. I would like to refer to the necessity of immediate increased taxation. I do not anticipate from the right hon. Gentleman's speech that he will bring in any measure before we adjourn. We can hardly believe that possible, and I think from what the Prime Minister said this afternoon that we cannot anticipate that. Therefore it will be, I am afraid, the later autumn before we can have new taxation proposals. If any words of mine, or of those who have spoken this evening, can have any effect upon the Government in leading them to reconsider their position, I believe that they would not only have the support of many in this House, but many throughout the country, in the interests of sound finance.

Mr. J. SAMUEL

I want to correct one statement by the hon. Member who has just sat down, because I really think it may be quoted in Germany or in other parts. He said that our export trade had practically gone.

Mr. MASON

No, no. I am sure the hon. Member does not wish to misrepresent me. I said that our general trade had very much shrunk, except with the United States of America.

Mr. J. SAMUEL

That is what I want to correct. I have in my hand the trade and navigation returns for six months, and if the hon. Member only studies those returns he will find that we are exporting to all parts of the world. The hon. Member stated that we were practically only exporting to America.

Mr. MASON

No, no!

Mr. J. SAMUEL

Excuse me, you made that statement. The facts are that during the last six months our exports amount to £234,000,000 to all parts of the world. In the corresponding period of last year we exported £314,000,000, a decrease of £80,000,000 during the last six months, which, after all, is an enormous trade. Take cotton: I find that we have exported cotton to all parts of the world, and in the six months we are only down practically something like £20,000,000, or from £60,000,000 down to £42,000,000. I think it is only right that somebody should correct the hon. Member, because we find in the pamphlets which come from Germany that those statements about the decrease of our trade, and about all sorts of things, are published broadcast in the world, and if my hon. Friend's speech is of such importance that it will be published. I hope that this correction will also receive publicity.

Question, "That the Bill be now read the third time," put, and agreed to.

Bill accordingly read the third time, and passed.