WAYS AND MEANS.

HC Deb 23 September 1915 vol 74 cc587-699

Considered in Committee.

[Mr. WHITLEY in the Chair.]

Motion made, and Question proposed, 1. "That it is expedient to amend the Law relating to National Debt, Customs, and Inland Revenue (including Excise), and to make further provision in connection with finance."—[Mr. McKenna.]

Mr. BARNES

The Labour party have had three meetings since Tuesday, when the Budget was introduced. They have looked at the matter in its general aspect and in the light of the needs of the hour; they have also discussed it in some detail, and they have asked me to submit to the House the conclusions at which they have arrived. First of all, I should like to join in congratulating the new Chancellor of the Exchequer upon the manner of his presentation of his maiden Budget. I have now been in the House some ten years, and I have heard ten Budget speeches, and I never heard one which deviated less from a straightforward, matter-of-fact statement of the matter in hand than the one which we had the other day. I should also like to congratulate him and the country upon the general acceptance of a scheme of taxation upon a colossal scale, because all the world may know thereby that this country has got its teeth into this War and that its teeth are going to remain in the War until peace has been restored on a firm basis.

There are one or two general considerations which I should like to put to the House with regard to the Budget. The first one is of a rather ominous character. Notwithstanding the immense and, as the Chancellor of the Exchequer said, the unprecedented burdens which it proposes to impose upon the people of this country, the sum realised by the new taxation forms but a very small amount of the yearly expenditure and the indebtedness of the nation at the end of the financial year. Putting on one side the small amounts which are estimated to be derived by the readjustment of the postal system, which, by the by, I do not think will be realised at all, the revenue to be yielded is £102,000,000. As I gathered, the indebtedness of the country at the end of this year will be £2,200,000,000. I want to bring to the notice of the House the extent to which, even with this new taxation, we shall be able to wipe out that debt. I do not know the average percentage of interest payable on the various loans. It is probably somewhere between 4 and 5 per cent. Four per cent. would be one in twenty-five, and 5 per cent would be one in twenty. Probably we might put it at one in twenty-two. If that is the case, then the whole of the new taxation for a full year, amounting in round figures to £100,000,000, will just pay the interest on the debt owing at the end of this year. That is an ominous consideration. I do not know whether more could be raised this year by taxation and less left to loan. I heard an hon. Gentleman on the other side of the House the other day say that in his judgment too much was being raised by taxation and too little left to loan. I am inclined to take the other view. As a matter of fact, we have not felt the War at home so far. [HON. MEMBERS: "Oh!"] I mean relatively. Taking into consideration the privations, sufferings and losses of those who have gone to the front, as compared with their case, our burdens have been insignificant. Moreover, since the War began, and in consequence of the War, the whole mechanism of the country has been kept at work. Manufacturers, commercial men, and all sorts of people have been fully employed, and the working classes, especially the mechanics, have been in receipt of wages for the whole year. This is unprecedented, and, for all these reasons, I, for my part, should have been inclined not to complain, but rather to applaud the Chancellor of the Exchequer had he taken advantage of that prosperity to pile up the taxes even more.

Then, in the second place, as a general consideration, this Budget may be taken as a War Budget, and Members, in accepting it as a whole, must not be understood as endorsing all the principles embodied in it, or as endorsing even the abandonment of certain principles. In this connection we note the introduction of taxes on imported goods, and we take it—and this is the only ground on which we support it—that these special taxes have no particular significance, but are really a measure of political expediency. We look at the Budget in the light of three principles. We are willing to support the Government in these or any other proposals which may be made for the conduct of the War, so long as the fresh proposals impose no fresh disparity of taxation as between class and class, so long as they do not make any, as we think, needless inroads on the slender resources of the very poor, and so long as they do not sacrifice any vital principle or interest of the country. What I am about to say, I say in the light of either one or of all these three principles.

First of all, we regret that the Chancellor of the Exchequer has found it necessary to reduce the exemption limit for Income Tax from £160 to £130. We take it that that will cost a considerable sum of money in mere extra machinery. We take it there will have to be a number of additions to the staff in order to carry it out, that there will be a multitude of new forms to be printed, and altogether an element of confusion, and additional work, will be introduced into the Revenue Department which will cost money. The sum to be realised by this change for a whole year is, as I understand, £939,000—a mere fleabite compared with the immense revenue we are raising—about one-third of 1 per cent. of a year's revenue. I have to suggest to the Chancellor of the Exchequer that the game is scarcely worth the candle. I know the argument put forward by many is that we have got to reach the wage-earning classes of the country, but in regard to that let me suggest to the Chancellor of the Exchequer that the men touched by this particular change are being hit twice.

I would take a case mentioned by the right hon. Gentleman the other day of a man with a wage of £2 15s. per week. He has not hitherto paid Income Tax at all. You are going to take from him 12s. 1d. per quarter. In round figures you are going to hit him by the Budget in a direct way to the extent of 1s. per week of his wages. If that were taken by itself we should not complain. We have never complained of the principle of direct taxation, and even if the indirect taxes had remained as they were, we should not have complained about this reduction. But in the case of this particular man you are taking 1s. a week in Income Tax, and having regard to the increased price of commodities entering into daily consumption in his home, you are taking another shilling in these taxes. An hon. Friend of mine says "more." I am willing to be moderate, and put it at 1s. At any rate, there are 2s. taken from that man's wages. The proper principle it seems to us in imposing new taxes is to have regard to what may be called the margin of a man's income after his daily needs are satisfied. The margin of income of this man on £2 15s. a week, especially having regard to the war prices of the last few months, must be a very small one, and therefore to take 2s.—1s. by means of direct, and 1s. by means of indirect taxation—hits him very hard indeed. We think it is worthy of consideration by the Chancellor of the Exchequer whether, having regard to the small amount to be derived from the direct tax, the game is worth the candle.

I pass on to a question akin to that, and that is the reduction of the abatement amount to £120, and I will take the case of the men who, I think, are hit hard by this Budget—who are hit now very hard, and always have been hit. I refer to those whose incomes range from about £200 to about £400 a year, and I want to make a comparison between these men and the way they are hit by the Budget with the men a little further up the scale. Let it be remembered that men with incomes of from £200 to £300 per year are men who are living right up to the limit of their income. They have nothing to spare; in many cases they have commitments, and I know it is a common thing to find the mother of a man in receipt of such an income living at home with him. Very frequently such a man maintains his aged mother. He may have other commitments of a like character and conseuently he is living right up to the verge of his income. The men I have in mind are bank clerks, clerks working in commercial houses, or foremen in large manufacturing establishments, just the type of men who are keeping the industrial machinery throughout the country in going order. A man of that class is hit very hard indeed. Take the case of a man on £200 a year. How does this Budget affect him? In pre-Budget times he has paid on £40 of his income, £160 is deducted from his total income of £200, and he is taxed on only £40. If the Budget proposal passes in its present form, he will have to pay not on £40, but on £80, so that you see, apart from the increase in the rate of the tax, the amount to be taxed will be just doubled.

After increasing the amount of the income to be taxed from £40 to £80, you tack on the 40 per cent. in addition, so that, instead of being taxed at the rate of 1s. 6d. on £40, he will be taxed at the rate of 2s. 1d. on £80. The net result is that this man, who, as I say, is now living right up to the top of his income, has his tax increased by no less than 178 per cent., or from £3 up to £8 6s. 8d. Now we will take the case of a man with £3,000 a year—I am still dealing with earned income—at the lower end of the Super-tax scale. He at present pays on his £3,000, £375. He is to pay on no more, but he is subject to an increased rate of 40 per cent., therefore he will now have to pay, under the provisions of the Budget, £525. I know that is a pretty stiff amount, but still he will be left with £2,475. As the hon. Member for Blackburn (Mr. Snowden) has often pointed out, the point in taxation is not to consider how much you are taking from a man, but how much he has left over. This man with £2,475 is, on the whole, taking everything into consideration, dealt with more generously than the men with small incomes.

I come now to the War Profits Tax. Needless to say, we welcome that tax as at all events better than nothing, or rather let me say as a substitute for something much better which might have been done long ago. We have been urging upon the Government right from the beginning that they should have assumed control of certain industries having to do with the supply of goods and so have prevented these profits accruing altogether. We think it would have been much better to have done that, and we regret that it has not been done. The Government, however, in spite of the fact that one of their own Committees recommended in regard to coal that they should assume control, have done nothing, and they have allowed these profits to accrue. Now they propose to compound a felony by sharing in the swag. We are going to suggest an alternative method of imposing a tax upon the increase in war profits, a method which we believe will be much simpler. So far as I understand it, the Chancellor of the Exchequer is to impose a tax of 50 per cent upon the increased profits due to the War. [HON. MEMBERS: "All profits."] I will assume that all extra profits are due to the War. So far as I understand it, that tax is to be imposed as part of the ordinary taxation of the country and subject to all the limitations in regard to exemptions, abatements and all the rest of it. I understand the tax is to be imposed upon the war profits after the ordinary taxes have been imposed upon the whole income, including the war profits. In that way it will amount to much more than 50 per cent., or it may do.

I have some figures here. I take a company which, before the War, had earned £100,000 profit, and in a war year it earns an additional £100,000 profit. It is taxed at 2s. 6d. in the pound, therefore the whole £200,000 yields £25,000. I am keeping Super-tax out of the question in the meantime, because it does not bear upon my argument. The company pays 2s. 6d. in the pound on the whole of the £200,000. [HON. MEMBERS: "No, 3s. 6d."] If I am wrong, the Chancellor of the Exchequer will put me right afterwards. I am keeping the Super-tax out of mind for the moment. [HON. MEMBERS: "It is 3s. 6d."] Let me assume it is 2s. 6d. The company pays £25,000 on the £200,000, and then pays another £50,000 on the additional £100,000. That is what is meant by the 50 per cent. I leave the first £100 out of account as neither here nor there, therefore this company pays not 50 per cent. on the second £100,000, but 62½ per cent. Then more may be paid by the shareholders in the company if they are Super-tax payers, but then less may be paid by those who may claim abatement or exemption.

We suggest to the Chancellor of the Exchequer that this is subject to a good deal of confusion, and that it may be covered up by a good many things which I need not mention. Therefore, it is worth consideration whether or not this tax upon war profits should not be carried out in an altogether different way. We suggest that the war profit, taking the second £100,000 into consideration, should be subject to a percentage of tax, or, rather, I would not call it a tax at all, but I should say we should appropriate part of that second £100,000, and take it over holus bolus, not subject to any abatement, not subject to any exemption, and not subject to any of those things generally hanging on to the Income Tax payer, but if a profit has been made which is regarded as a war profit, we should take a certain percentage of that profit— which is profit made out of the nation's need—and then impose your tax, subject to all your conditions of taxation, on the remainder of the income. We suggest that to the Chancellor of the Exchequer as a better method of imposing the charge upon war profits.

4.0 P.M.

As to the amount, that under the Budget proposals is 50 per cent. Why should it be only 50 per cent? I agree with the hon. and learned Gentleman the Member for York (Mr. Butcher) who said the other day that there is no reason why you should not take the whole. It is all due to the War—at least that is the assumption. Having regard to the great need of the country, having regard to the suffering and privations of those who are fighting for us, why should any man, either by increased profits, and I would say even by increased wages—[HON. MEMBERS: "Oh!"]—I am quite prepared to deal with wages as well, should that be necessary—I say why should any man or woman benefit financially as a result of the nation's need? I am going to suggest that instead of proceeding on the basis of 50 per cent. or 60 per cent., or something else, you should take a definite amount of the increased profits made during the War. We suggest that that amount should be 80 per cent. We do that because it would make the new proposal in the Budget correspond with the operation, as I understand it, of the Munitions Act. That was an Act passed while I was away, but I believe you have now decided that the factories under control shall not be allowed to increase their profits by more that 20 per cent.—that is to say, if the firm has hitherto been making 10 per cent. it shall not make more than an additional 2 per cent., therefore in the case of the company I have imagined, if they had been making a profit of £100,000 they would not be able to make more than an additional 20 per cent. You should skim off the 80 per cent. in the case of additional war profits exactly as you do in the case of the controlled factories. We think that that is within the lines of justice and it would be a much simpler method of levying the tax.

I now come to Customs and Excise, and I want to deal with these under two heads. First of all, tobacco. We have nothing to say against the increased tax on tobacco. A good many of us smoke. I do, and I am not going to give up smoking because of the tax, but it is quite open to anyone in the country to get exemption from it if he cares to, and therefore we are making no objection to the increased tax on tobacco. But we offer a vigorous protest against the other taxes. We are going to be subject to an additional tax of £11,700,000 on sugar alone, and we are going to be subject to an additional tax of £4,500,000 on tea. We believe that these additional charges are quite unnecessary, and in any case, if it was found necessary to increase the taxes at all, this change is quite excessive. It imposes over £16,000,000 of new taxation upon the very poor. In this connection I want to remind the House that, after all, the very poor amongst us are bearing what might be called an unseen burden in consequence of this War, altogether apart from what is thrown on them by this Budget. For instance, all over this country poor families have lost their sons. I do not mean that their sons have been killed. That may or may not be. But from all over the country many thousands of young fellows have gone from poor homes who would otherwise now have been partly supporting those homes. Take the case of apprentices. This is a matter that I have urged on this House more than once, and have urged on the Committee of which I was a member last year. Thousands of apprentices have gone away to the War who were in the last year of their apprenticeship. They may have been receiving anything from, say, 10s. a week up to £1, but they would have been in receipt in a month or two, but for the War, of sums ranging from £2 to £3 a week. The poor homes from which these boys have gone are worse off for their absence in that way, and therefore they are bearing an unseen burden altogether apart from, and on top of the burden imposed upon them by the Budget. I have a letter here from a poor woman in Bolton. She says:— Could you do anything for my case? My son enlisted the first week in September last. He was an apprentice within six weeks of being out of his time. He was earning 18s. 6d. a week. Had my son been at home now he would have been earning from £2 to £3 a week. She goes on to say she is given an amount based upon the pre-War degree of dependence upon that son. The pre-War degree of dependence of the mother upon that son does not cover her case at all. She is worse off now because her son has gone, and therefore I think that consideration should have been had in framing the Budget to that and similar facts. As a matter of fact, this is an additional tax upon very poor people, and one which, having regard to all the facts of the situation, should not have been imposed at all.

Now I come to the duty on imported luxuries, which I understand has caused a good deal of flutter in some dovecotes. We want to say that this tax involves an abandonment of the Free Trade principle, and we regret that exceedingly. We do not regret it only on theoretical grounds. We are not unmindful of what the Chancellor of the Exchequer said the other day, that there is something in this Budget altogether apart from finance, and that it is to discourage undue spending and to discourage imports. We are having regard to all that, but still we regret that these taxes have been imposed, and we regret it from a more practical point of view. I believe that this is going to open the door to more excess war profits. For instance, take motor cars. Motor cars have been coming down cheap. It is perfectly true that the imposition of the tax upon motor cars is not going to increase the cost of production of a motor car in this country, but nevertheless it will increase its price. Advantage will very soon be taken by manufacturers of motor cars to stick the price on. We regret that it has been found necessary to impose a tax, and we sincerely hope this will only be a temporary expedient to get over a temporary difficulty.

I come to the postage rearrangements. We cannot but offer a vigorous protest against the needless abolition of the halfpenny postage. I believe that in some respects that may be regarded as the greatest blot on this Budget. It affects people in many ways. There are large numbers of organisations, such as those to which we on these benches belong, which are under statutory obligation to issue a great many things under the halfpenny rate. I do not mean statutory in the way of the laws of the country, but statutory in regard to their own rules, which determine that they shall issue circulars and all sorts of things to their members monthly, and sometimes weekly. These people have to continue to issue these circulars, and therefore this change will involve a very considerable additional expense upon these organisations, many of which are poor. But apart from that, the halfpenny postcard is in many districts regarded as the ordinary normal means of communication from one poor person to another. During the War especially, I should say, probably there have been more halfpenny postcards issued than ever before, and as everyone knows, when a person goes to the seaside nothing is more common than for him to send half a dozen postcards to his friends, and a large industry has grown up in the way of printing fancy postcards. From all these points of view we regret that the Chancellor of the Exchequer has found it necessary to introduce what we cannot but regard as a pettifogging sort of proposal into his Budget. It is altogether unnecessary, and it will not yield any revenue, because these people who go to the seaside, and have been accustomed to send half a dozen postcards, simply will not send any, and many poor people who have been able to send postcards to their relatives or friends will now not be able to go to the cost of the increased postage, and therefore it is probable that instead of getting any revenue from the abolition of the halfpenny postcard, you will get less revenue than you have now. Unless the object of the Chancellor of the Exchequer is to relieve the Post Office from carrying heavy bundles, I do not see what he is going to gain by this proposal.

If alterations in the postal arrangements were found to be necessary at all a much better method could be found than that. I have just been to Canada, and I have found a very cheap method in operation there. In Canada just now a war stamp has to be put on every letter. A war stamp is one of the cheapest and simplest forms of taxation. I do not know how much could be got out of it. It depends on what you derive from penny postage. But supposing £10,000,000 is the revenue from penny postage, then by the simple expedient of printing so many millions of farthing stamps and determining that everyone should put a farthing stamp upon a penny letter, you would thereby get £2,500,000 in the simplest possible manner. It could be done easily and it would involve no hardship upon anyone, and I suggest to the Chancellor of the Exchequer that, if he wants to increase the postal revenue, that would be a far better method of doing it and it would not bear hardly on the very poor. I have nothing to say about the reduction of rate from four ounces to one ounce. It is ridiculous to have carried four ounces at any time for one penny, and I do not object at all to a penny being charged for one ounce. After all, a person can put a good long letter into an ounce, and if we accustom our- selves to writing a little closer we shall be contributing to another idea of the Chancellor of the Exchequer as to economy. Lastly, we express satisfaction at the adjustment of Schedule B under which people have to pay in future on the full assessment instead of only on one-third.

I want to associate myself fully with what was said the other day by my hon. Friend (Mr. Dundas White) as to the absence of any provision in the Budget to reach land values. It is an extraordinary thing that at this time of day, when we are having a Budget imposing additional burdens on all classes of the community, this particular class, of all others, should be exempt from any burden. I know they pay under the Super-tax, but having regard to the Chancellor's statement the other day that the object of the Budget was not only to raise revenue but to develop the economic resources of the country, it is all the more extraordinary to me that something should not have been done to reach the ground landlords. I have been putting questions to the Prime Minister and to the Secretary for Scotland for the last six or eight months on the question of increased rents in Glasgow. I put one to-day and I found that hon. Members behind me had the same complaint to make about other places. All over the country during the time of the War rents have been going up by leaps and bounds. [HON. MEMBERS: "No!"] I know they have. That is a simple statement of fact. I have a letter here from a man in Glasgow who tells me that his rent has increased by £3 7s. during the time of the War—a small cottage house. That is typical of many thousands of other tenants in Glasgow, and it is just exactly what is going on all over the country. Landlords are taking advantage of the fact that there is an increased demand for houses in certain areas, and they are sticking on the rent.

An HON. MEMBER

It is not due to the ground landlords.

Mr. BARNES

It is due to the conditions under which we live and move and have our being, including the landlords. Take the position in Glasgow. In Glasgow there is a positive house famine, due to the fact that during the War many thousands of people have gone there to work on munitions of war, and the consequence is that the landlords have taken advantage of that fact and piled on the rents. Immediately outside the municipal area of Glas- gow land is yielding about 2s. 6d. in the £—that is, the agricultural value is so much that it yields about 2s. 6d. in the £. Immediately people want to buy that land to build houses upon it for workmen, thereby increasing the number of houses and reducing the rents, you find that the price is not 2s. 6d. in the £, but about a dozen times that amount is what you have to pay for just enough land to put a house upon. I must not exceed my mandate, but I believe I speak with the sanction of the majority of my colleagues, and with the concurrence of working men generally, that this is a condition of things that should not be allowed to continue. Such a condition of things stops building, stops enterprise, keeps up rents, and is altogether unsatisfactory. We, the Labour party, support the Budget, but we would have supported it all the more heartily if something had been done in it, or some promise had been held out by the Chancellor of the Exchequer, that that great and crying evil would be dealt with either in this Budget or in some other Budget in the near future. I can only say, in conclusion, that the working people, I believe, will pay their share under this Budget, if not cheerfully, at all events with courage and with fortitude. We shall reserve our right to criticise and examine the Budget later on, but subject to that, and having regard to the principles I have laid down, we will do our part in granting whatever Supplies may be necessary to prosecute this War, and to pour into the services of the country all the men and all the munitions that may be necessary to bring the War to a successful conclusion.

Mr. DUKE

It is refreshing, after some of the Debates that we have had since the House reassembled, to get a message to the common enemy such as the hon. Member (Mr. Barnes) has delivered in the last part of his speech. The hon. Member has come into line as anyone who knows him knew he would come into line. He has said in effect that "if His Majesty's Government, upon consideration, comes to the view that this is the proper mode of making the present contribution to the national need, then, whether we agree with the details or not, we say Aye to what the Government considers necessary." I suspect that the gentle criticism with which the hon. Member—speaking, as he said, on his mandate, as representing his colleagues who sit near him—has visited the Chancellor of the Exchequer will not abate in any way the gratification which the Chan- cellor and the Cabinet must have felt at the response not only in this Chamber, but in the country at large and beyond this country—the response to the challenge His Majesty's Government has made to the fortitude and the courage and the spirit of self-sacrifice of the country. We have passed through some depressing days and anxious nights. A great statesman said, about the time that I began to take an interest in politics, speaking of the troublous times then existing:— It is not one campaign, it is not two campaigns, it is not three campaigns, which will prove the depth of the resources of this country. Lord Beaconsfield, or Mr. Disraeli as he then was, said that nearly fifty years ago. The country has greatly prospered and greatly advanced in the intervening period. It has greatly prospered in material resources, and that it has greatly advanced in resources which are even more vital is demonstrated by the substantial unity of the whole country under the tremendous test which this protracted and terrible War has put upon national unity. We all recognise that that evidence of substantial advance in the powers of the country is more precious than any evidence found in statistics. Many generations ago it was recognised that if the men of England stood together she was impregnable. That is a truth as surely to-day as when it was developed at first. Here we have an evidence of unity which is magnificent, and what I hope will strike materialistic minds across the Channel very distinctly is this: that there has been recognised throughout this Debate, and by no one more readily than the hon. Member who has just sat down, that the Chancellor of the Exchequer has not really made inroads upon the resources of this country which need affect its permanent prosperity. Everybody who has examined this Budget, and has considered its various proposals, has seen that there are lengths to which we can go if we are driven; that if the enemy insists upon it, and the circumstances require it, there are lengths and depths to which we can go which the right hon. Gentleman and his colleagues have not yet plumbed. I hope and I trust they may not have to go to that extent. However, with a confidence and certainty at the present time in our ability to bear these burdens, and with a cheerful certainty on the part of the hon. Member for the City (Sir F. Banbury)—an almost hilarious certainty in a quarter where the pulse of the money market has constantly been felt, and other symptoms of the City are perhaps more delicately appreciated than they are in other directions—I think we may take courage from this Budget and from the response which it has elicited. We may say it is a cheerful and a hopeful Budget.

Sir F. BANBURY

Unfortunately I was not listening to my right hon. Friend, but to my hon. Friend next to me.

Mr. DUKE

There cannot be a greater compliment to a man than that he should be allowed to pursue his foolish way undoubted by his most immediate political friends. I cannot help thinking that that also is an excellent augury in a time when we are discussing an unprecedented Budget. I want to examine a few of the points arising out of the Budget, some of which were touched upon by the hon. Member (Mr. Barnes). It will be thought in some quarters that the hon. Member said to the Government, "Now, look here, keep your hands off the working classes; do not tax their wages, because that will put them in an invidious position in that respect. Do not tax their food, because that may double their other burdens." The hon. Member, I am sure, did not say that really. I followed his speech closely, and I am sure he did not mean that, because it would be totally inconsistent with much that he said, and in particular with what he said towards the close of his observations as to the contributions of the working classes in this country. He said, courageously, and, as I think, justly, that the common view of Englishmen is that you have no right to make a profit out of the War, whether your profit is by big wages disproportionate by reason of war conditions to a man's exertions, or by big profits. I do not mean big wages by reason of a man working twenty-four hours instead of twelve. If a man works twenty-four hours he ought to be paid his overtime. I am referring exactly to what the hon. Member referred to, namely, the possibility of gaining out of the distress and difficulties of the country rates of wages which are unprecedented, just as there is a possibility, and it has been exploited in some quarters, of getting out of the difficulties of the country rates of profits which are unprecedented. I agree with the hon. Member that if it were possible to divert these into the Exchequer it would be a highly satisfactory process to resort to.

I come now to another matter, and that is the precise point of the new departure in regard to the imposition of taxation on wages—wages which may range down to the figures which the hon. Member gave when he showed where at the point of the new departure the burden will be particularly felt. But wages may range up to £7, £8, £9 or £10 a week. The precise point at which you should begin to impose taxation so as not to hurt anyone's feelings, or give him any justification for considering that he is paying more than he ought to pay, or that his payment is disproportionate to what his comrades in the country pay, ought to be a matter of serious consideration on the part of the Government. If, in regard to the question of the point of departure, the Chancellor of the Exchequer sees that there is something abrupt about his point of departure, I am sure there are great numbers of people in this country who do not ordinarly see eye to eye with the hon. Member who would not grudge him anything that was done in that respect. The hon. Member put a high water-mark of contribution on everything that springs from the mere existence of war. Bearing that in mind, and the spirit of gentle criticism in which the whole matter was approached, it is a subject upon which I do not doubt the Chancellor of the Exchequer has been much exercised, because it is an absolutely new departure, and a subject which will have some further consideration. If the Chancellor thinks that this is the proper method, and that he cannot do it by a better method, it is at any rate very gratifying to know that, speaking on behalf of the Members particularly representing labour in this House, the hon. Member says they will accept it.

There is another matter which I know does strike many people as likely to be a cause of difficulty in regard to this tax upon wages, and that is the quarterly contributions, with the possibility of yearly readjustment. It struck me as introducing a complex system of accounting in regard to the taxation of wages which may lead to quarterly friction and yearly protest. Has the Chancellor of the Exchequer considered whether it would not have been simple and practicable to collect these taxes by stamps weekly? Whatever wages are being earned, whether the payment is monthly or weekly, if there is a stamp which could be bought, and which would conclude the matter of the payment of the tax for that time, it would remove the objection which might arise at the end of every quarter of a man with a very mode- rate income, and with a very small margin in these times left for contribution, being faced with a demand, perhaps for a certain number of shillings but more likely for a certain number of pounds which he has not prepared himself for. I know that the Chancellor in these times, when it is to the advantage of the public that all of us should bring all the good sense we have into the fund of common sense, will consider that matter. It has occurred to many people who have discussed this matter with me that such a course as I suggest would prevent friction, that it would prevent a complicated system of accounting, and prevent the necessity of readjusting which would have to be done if a system of that kind were introduced. There is another matter with regard to the very heavy burdens which are imposed in some other quarters. There is the sum which the hon. Member (Mr. Barnes) calculated in tens of thousands of pounds. He has an aptitude for dealing with these big figures which is enviable. I think he must have had charge of the pecuniary affairs of a big trade union at some time.

But there are these large profits from business houses which are to be called upon. I know from men engaged in commerce that if you are going to make a sudden demand for some large sum, say £50,000 or £100,000, upon a business house and require it in ready cash, and demand that it shall be paid down under the stringent conditions upon which taxes are ordered to be paid, you may put a demand upon that business house which at the moment will cause it embarrassment. I hope that the Chancellor of the Exchequer will consider whether it would not be advisable to take powers to readjust the demand for these great sums so that, given reasonable security that they shall be paid, and that the Exchequer shall not lose any part of them, they shall be paid at the time and in the manner that shall cause least dislocation to the business interests, as the sudden withdrawal from business of a great capital sum is usually regarded as a misfortune to the business from which it is withdrawn, and a misfortune to the community which is interested in that business.

There is another matter to which I want to ask the right hon. Gentleman's attention in reference to those who are regarded as the well-to-do. I refer to the Super-tax of people who have no income for the present year. The point at which Super-tax begins has been brought now to a much lower figure than that at which it originally stood. I think that it is now £2,500. Take a man who has got £4,000 or £5,000 in ordinary years, through going on the Stock Exchange or through some business which has not benefited by the War or high profits. The Super-tax is assessed upon his income by taking the average of the previous three years, and you make the concession which the Chancellor of the Exchequer has foreshadowed. I suppose that that is what has been regarded as the utmost possible concession, having regard to the principles upon which Income Tax is assessed. I thought when I listened to the exceedingly lucid speech of the Chancellor, which, if the right hon. Gentleman will pardon me for saying so, I admired as everybody admired it, for its lucidity, its brevity, and its directness, that I might have been mistaken in thinking that the Chancellor of the Exchequer intends to make the Super-tax payer pay his Super-tax although he has no income. He will pay his Super-tax upon the amount for which he was assessed to Income Tax the year before last, and he will, perhaps, if he is a man who had £5,000 or £6,000, and whose means of livelihood had been swept away, so far as earning is concerned, have to pay Super-tax as though that had not happened. If it is necessary that he should do that, and if that is the intention, he must do his best. He must take it as one of these unhappy consequences of the situation in which the country has been plunged. I am not sure whether that has been definitely considered, and that it can be intended to give a man relief in respect of Income Tax, when he has not got an income, while on the other hand he will have to pay Super-tax when he has not got an income as though he had one. I do not doubt that that is a matter to which the right hon. Gentleman will give his attention. Nobody asks for more than that at the present time.

There has been a great deal of discussion in the country on a topic to which the hon. Member referred. That is the total abolition of the halfpenny postage. I confess to being disinterested in the matter. I never use postcards and I hate to receive them. People who have communications to make which require to be forwarded by post can generally find a penny to pay for a letter. I think that I would rather pay the twopence at the other end, even in war time, than that I should be pursued by postcards which disclose to outsiders the other person's and my own personal affairs. But that is beside the question. That is merely my personal feeling. Apart from that there is a great public affection for postcards. You hardly meet anybody who discusses the Budget who does not drop down on this rather insignificant subject of the postcards. If it were a time of peace it would be like Mr. Robert Lowe's famous tax on matches; but it is not. It is a time of war. If the right hon. Gentleman says that we must have it, we will have it. But one would like to know when he comes to deal with this question, in a little detail, whether the object of dealing with postcards is the economy which will be obtained by reducing the burden upon the Post Office, or whether it is the increased revenue which will be obtained by driving people to send their communications by the penny post. My own impression is that the second development will not take place. As to the question of economy, it may be different; I do not know. The Chancellor of the Exchequer and his colleague, the Postmaster-General, can deal with that subject. If it is a financial proposal, and has reference either to revenue or to economy, I am sure that the Committee will be told about it.

The hon. Member dealt also with great social and controversial questions. He put in a caveat in favour of Free Trade. In past times I used to contribute occasionally to the controversy between Free Trade and what was called Tariff Reform. If the hon. Member had not reminded me of it I would have forgotten it. But I will say that it is quite conceivable that you may have a working example with regard to duties upon imports, needless imports, which may help people in this country by-and-by, when we are in happier times, to make up their minds as to how these taxes operate. At any rate we shall have seen for ourselves what is the effect of a few particular taxes, and if we are dealing with the byproducts of taxation I venture to commend that to the hon. Member as a setoff to the natural and modest disclaimer which he made of any intention to depart from Free Trade principles.

The hon. Member also dealt with a great question of how you shall save the State by punishing ground landlords. It has not always been recognised that there are among ground landlords many high-minded public spirited persons, some of whom at any rate incurred odium in the past, who have earned public gratitude in these times. I may recall to the memory of the hon. Member one great ground landlord, who has often been held up to odium, and who it was said had been seen working on an emergency as a stoker in a ship. I do not suggest that that is more than the average Englishman is ready to do. It is the sort of burden which the Englishman has to bear, and which the Englishman, who is not a ground landlord, has to bear, as well as the Englishman who is. But I may say that the close time for ground landlords will not hurt the country, because that is one of the directions in which, after all, if you have got to go further, no man who has, as Englishmen throughout the world have demonstrated that they have, the determination to bring this War to a successful issue by every needful sacrifice, will shrink from making the sacrifice.

Mr. ARNOLD

All the speakers, so far, have agreed, and I think that all Members of the House agree, that more money must be obtained by taxation towards the cost of the War. It is certain that, judged by actual precedent and by due regard to the future, a larger revenue from taxation is immediately called for, and, indeed, I consider that it should have been raised some time ago. I think that the two main problems for the Committee to consider are, first, what amount of new taxation should be imposed on account of the War, and secondly, how should that amount be raised. That is to say, how should the burden be divided among various sections of the community. In regard to the first problem, there is no scientific principle by which we can determine what proportion of the cost of the War should be paid by taxation during the currency of the War. But I submit that the new taxation imposed since the War began—that is in last November—and that which is being now imposed, should come at least to such a sum as will make the total annual revenue of the country equal to the estimated peace expenditure of the country after the War is over. I think that such a sum, at least, should be raised. Otherwise it will be necessary to impose further taxation when the War is over, whereas in all previous wars the heaviest burden of taxation has been borne during the currency of the War, and some remission has been possible and invariably has been made when peace returned.

It is, of course, impossible to say what the expenditure of the country will be after the War is over, as so much depends upon the duration of the War. But I will for the moment assume that the future expenditure of the country will show an increase of £150,000,000 over the pre-war peace expenditure. This sum of £150,000,000 would allow for four main items. The first is £90,000,000 interest on the new War debt, taking the borrowings of this country, apart from the advances to other nations, at £2,000,000,000, with interest at an average rate of 4½ per cent. While on this point, I might ask the attention of the Chancellor. I would be glad if he will either now or subsequently make quite clear the position in regard to the amount of the dead weight of debt at the end of March next. In his speech he said that the total dead weight at the end of March next would be £2,200,000,000. As I understand, that sum includes the dead weight of debt which existed before the War, amounting to £651,000,000, and also the advances to other nations, which, I think he said, amounted to £423,000,000. Those two sums come to £1,074,000,000. That would mean that the borrowings of this country for the War, by the end of next March, would be £1,126,000,000. If the Chancellor of the Exchequer will confirm that, or otherwise make it quite clear, it would be useful, because there is misconception on the point.

The CHANCELLOR of the EXCHEQUER (Mr. McKenna)

We have to borrow in order to make the external advances.

Mr. ARNOLD

Exactly, but I am trying to build up a future peace Budget, and I assume that what we borrow now and advance to other nations subsequently we shall get back again, and that we shall not have to pay future interest on it. If that is not right it is a point that might be made clear. In any event I am assuming in my estimate, which is merely tentative, that the net borrowings of this country amount to £2,000,000,000, the interest on which at 4½ per cent. would be £90,000,000. Then there is the second item of sinking fund, which, taken at 1 per cent. would be £20,000,000. The third item is £20,000,000, which I think should be provided for the cost of War pensions, and the fourth item is a margin of reserve of £20,000,000 for other increased expenditure which may have to be met, or for some decline in general revenue. Taking those four heads together, they come to 150 million pounds. It may be that these estimates are too liberal or not liberal enough. Personally, I think it is wise to provide at least 150 millions. If that should prove in excess of actual requirements, the balance might be used to increase the Sinking Fund or for a remission of taxation. The expenditure of the country before the War, in the 1914–15 Budget, was 207 millions, and if that is increased by 150 millions, the total amount would be 357 million pounds. Taking that basis, it would seem to be satisfactory that the Government propose to raise a total revenue of 387 millions.

Mr. McKENNA

I would point out that the 207 millions includes the fixed debt charge, and in this 150 millions is the Sinking Fund and interest on the total debt.

Mr. ARNOLD

I am only including the Sinking Fund and the interest on the new debt of 2,000 million pounds. I know perfectly well that the interest and Sinking Fund of the pre-war debt was included in the 207 millions. I am assuming that we have to add 2,000 million pounds to our debt in addition to 651 million pounds of pre-war debt. With the four heads which I have stated: interest, Sinking Fund, cost of War pensions, and other possible increased expenditure, coming in all to 150 millions, we have a total of 357 million pounds. The Government propose to raise 387 million pounds, of which thirty million pounds is new taxation on war profits. Like other speakers I rejoice that the Government are grappling with this matter. But I would point out that this sort of revenue will only be temporary, and the amount of taxation in the present Budget for the full financial year which could, if necessary, be made permanent, is therefore 357 million pounds; as of the 387 millions to be raised, 30 millions is temporary revenue from war profits. The Government then proposes to raise 387 million pounds in all, and the problem we have to consider is how this new taxation is to be divided amongst the community on the soundest and most equitable basis. For that purpose we have to take into consideration the kind or nature of the taxes to be imposed. These matters cannot be regarded as controversial. They are indeed of importance to the prosecution of the War itself, because their wrong determination might injure the national cause.

In discussing this problem I hold that we should, take into account not only the burden and incidence of the new taxation, but also be mindful of other burdens which are likely to be caused by the War, and especially have regard to the increased cost of living, the probability, sooner or later, after the War, of an amount of unemployment and distress. We are starting a new era in social conditions and in national finance, and in imposing new taxation, I think it is well we should take into account all relevant considerations as far as possible, and in particular we should have regard to the maxim of ability to pay, and not entirely overlook the theory of the exemption of the minimum of subsistence from taxation. This is largely forgotten in many quarters at the present time, owing to the widespread belief that workers are much better off than before the War, not only in actual earnings but also in real income. In my opinion that belief is by no means so well founded as is commonly supposed. No doubt in some cases very high wages have been earned, and in those cases the recipients have been liable for Income Tax. It is certain, however, that many of the poorer classes are distinctly worse off than they were before the War. Among these are the old age pensioners who are nearly a million persons, some sections of the industrial workers, and many railway men, Post Office servants, and police, despite war bonuses, a vast majority of clerks, shop assistants, lodging house keepers, especially on the East Coast, and the families of many of the better paid artisans who have gone to the War. If, on the other hand, the position of many workers has been improved, and perhaps considerably improved, that is in ho small measure due to the fact that overtime is being worked under great physical strain, and that more members of the family are in employment. Such additional income will only be temporary, but much of the taxation in this Budget on these classes will be more of a permanent than a temporary character, and is likely to continue long after the present artificial prosperity passes away, and is therefore quite different from taxation of war profits.

I hold that all the proposals in the Budget for additional taxation on the poorer classes should be subjected to most careful scrutiny, and in deciding these questions due weight should be given to the increased cost of living, which has done so much in many cases to neutralise any advantage from war bonuses and so forth. In any case, I should object to the increase of the Tea and Sugar Duties. Indirect taxation of this kind, as everybody knows, imposes a much heavier burden on the poorer classes of the community than upon other classes, and it presses with peculiar severity upon those who are on or below the margin of subsistence. These duties it is now proposed to put up to a very high level. I am sure myself that it is a wrong course to pursue, and one which will have injurious effects upon the lives of many of the poor. I feel that whatever the emergency is, and no doubt the emergency is great, it is a mistake, and it is unsound to increase burdens of this kind to such a large extent. I do not think it is realised what hardship is imposed on the poorer classes by a Tea Duty of 1s. per lb. and the high duty on sugar and other food duties. To the man with 30s. a week, and an average family, these total duties in a normal year will amount to about 1s. 3d. per week. I am taking now the Board of Trade figures given a few years ago as to family consumption of various commodities, and I am working that out, allowing for decreased consumption on account of the high duties, and I make the charge upon the poorer man, with 30s. per week and an average family, about 1s. 3d. a week. It will be said that tea is a luxury and not a necessity. It may be that in some cases more tea is consumed than is necessary, but it it not true to say that tea is a luxury rather than a necessity for the working man's household. What are they to drink? If they are not to drink tea, are they to drink water, as being cheaper? It is preposterous to suggest that instead of consuming tea the workman and his family should drink water.

5.0 P.M.

To say that tea is a luxury is an academic view, and in the case of sugar you have one of the most nutritive articles of diet, the consumption of which cannot be lessened without detriment to health. If in normal times it is wrong to heavily tax these articles of consumption, it is doubly wrong at present on account of increased cost of living, and this increase means nearly 4s. in the £ on the earnings of a man with 30s. a week and an average family. That is a very grave consideration, and I do hope that these proposals will be very carefully scrutinised. In view of the increased cost of living it is an additional hardship to put a higher duty on tea and sugar. Not only are these definite duties to be imposed, but all schemes of social reform are indefinitely postponed or definitely lost, and, consequently, the chief direction in which the workers may still receive some attention is in the character of the taxation imposed upon them. As we cannot expect to have constructive social reform for a long time, I submit that we should make the taxation on the necessities of life as light as possible. Not only do I believe it to be economically unsound to put a high duty on tea and sugar, but you are trenching on the margin of necessities which will tend to reduce the efficiency of the wage earner, and you do that at a critical juncture when it is most essential that the physical capacity of the workman should be maintained at its maximum strength. The successful prosecution of the War demands in no small degree upon the productive output of the country, not only in munitions, but in many other industries, being as large as possible. Vast numbers of men have been withdrawn from the labour market, and as more and more leave the strain on those who are left will become greater. Many of the strongest and most capable workmen have gone to the War, while no small proportion who remain are of poorer physique and less industrial capacity. In the training of recruits every care is most wisely and properly taken to promote the highest state of physical efficiency, and I submit that it would be well that the physical efficiency of the workers should receive some consideration. They are all men who are necessary for the business of the War. I say that anything which is calculated to even slightly reduce the efficiency of the largely depleted army of workers, on whose labours so much depends, may be a considerable injury to the national cause. To my mind the cumulative reasons against raising the Tea and Sugar Duty are sufficient and final. Before I pass on to the question of direct taxation I should like to speak of the new duties on import manufactures. As I understand it those duties are put forward as an emergency measure, but I think they are more likely to be permanent. I think that any advantage which may be gained by them in revenue or in checking imports will be very dearly bought. Would it not be better to consider the advisability of temporarily prohibiting certain imports altogether? Some exports have been prohibited, and I think in the present compelling circumstances the same course might be followed with certain selected imports in the nature of luxuries. It is true no revenue would be got by this plan, but the imports would be definitely checked, and the amount of revenue to be got from the duties is very small in proportion to the cost. As regards direct taxation I wish to give my general support to the Chancellor's proposals, with the exception of the lowering of the Income Tax limit from £160 to £130. The objections to this course are, I think, very considerable. It will be generally agreed that in theory there is something to be said for direct taxation on all citizens who are well above the subsistence level, but such proposals should be put forward as part of a readjustment of the tax system including the abolition of the duties on tea and sugar. No such readjustment is possible at present, and those duties are to remain, and not only to remain but to be increased, and nearly all indirect taxation is to be increased, and then this new tax is to be imposed on those whose incomes are between £130 and £160, and that is to be done despite the great practical difficulties of collecting the tax on those small incomes, the practical difficulties about which the late Chancellor spoke so forcibly last November, and despite the very heavy cost of collection which he said would in some cases amount to no less than 70 per cent. of the revenue received. No doubt those cases are exceptional, and the tax can be collected from many persons without undue expense, but there are a large number of small shopkeepers and petty tradesmen and lodging house and innkeepers and jobbing workmen who are their own masters, and nearly all these classes keep no proper books, so that it will be a matter of extreme difficulty and expense to collect this tax from them. After all has been done that can be done many will escape payment altogether, which will make this tax unfair in its incidence.

Moreover, consider this tax as a revenue raising instrument. All taxation should be equitable, economically sound, and productive. I say that this change in taxation does not sufficiently conform to the third condition. My hon. Friend the Member for Blackfriars pointed out that the revenue to be got from this tax is small. The Chancellor estimates that in a full year this tax will provide £939,000, but that is gross. What is the net yield to be after the cost of collection has been deducted? I do submit that this tax is really hardly worth collecting. It will mean an enormous amount of labour and expense, it will cause much friction and discontent, and for no commensurate result. The amount of revenue to be got from it in proportion to the total cost of the War is trivial, and in relation to the future peace expenditure of the country after the War is over, it is not of any great moment, but the tax will not be negligible to those persons who will have to pay it. It is said that money must be found for the War, and I quite agree, and that all classes should contribute to the cost, but so they do. All those receiving below £160 will be contributing through the higher Tea Duty of last year, and the great majority through the increased Beer Duty of last November, and the increased Tobacco Duty now. I am not objecting to the latter taxes on luxuries, and I am not sure that even more could not be got by such means. Such taxes fall into the category of voluntary taxation. Apart from such taxation, I am opposed to increasing the burden on those below £160 per year, unless and until it can be shown that the wealthier classes cannot wisely be called upon to contribute more. More than the new revenue from necessities could be obtained by a further 4d. on the general Income Tax and a readjustment of the Super-tax, beginning the readjustment at £3,000 instead of £8,000, and with heavier taxation on private motor cars, and by increasing the taxation on mining royalties, which I think would be singularly fair at present, and by enforcing very strictly the present limit of £160. I agree also with the hon. Member that the land valuation should be completed, and that would open up another source of revenue.

As regards the general Income Tax, which has already been increased to 3s. 6d., I do think it would be possible to add another 4d., more particularly as a great many people were anticipating that the tax would be doubled, and have experienced a sense of relief since the statement of the Chancellor. If the adverse results of high direct taxation are to be considered, the harmful consequences of heavy taxation, apart from that on luxuries, on the working classes are at least of equal importance. Indeed, whatever injury may be done by high direct taxation, seems to me to be scarcely comparable with the vital importance of doing all that is possible to conserve the health and efficiency, and, as far as it can be done—and it is most important—the contentment of the poorer classes. It has been repeatedly urged that an important point to watch in taxation is not so much what is taken from the individual as what is left to the individual after the tax has been levied, and although, no doubt, extreme statements are made from time to time as to the amount which the wealthier classes should be called upon to contribute in taxation, yet after all it does seem clear, and particularly in view of the probability of worsened social conditions after the War, that the wealthier classes are much better placed to bear heavy burdens than the poorer classes. After all is said and done, there can be no question of reducing by taxation the efficiency of the wealthy classes or of entrenching on the margin which is necessary in order to maintain a family in health and reasonable contentment, to say nothing of luxury. On the other hand, some of the provisions of the Budget are, in my view, a dangerous expedient, economically, socially, and nationally, and I am convinced that as time goes on the unwisdom of the proposals I have criticised will become increasingly evident.

Mr. SAMUEL ROBERTS (Ecclesall, Sheffield)

I should like to join with many hon. Members who have spoken from both sides in offering my congratulations to the Chancellor on the production of his Budget, and on the lucid statement he made, and the evidently wise provisions to spread the taxation over all classes of the population. The duty of a Chancellor to impose taxation is always a difficult task. This year he had to face a situation unprecedented in this country. That situation was this, that the revenue for the current financial year was estimated at £272,000,000, and the estimated expenditure £1,590,000,000, to which was added the wise proviso that it probably might be more. The Chancellor's proposals were received with general approval by the Committee, and they were so received, in my opinion, for two reasons. Firstly and principally, because the Committee believe in the purpose for which the money is required, and, secondly, because the Committee realise that the Budget is an honest attempt to try and spread the new taxation equitably amongst the various classes of the population. The position of Germany with regard to taxation is just the reverse. Germany dare not attempt to put on any new taxes to meet the purposes of the War. Dr. Helverich, Secretary to the German Treasury, on 20th August, made a speech in the Reichstag. That speech was principally an apology to that assembly as to why no new taxation is going to be imposed in Germany, and the reason which he gave was this: He had given reasons in March, and referring to them he said those reasons still stand. We do not desire to increase by taxation the heavy burden which the War casts upon our people, as it is not absolutely necessary. He goes on later in his speech to make the astounding statement that in following that policy he is following English policy. I hope after this Budget the German Secretary of the Treasury will make a corrected statement and realise that this country is making tremendous efforts to raise fresh money by taxation. He finished his speech with the remarkable statement that the German people might feel consoled under the circumstances by this fact that the Allies defeated would have to pay all the money for the War. That is the conclusion which he arrives at. Mention has been made this afternoon of the large amount which we are incurring in debt. That is quite true, but we are necessarily doing so. We are meeting it by taxation, but it is right that posterity should bear a share. This War, if any war ever existed, is essentially a war for our national existence. It is rather a curious fact that the Chancellor mentioned in his statement, as his estimate of what the National Debt dead weight would be next March, £2,200,000,000, which I believe is about the exact figure of the estimate of the national income. Therefore we come to this, that a year's income of this country in March next is going to represent what the dead-weight debt will be. But we must deduct from that £2,200,000,000, the amount of the debt before the War. In March, 1914, it was about £700,000,000. Deducting that, you get an increase of debt, owing to the War, of £1,500,000,000. What are we doing with this taxation in regard to meeting the interest and service of that debt? I take it at 4½ per cent., which I think in round figures will represent the interest on the new debt. That amounts to £67,000,000. But the new taxation for a full year will bring in a good deal more than £67,000,000. According to the Chancellor of the Exchequer's estimate the yield will be £102,000,000. In addition to that there is what the Chancellor of the Exchequer calls the old new taxation—that is, the taxation imposed by his predecessor in the two previous Budgets. The estimate of that taxation for this year is £68,500,000. Adding the £68,500,000 to the £102,000,000 which we are now raising, we get a total of £170,000,000 of new taxation since the War broke out. That is more than double the amount required to pay the service of the debt; therefore we are much more than paying our way in this respect. We have a margin to spare, and, in my opinion, it is sound finance.

By far the largest amount of the new taxation is to be raised by Income Tax. The estimate for the full year is £77,000,000. The rate is unprecedented. You have now a rate of 3s. 6d. in the £, and some hon. Members want to increase even that. The Chancellor has done his best to make the payment of the tax easier by arranging for payment by instalments and by other proposals. The fact, however, remains that people with fixed incomes who have been living up to the hilt, so to speak, are the people who will be hit. Those who have been living well within their income will be able to bear the brunt of the new taxation. Reference has been made to the lowering of the exemption limit. The Committee must remember, however, that the abatements will still take place, so that the alteration will not represent a very large amount. With regard to excess profits, I think the Committee unanimously approve the proposed tax if it can be carried out equitably, and I think it can. The hon. Member for the Blackfriars Division (Mr. Barnes) suggested that 50 per cent. was not sufficient. I think the Chancellor of the Exchequer is right in his proposal, because you do not want in the middle of a war to discourage the people who are working for the purposes of that War. You do not want to take away all inducement for the people engaged in making munitions to go on. I want to make a proposal to the Chancellor of the Exchequer. There will be certain difficult and special cases, which ought to be dealt with in a special way. My proposal is that there should be set up a small tribunal to deal with those special cases in the same way as a tribunal was set up by the Minister of Munitions to deal with special cases in connection with the controlled establishments.

The FINANCIAL SECRETARY to the TREASURY (Mr. Montagu)

The Chancellor of the Exchequer has already announced that that will be done.

Mr. S. ROBERTS

I did not know the Chancellor of the Exchequer had already said that there would be a tribunal to arrange what would be just in special cases; that is my point. I think it would be a convenience if the same tribunal could be utilised to go into the special cases under the Finance Act as under the Munitions Act. It is a small body of experts, and this would not add very much to their labours. With regard to banks retaining the tax on the interest due on their customers' deposits, I quite approve of the Chancellor's proposal. It has always, been a difficult and inconvenient process that customers should have to make a return of the interest on their bank deposits. In many cases that is the only item which they have to enter in the property part of the return, as the tax on everything else has been taken at the source.

With regard to the indirect taxes, the estimated yield in a full year is £25,000,000. The chief items are tea, sugar, and tobacco. If those who are not paying Income Tax are to pay anything towards the expenses of the War, this is the only way in which they can be brought in. Although I listened with respect to the speech of the hon. Member opposite, I am certain that our working people wish to pay their contribution, and this is the only way in which they can do it if they do not pay Income Tax. That is my answer to the hon. Member. I am sure he is not representing truly the fact. These people wish to bear their fair share of the expenses of this terrible War. With regard to the import duty on certain manufactured goods, I take the Chancellor of the Exchequer's words that at this time it is the duty of all parties to lay aside past controversies. To-day we must be neither Free Traders nor Protectionists. The Chancellor of the Exchequer has introduced these duties for a purpose, and a proper purpose—to stop coming to this country imports for which we should have to pay in gold. That is the object, and we shall see whether he is successful in stopping the imports and in getting revenue at the same time. [Laughter.] That is a paradox which has been a good deal laughed at in years gone by, but I believe it is true. Other countries have found it to be true. We shall see whether in this case the Chancellor of the Exchequer is so fortunate as to get some revenue—I do not say that he will get very much—and also gain the point which he has chiefly in view, of stopping the imports of some of these manufactured goods.

The estimated deficit on the 31st March next is £1,285,000,000. That is an enormous amount, and it is quite clear to my mind that a new War Loan will have to come before long—before the 31st March. I want to give a hint, which I am sure the right hon. Gentleman will take in good part. He cannot have the money both ways. He cannot have the same money in taxation and also in loan. People who have a surplus at the present time, and who are intending to invest it in future War Loans, will hesitate and hold that money back if they think they will have to pay it in taxation. That point should be distinctly borne in mind in regard to future loans. Before sitting down I should like to make an appeal, which I think I am justified in making, in view of certain speeches that have been made. This Budget will affect certain interests, which in ordinary normal times would, in my opinion, be justified, through their representatives in this House and in other ways, in defending those interests from taxation. But these are not normal times. We are living in the midst of a terrible war. My appeal to these interests is that they should exercise self-restraint, and refrain from opposing a Budget, which has been considered very carefully by a Coalition Government representing all parties. If they do that, we shall go a long way towards making it plain, both to the country and to the enemy, that we are determined with all our force to fight this War through to a successful issue.

Mr. WORTHINGTON EVANS

Before I offer to the Committee the few observations which I wish to make on the financial statement, may I add my tribute to the chorus of praise which the Chancellor has received on his extremely lucid, and I may add, all too brief speech the other day. I say it was too brief, because he dealt only with a part of the financial statement, and chiefly explained the taxes which were to be imposed, and the revenue which he expected to raise from them. I do not suggest that he forgot the deficit which is bound to accrue, but he did not tell us, as did his predecessor in making a somewhat similar statement earlier in the year, what he proposed to do in regard to the deficit. The taxes themselves on this year's financial statement are equal to about one-fifth of the expenditure, so that, although they are important, they are not by any means the most important part of a statement referring to our financial position. Whether we raise a few millions more or less by these or other taxes is not, of course, uninteresting to the person who has got to pay the taxes, but it is not very important in considering the whole financial position of the country. I have two suggestions to make, and by way of preface I want to bring up-to-date some of the figures, and to restate some of the figures already stated by the late Chancellor in May last, and by the present Chancellor the other day.

The deficit on last year was £334,000,000. The deficit, after allowing for all the revenue raised by taxation on this year's account, is £1,285,000,000. The total deficit on the two years is £1,619,000,000. But it is really not quite so bad as that, because included in the deficit are certain items which are non-recurring. For example, there is £36,000,000 of pre- and post-moratorium bills which is debited against this year's expenditure, and which we hope will not be a recurring item. In addition there is £56,000,000 debited against this year's expenditure which ought to be reproductive, seeing, as I understand, it was invested in foodstuffs. The Chancellor did not explain this. Perhaps when he speaks later he will explain how much of that £56,000,000 we may expect will come back; whether any of it is to be treated as loss; or whether the whole of it, perhaps with some profit, may come back either in the course of this year or in a future year. There is another large item, £423,000,000, included in the deficit as loans to the Allies. The total of the three items, partly non-recurring, partly reproductive, and partly what we may expect to be repaid, is £515,000,000. If the proper deduction from the deficit which the Chancellor has shown is made it reduces the deficit on this year to the very much more manageable proportions of £806,000,000. The Chancellor of the Exchequer definitely refused, and probably quite wisely at this period, to assume what, if any, of the £423,000,000 to the Allies is likely to be repaid. Therefore in considering our position I propose to deal with the gross figures and not with the net figures, even though those gross figures make the picture seem worse than it is. These figures are to the end of the financial year 1915–16. What, however, really interests this Committee, I think, is war finance rather than the finance in any particular financial period. It is not really of so much interest how much will be received in taxation for the period ending the financial year at the end of the first quarter, 1916. What we really want to make up our minds about is: what is our position going to be on the whole question of war finance? No one can prophesy when the end of the War is going to take place. One can do no more, therefore, than to make a sort of estimate which may guide us.

I take the period ending the next calendar year, say, December, 1916. If one prolongs the figures on the same lines that have been adopted for the purpose of this War and considers that the expenditure is £5,000,000 a day, and keeps the proper proportion of £387,000,000 in revenue which the Chancellor assumes we shall receive in the course of the next year, we shall have to add a deficit to the already ascertained sum, of another £1,070,000,000. The total of these deficits is therefore £2,700,000,000. That is a large sum, but it is, I believe, well within our powers. Of that sum we have already raised by loan about £1,200,000,000, leaving to be raised in the course of the period £1,500,000,000. That represents about three-quarters of one year's income of the people of this country. Reduced to what I believe to be its proper perspective it is a sum which we in this country can pay without fear of failure. Even if you test it by what will happen after the War, equally, I think, we can conclude that the annual debt charge and Sinking Fund charge is a charge which we can well support, with sacrifice no doubt on the part of all of us, but a charge which we can support without any fear of failure. Supposing even the total amounted to £3,000,000,000, interest and sinking fund at £150,000,000, added to our pre-war expenditure, would only give us in taxation what would equal 15 per cent. of our total income. Large sums on loans will be necessary, but we ought to be encouraged by the magnificent response which has been made to the calls already made upon the country. We have raised larger loans more easily than our neigh-hours, and certainly more easily than ever could have been anticipated in this country.

I want to make one suggestion to the Chancellor of the Exchequer with regard to the loans which the hon. Gentleman who has just sat down agrees are bound to come, if not in the near future, within a time for which we ought to prepare. We have, by the action of the Government, demobilised some £2,500,000,000 of our best securities. We have placed upon them on the Stock Exchange a minimum price, which practically prevents dealings. Those securities are Colonial stocks, Corporation stocks, and other stocks which have been considered in the past the best securities. They were supposed to be safe, and were held by prudent people. All, or most of them, are un-realisable because of the artificial minimum price that has been placed upon them. I am not going to advocate the abolition of the minimum price, but I do suggest to the Government that they ought to consider whether they cannot make the conditions of those securities more easy for the holders and for the support of the Government's future loan policies, by arranging for advances to the owners of the securities upon them. Purposely, I refrain from going into details of the proposal which I believe is not only quite practicable, but one which is most necessary for the future large loans which we shall be called upon to support. Those questions are problems of internal finance; and just as the late Chancellor in May last divided his financial statement into two parts—what he called internal finance and external finance—I want to make one other suggestion which has to do only with external finance.

In his present Budget the Chancellor has taken some steps, so far as he can by means of taxation, to reduce imports with a view of improving our external position. He has put duties on a small list of imported articles. Personally, I think that list might well have been extended. The right hon. Gentleman has done that not only for revenue—perhaps not so much for revenue—as with the view of regulating our position in relation to our external finance. His other taxation in the Budget also has its effect, because as it reduces the spending margin of the people of this country it reduces their power to buy imported articles, and so reduces our total bill for imported articles. Bearing all that in mind, and notwithstanding that some improvement will take place owing to that taxation, we find today that our excess imports over the imports for the similar period of 1913 are at the rate of £250,000,000 a year. Those imports are as recorded by the Board of Trade. The Board of Trade figures do not pretend to record our total im- ports, they do not record any purchases made by the Government, either on its own account or on account of the Allies, so that this Committee is not really able to say what is our present annual balance of indebtedness abroad. The late Chancellor of the Exchequer, however, in May last did make an estimate, and that estimate was that the balance of our imports, after allowing for the whole of our exports, both visible and invisible—including interest, and services, and everything else—was at the rate of £400,000,000 a year. He gave us no details of these figures. I do not know whether that estimate is one that ought to be revised in the light of subsequent events. The Chancellor of the Exchequer did not revise it. He said nothing about it in his Budget statement. I only hope, when the right hon. Gentleman comes later to speak, he may feel that he is at liberty to give us some further information, and bring that information up to date.

If we assume that the late Chancellor was right, and that the excess is now £400,000,000, and if the Committee will follow me while I prolong the period up to, say, Christmas of next year, the Committee will see that in that period we shall have been incurring an indebtedness abroad of something between £800,000,000 and £900,000,000. That, to my mind, is the most serious feature in our financial position. It is towards meeting that that I have a suggestion that I desire the Chancellor to consider. I need not say to the Committee that it is recognised that that £800,000,000 or £900,000,000 has got to be paid for in one or in a combination of three ways. It has to be paid for either by gold, or by gold raised by loan abroad, or by gold raised by the sale of securities owned by us at home—securities representing obligations abroad. In one or other, or a combination of these three ways, this £800,000,000 or £900,000,000 has got to be paid. With regard to gold, hon. Members know quite well, not the exact total of gold that there is in this country, because I believe a census has never been taken, but good opinion seems to think there is not more than £170,000,000 of gold all told in this country, that whatever the sum is, it is quite impossible to pay in gold, although I personally would like to see gold of our own and of our Allies sent over to America for the purpose of altering, as I believe, in our favour the conditions at the moment prevailing. I will, however, resist the temptation of pursuing that subject.

The second means is payment by means of a loan raised abroad. That, again, is a subject which it is almost impossible to discuss to-day, because we know negotiations are pending at this moment id the United States. But the third method—the use of foreign securities—is a method I think that ought to be discussed, and it is the method on which I wish to make a suggestion. I regard these securities as our real reserve. They are just as essential to our success in this War as men are. The people of this country own probably some £4,000,000,000 worth of foreign securities. They are not all useful for this purpose. They are not all marketable of course. But there is little doubt that at least £1,000,000,000 would be useful if properly used. I am not suggesting that is a correct figure; I take it as a low figure—a figure probably much lower than the real truth. Some of these securities, of course, have already been sold by private individuals, and most usefully they have been sold to correct the exchange against us. No doubt private action, if Government action is not taken, will always be of some use to the country, not only for exchange purposes, but because the proceeds come to the Government, in part at least, either in payment of taxation or in subscriptions to the loans that are still to come. But individual action is spasmodic or wasteful, and it may or may not be applied at the right moment. I suggest that the State should acquire such of these foreign securities now privately owned as it thinks useful for the purposes of the State.

I would remind the Committee once more that we have to find within an appreciable time some £1,500,000,000 in loans. About half of that has got to be found abroad in some form or another, and I suggest that now is the time to mobilise our credit. We are not in distress. Our credit is good, and if steps are taken now they will be regarded as a precaution merely; but if we are to wait until we are driven into a corner, then any step of that sort would be treated as a signal of distress, and, instead of doing us good, would actually do us harm in foreign estimation. These foreign securities are too valuable an asset to be left in private hands and to the chance of individual action. If the Government possesses these securities it can take advantage of any drop in exchange, to sell them, not only to get new credit, but also to check and steady the course of exchange. And if more loans are required, the possession of the securities will be of the greatest assistance to the Government. Governments, just as individuals, find it a very different thing when attempting to borrow if they have securities. Hon. Members may have had, or may not have had, the experience of going to the bank without a security co offer. You are not nearly so welcome as if you go to the bank with a good security to offer. And what is true of an individual is true of the nation.

Sir GEORGE YOUNGER

It depends on the bank and the borrower.

Mr. EVANS

Even the credit of the borrower is supported if he has securities to offer. Of course, this proposal means applying compulsion in a form to the capitalist, and necessity is the only justification for compulsion. If necessity demands compulsion for the defence of the Empire, I suppose it would be applied to men, and, if necessity demands it, it should also be applied to capital. Some forms of capital are already subject to compulsion. Engineering firms are controlled, land and buildings may be taken under the Defence of the Realm, war profits are taxed by this Budget and exports are controlled. Now, in my judgment, the necessity does compel it, and the steps should be taken now. The first step is to constitute a national register. Owners of foreign securities should be called upon to register so that the Government may know exactly what securities there are. Exports of the securities—that is, the sending of this class of securities abroad—should be controlled, and they should not be allowed to be sent abroad without licence.

Lieutenant-Commander WEDGWOOD

How about land? Could you borrow on that or not?

Mr. EVANS

The hon. Member, I am afraid, did not follow that I was dealing, for the moment at least, with foreign securities—not land at all. I was dealing with such foreign securities as might be made available to support the credit of the State.

Lieutenant-Commander WEDGWOOD

How about land owned abroad?

Mr. EVANS

Land owned abroad, if it could be dealt with—I doubt very much if it could—would quite well come within the scope of the proposal; but, after all, you must limit the proposal to that which is really feasible without much difficulty. Of course, I am not suggesting that the Government should confiscate these securities. What would have to be done would be for the Government to issue war bonds in exchange, and in that way it could become possessed of at least £1,000,000,000 of foreign securities, which in its hands would be capable of supporting its credit at any time when the necessities for the payment of foreign purchases became urgent, or for the purpose of further foreign loans in order to pay for them. To win, we have been told, the three important things are men, munitions and money. I have no right to speak of the methods of raising men. With regard to munitions, compulsion has already been applied. Now let us apply it to money, and I think we need have no fear that we shall be equal to our colossal financial task.

Sir JOSEPH WALTON

I desire to offer my warm congratulations to the Chancellor of the Exchequer for the broad spirit that goes through the important Budget that he submitted to us on Tuesday last, and because it embodies to as large an extent as we can reasonably expect under the present abnormal conditions, the true principle of the equal incidence of taxation. My hon. Friend who spoke last referred to compulsory service. I regard this Budget as, at any rate, a very strong example of the compulsory service of money, and, at the same time, I feel that the sacrifices it entails upon the whole nation will be so willingly and cheerfully borne, that the word "compulsory" taxes hardly applies, and that the payments made will be quite as much in the nature of volutary offers to the nation's needs as of a compulsory tax. The Chancellor of the Exchequer distinguished himself on Tuesday by the way in which he presented his Budget to this House. As an example of terseness and lucidity, I venture to say that he almost broke the record of Chancellors of the Exchequer who preceded him, and certainly his statement on Tuesday will stand forth as a shining example of the honest, straightforward, business character that this House and the nation desire to have manifested in each annual Budget.

6.0 P.M.

The German Finance Minister, we know, in his last financial statement, dared not impose additional taxation upon the German taxpayers, but we, at any rate, have the satisfaction of knowing that, great though our sacrifices are to be, our Chancellor of the Exchequer is evidently not held back by any such considerations from imposing upon us extra taxation to the tune of £107,000,000 in a full year. Our expenditure is indeed colossal. It would have been incredible to any of us five years ago to be told that in the financial year 1915–16 national expenditure would have risen even by reason of war to the enormous total of £1,590,000,000. We know that the wealth of this country is enormous, but it is also, let us recognise, limited, and, in considering the situation in which we stand financially it is our duty to look far ahead and to consider beforehand the means at our disposal and how best to carry us through financially this terrible and most expensive war. We have some taxation proposals. We have the Excess Profits Tax. In season and out of season, since the War began, I have in this House maintained the principle that no taxpayer in the country ought to be allowed to enrich himself owing to War conditions, and I am glad to find in the Chancellor's proposals the special taxation of excess profits of a most substantial character. The right hon. Gentleman has cast his net wide. The tax is to extend to all trades—and I would like to draw the attention of the Financial Secretary to the Treasury to this point—it is to extend to all trades, manufacturing concerns in the nature of trade, and businesses, including agencies. I would suggest the addition of the words, "And also to all taxpayers enjoying increased incomes during the War period, on which the Extra Profits Tax has not already been deducted at the source." I want every taxpayer in the country enjoying an increased income during the War to be treated alike. I see that the shipowners are flattering themselves that they are going to be exempt, but I feel certain that they are not going to be exempt, and I am equally certain that they ought not to be exempt.

With regard to the method of levying the Excess Profits Tax, let me take an example. I will take as an instance £1,000 excess profits. On that amount 50 per cent., or £500, is to be paid over first of all into the public Treasury, and then upon the remaining £500 only is the Income Tax of 3s. 6d. to be charged. That brings up the contribution from that £1,000 to the public Treasury to £587 10s. Those who receive the remaining £412 may have to pay Super-tax, not only on the £412, but also on the £87 Income Tax which is added, raising the total to be paid out of the £1,000 to £675 if it is held by people liable to Super-tax, and that amounts to 67½ per cent. The question is, whether in regard to Super-tax we are also compelled to add and pay Super-tax on Income Tax already handed over to the State. Are we going to be compelled to pay Super-tax on the £500 excess profits as well, which the Government have also taken? If that has to be paid, in those places where those that make these excess profits pay Super-tax, they will have to pay to the State 76¼ per cent. I have advocated in this House that no War profits, or excess profits, should be allowed to enrich those people who enjoy them but one-fifth, the same as in the controlled munitions works, should be deducted in recognition of increased expenses of living and contingencies and conditions of an abnormal character arising out of the War, which would leave 80 per cent. Notwithstanding all that I have listened to from the hon. Member for the Blackfriars Division (Mr. Barnes)—and I have advocated the taxation of excess profits in this House before—I can only say to the Chancellor of the Exchequer that I am gratified at the substantial contributions he is going to receive.

Turning to the Income Tax, I welcome the provision that farmers paying a rental of £480 a year will have to pay Income Tax on the full rent instead of upon one-third. Everybody must recognise that the farming industry is enjoying substantial prosperity at the present moment. The Chancellor of the Exchequer has introduced a provision that on the income of the year, where an assessment proves to be less than one-fifth of the assessment based on an average of three years, in those cases the payment of the 40 per cent. additional Income Tax will not be demanded. I suggest that some similar concession might equitably be made in regard to the Super-tax assessments, and I hope that that point will have the consideration of the Treasury. I contended last year and early this year that the system of averages of years in making assessment for Income Tax operated unfairly. Some of them are based on three years and some on five years, and they ought to have been levied on the income of the previous year, so that those who are not making good profits and those who were hardly hit by the War would pay on a reduced sum. I am compelled to say to-day that I abandon that position, and I do so because I am new convinced that the present high rate of taxation will continue for many years, and probably even a higher rate of taxation than we are being subjected to to-day. Therefore, as it will probably extend for years to come on the average of years, any over-payment made last year or this year will practically be adjusted and equalised, and therefore I have no longer the necessity to repeat that old contention.

With regard to the duties on imported luxuries, I am a strong Free Trader; but in this national emergency, when it is imperative that we should reduce enormously imports into this country, I say that all our economic theories must for the time being be put on one side. Personally, I wish the Government had put a prohibitive tax on all imports, not only of luxuries, but of all kinds other than food supplies, raw materials for our manufactures and possibly some partly manufactured goods, which are essential to further manufacture in this country. I do not hesitate to welcome even the small step in that direction that is contained in this Budget. The excess of imports over exports amounts to not less than £400,000,000 in a year, without including the Government purchases of goods and munitions, bought and carried in Government ships, probably amounting to £150,000,000 more. The question as to how we are to meet that not only this year, but if the War lasts two years more, in the two succeeding years, is to my mind the most serious financial problem we have to face. We know perfectly well that interest on foreign securities is rapidly diminishing by the realisation of foreign securities. The services we render by our steam shipping, coupled with the interest on foreign securities, will not nearly meet the great excess of imports over exports, hence the necessity to-day to lessen as much as possible the balance of trade against us.

This leads me to ask the Committee and the Government to do everything in their power to cause the nation to practise the most rigid economy, not only in the consumption of imported luxuries, but even of food-stuffs. Not only ought they to do that, but they also ought to use every means possible to increase the production of food-stuffs in this country, so that we should need to import less food-stuffs, and thus we should lessen the balance of trade against us. The Prime Minister told us the other day that our war expenditure before the end of the financial year would probably exceed £5,000,000 sterling per day. Supposing the War lasts for another two years, for the next two years we have to face a national expenditure of £2,000,000,000. The hon. Gentleman who spoke last indicated that the National Debt, which will be a dead weight of £2,200,000,000 on the 31st of March next, might be increased to £3,000,000,000. I shall be very thankful if it is not increased to £4,000,000,000, which at 5 per cent. interest means in interest alone an annual charge on the taxpayers of this country of £200,000,000 sterling. With such a prospect in front of us it is no use shirking matters. Let us face the situation and take the necessary steps in advance to deal with it. We need severe retrenchment in the home Departments of the Government. I have here a White Paper and in it I find no sign such as I should like to have found, that the Government have yet awakened to the necessity of curtailing our expenditure in peace Departments. I exclude the increased interest on debt charges of £15,600,000, because that is inevitable, but with regard to all the other Departments of the State, apart from the War and the Army and the Navy, I find that there is only to be a reduction of £600,000, and the whole of that is saved by reducing the amount handed over to the Road Board Fund. The sum of £906,000 is provided for the Road Board Fund, but the net reduction is only £600,000, and there appears to be a natural increase of £300,000 instead of a reduction. What we need on the part of the Government is a lead to the nation in this matter of national econocmy. The nation, as a whole, does not recognise the need for rigid economy. It is a case of "pleasures as usual." Every music hall in every town and every cinema show is crowded to overflowing. More is being spent on drink than was ever spent in the history of the country before. I wish with all my heart that the Government had put another stiff duty on whisky: to reduce the consumption for the national benefit and at the same time to feed the Treasury, because if only you made it stiff enough, the amount it brought to the Treasury would outweigh the amount lost by diminished consumption. We want from the Government action and not words. It is all very well making these splendid speeches on the necessity for economy and thrift, but the Government must go beyond that. It must take drastic measures to compel national economy. Can it be denied that this year, so far, we have lived as a nation in a prodigally extravagant fashion. Our national income was said to be £2,300,000,000 a year. It is not that to-day, and it is a diminishing amount by reason of our expenditure on the War, and the necessity to realise foreign investments. Take one example of how luxury and self-indulgence have increased in this country even in the last ten years. I am a smoker, but still tobacco is an illustration how the habits of self-indulgence and luxury have grown with us, because the imports of tobacco have doubled within the last ten years. They have gone up from £82,000,000 to £162,000,000.

A great deal has been said about the financial exhaustion of Germany, the economic exhaustion of Germany, but do not let us forget that Germany to-day is not spending more upon the war than we are spending, though she keeps in the field probably three or four times the number of men. Do not let us forget, in considering our relative financial position, that the population of the German Empire is 75,000,000 against our 45,000,000, and that, therefore, at a similar rate of expenditure, it is costing us per head of the population 70 per cent. more than it is costing the Germans. I do not doubt our ability to weather the storm, but I do ask that our task may be rendered less by the Government taking every possible step to lower the standard of living generally in this country, so as to have a greater surplus of our national income to devote towards defraying the cost of the War. The question of loans versus taxation is a very serious one. We have to remember that at the end of the War we ought, if we are wise, to have sufficient available capital to enormously increase the manufacturing industries of the country, to produce goods to send abroad in order to pay our indebtedness to other countries, and we have seriously to consider how far we can afford to deplete our resources by loans and still have sufficient capital left for the great expansion of trade that is likely to occur at the end of the War. The banks contribute enormously to the loans. Many of the banks have contributed as much as £21,000,000. Does that money, I ask, belong to the banks? Is it not rather the deposits of clients of the banks which is being applied in this way? If that is multiplied by loan after loan, demanding further contributions from the banks, I begin to fear that after the War, when their clients require the money from the banks to extend the trade and commerce of the country there will be great difficulty in getting the necessary financial facilities.

I may be said to be speaking somewhat in a pessimistic tone. I am not a pessimist, but I do not want this Government to go down to posterity with the epitaph "The too-late Government" appropriately applied to it. Therefore, I say that we should be wise to look far into the future. If we had a Committee appointed by the Government called "the thinking Committee" to study nothing else but the problems of the War, financial and otherwise, and to make recommendations, and then an Executive Committee of the strongest men in the nation to carry into effect their recommendations, I think it would produce very beneficial results. I wish to draw my right hon. Friend's attention to a French system of financing the War. When I was in Paris the other day I saw outside the Bank of France a prominent, notice, "4 per cent. for six months' loan; 5 per cent. for six months' or twelve months' loan." I know that we can get short-dated Treasury Bills yielding 4½ per cent. at the present time, but I would ask my right hon. Friend to consider whether that might not be well supplemented by adopting the method the French have adopted to raise money for the national War, and the Bank of England offering terms and conditions such as the Bank of France are offering. British credit is good. I rejoice to know that it has only depreciated five points in the United States as against ten and a half French depreciation, and seventeen German depreciation, though the German Finance Minister boasts of the strength of their position, and scoffs and sneers at our relatively poor position. What are the real facts? Our rise in the prices of foodstuffs, after all, is only 34 per cent. compared with the German rise of 65 per cent. That, I think, is a sign of strength of which we have reason to be well satisfied.

I would like, however, to see our position strengthened by an increased food production, especially at home. The Germans have set us an example. They have cultivated, by prisoners of war and otherwise, every square yard of land in the country that is capable of producing food, and the result is that they are practically a self-contained nation. They are in much less danger of economic exhaustion than we at one time imagined them to be. I want us to take a leaf out of their book and do the same. I am myself turning flower patches into vegetable patches, because I preach that not on political platforms now, but on national platforms. Have we not a huge amount of land in the country practically uncultivated to-day which could be turned to account to produce food? Take the strips of land alongside the highways and alongside railways. Take the amount of available land that is occupied now by hedges. I believe that by organisation we could enormously increase the food production of this country and diminish exports, thereby reducing the balance of trade against us and strengthening our financial position. The Germans are going for indemnities to retrieve their financial position. The German Finance Minister said, "We want, not peace with honour, but peace with money, a peace inflicting immense indemnities upon our enemies and making them contributing States to an all-powerful Germany." That is what they are out for. It is a gamble for what they can get out of their enemies.

I venture to say we will make them pay indemnities, but we will not rely upon those indemnities to retrieve the financial position of the country. We know that the £200,000,000 paid by France to Germany in 1870 is a bagatelle compared with the war indemnity which will have to be paid by some nation at the conclusion of this gigantic struggle. Take, for instance, the devastations in Belgium, France, and Russia, let alone the repayment of any part of the cost of the War. I venture to say that we can treat with contempt the German Finance Minister when he talks about the sensational advertisements with which we launch our war loans, and says that it is not in accordance with German taste to apply the advertising methods of the circus to the seriousness of war. We can afford to treat that with contempt, because we know that our cause is righteous, that we as a nation, including the whole of the British Empire, are united in a way, thank God, such as the world has never seen before. I do urge His Majesty's Government, however, to give us a stronger lead in the matter of economy, to give us a stronger lead in making every endeavour to increase the home production of food, and to grapple well in advance with the financial needs that this great War entails. They have behind them an absolutely united nation. Talk of 3s. 6d. in the £1 Income Tax! We think less of paying 3s. 6d. Income Tax now than a year ago we thought of paying an increase of 1d., and that is because our hearts and our souls are in this struggle. We recognise that the very existence of our Empire is in danger, and we mean to work shoulder to shoulder, abandoning all political distinctions, in order that our efforts in the interests of freedom and humanity may be crowned with success.

Sir A. MOND

The Chancellor of the Exchequer is to be congratulated on the fact that his first Budget, imposing the largest and heaviest burdens which it has ever fallen to the lot of any Chancellor to introduce, has received in this House, as well as in the country, a measure of support which may gratify him, and which may well gratify all those who are connected in any way with the prosecution of this War. The right hon. Gentleman in his opening speech reminded us very truly of the triple function which we have to fulfil. One of the most interesting and responsible of those functions is that of finance. It has been a factor of some interest and curiosity that all the financial predictions as to the effects of a great war have been entirely negatived by the experience of the War in which we are now engaged, both in this and the other countries affected. Large loans are being raised, not only in this country, but among our Allies and our opponents, and it may be worth while to devote a moment's consideration, not merely to the size of the figures, but to some of the reasons which have enabled those figures to be reached, and which have enabled the sums to be found without apparently disorganising the everyday economic life of great European countries to anything like the extent which writers in former days considered absolutely imperative. One point must be borne in mind, and that is we are now seeing the transference of a great deal of what I might call private expenditure to the public purse. That is to say, large numbers of men are fed, clothed and provided with accommodation by the State, and therefore we realise for the first time the sums which have to be provided in ordinary times in civil life, because they are now provided by the State. But it does not necessarily mean, as far as the nation is concerned, a very much greater expenditure than formerly. This fact is one which explains to some extent why there is a greater burden being borne more equally than otherwise would be possible.

Another thing which ought not to be overlooked is the enormous mass of unproductive labour in all civilised countries. The transfer of such labour from productive to nonproductive work is an economic loss, but what we lose, our opponents lose equally, and that is, the productive capacity of the men who are called to the Colours. Take the Census of Production. The annual production of a workman in this country is estimated at £100 per annum, and therefore the loss of national income, if you have 3,000,000 men under arms would not be more than £300,000,000. Our national income is estimated at £2,500,000,000, and it is obvious that a loss of production of that character is not one calculated to ruin the nation. It is important for us to realise that enormous as is the burden the economic pressure is not so great that we cannot continue to bear it almost indefinitely. There is one point which I think is frequently overlooked in reference to the loan we are making to our Allies. The right hon. Gentleman stated that included in our expenditure was a sum of £450,000,000 for loans to our Allies. I should like to point out that in ordinary times we have been in the habit of lending somewhere between £350,000,000 and £400,000,000 abroad, and whether that money is lent abroad in one shape or another, as long as we get our interest on it, and eventually get repayment, we really cannot call it expenditure in the shape of a national loss. In dealing with complicated economic questions like this, it is well to remember that all countries have shown much greater elasticity in productiveness than one might assume. The overload which can be put on the working part of the population and the additional surplus of people who can be transferred or utilised in productive industry is much greater than one has been led to believe. In this country that overload is scarcely touched. We have mobilised a relatively small number of men, compared with our population, and compared also with France. We have not had to call in that big overload of our ordinary population, and the fact that we have an enormous reserve of labour seems to have been entirely overlooked by a large number of writers on war matters. I mention these facts in order to show that we in this country are still very favourably situated, as regards all the duties we have to fulfil, and we can look forward with confidence to having them fulfilled in accord with the three principles which the right hon. Gentleman mentioned.

I do not intend to traverse the ground which has been covered by many speakers to-day. The hon. Member for Blackburn (Mr. Snowden) mentioned the fact that the consequences of the War fell on all classes. Undoubtedly all classes do suffer during the War, financially and otherwise, and one of the arguments against inflicting heavy taxation during the War is undoubtedly that you are putting the burden on people at a time when they are least able to bear it. But we have adopted the principle by general consent that we, at any rate, must pay as much of the cost of the War as we can by taxation, and nothing particularly is gained by singling out any one set of people or circumstances and dealing with them without considering the middle classes who have lost their businesses, and whose families are relatively worse off than formerly. The right hon. Gentleman, as a whole, has distributed the burdens pretty fairly. I have no objection to find either with the Income or the Super-tax proposals, but I think a great deal of information is required in regard to a novel tax, the tax on excess profits. Here the right hon. Gentleman has entered on a difficult and thorny field. It is difficult to understand on what fiscal theory the Excess Profit Tax is based. It has been written and spoken of by many as if it were a tax on war profits. Of course, it is not such a tax, if by war profits is meant profits derived from anything connected with the War. It is a tax on excess profits made during the War—profits which in many cases would have arisen, and it may be have increased, if there had been no war at all. Apparently the right hon. Gentleman has made no attempt to ascertain whether the excess of the average profits of the previous three years has arisen from the War. He takes a simple but not very just line by assuming that if during the War anybody or any firm makes more money than was made on the average during the previous three years the excess is a war profit, of which 50 or 60 per cent. must be handed over to the Government. It is simple, but it is not very scientific, and I dare say that on the whole people, while they may grumble, will pay.

But even as it stands, there are very serious considerations. I would like to point out that to take a three years' average is an extremely unfair way of settling a tax of this kind. What it means is this, that the firm, or business, which has made more profit in the last year than on the average in the previous three years, may actually be worse off than it was in the year preceding the War. If the right hon. Gentleman will take the trouble to get someone to work it out he will see that that may easily occur, and I am sure that that is not what he intends. He does not intend that if somebody in the financial year ending in 1913 made a profit of £100,000, and in the financial year after the War also made a profit of £100,000, because in 1912 and 1911 they had made a smaller profit than £100,000, 60 per cent. of the difference between the average of these three years shall be taken as war excess profits, when they certainly did not exist. Surely it would only be fair that the financial year before the War began should be taken as a definite line.

Another point which I understand the right hon. Gentleman is going to deal with is that of firms who close their accounts anywhere between September, 1914, and July, 1915. That is to say, if a firm closes its accounts in October, 1914, the right hon. Gentleman is going to bring that in as the financial year of that firm, and the profits will be subject to this tax, although the War had only been going on during three months of that financial year. I do not know whether that is a correct interpretation of the right hon. Gentleman's proposal, but that is how I read it. Surely it will lead to a monstrous injustice, and it will lead also to further difficulty. A firm closed its accounts in October, 1914, December, 1914, or April, 1915, and declared their profits, and paid them away. Does the right hon. Gentleman propose now to levy a tax on these as war profits, and take a very large percentage of the profits which the firm has made, and which it has already paid away to its shareholders? Will he explain how the firm is going to find the money with which to pay the tax? I can scarcely imagine the right hon. Gentleman proposing to do any such thing as to say that a company whose accounts closed in April, 1915, whose shareholders met in June, and whose dividends were paid away in August, shall now be called upon to pay 60 per cent. of those excess profits already paid away.

Sir A. MARKHA

M: Sixty-seven and a half per cent.

Sir A. MOND

That leads me to another point. Why does the right hon. Gentleman perpetuate in this tax the injustice already perpetrated in the Super-tax? What is the fiscal virtue of making a man pay a tax on money that he does not receive? What is the benefit of saying your profits are £100,000: I take a 3s. 6d. Income Tax on them, and I am going to tax you on the amount I have taken in Income Tax—money which you have never received? I never could understand why that is done. It has always seemed to be a grave injustice to be taxed on money one never has received, and cannot receive. What is the justice of saying, "I am going to tax you 50 per cent. on what are really gross profits, which is 67½ per cent. on your net profit"? Why does not the right hon. Gentleman say, "I will tax you 67½ per cent. on your net profits"? Why does he not do the same with the Super-tax, so that the people who pay will have the satisfaction of knowing, and other people will recognise what they are paying, and at the same time the right hon. Gentleman will get exactly the same revenue? I can only see in this method of taxation an idea, I will not say to mislead, but rather to tone down to the person you are taxing the amount which you are going to take from him.

There is one aspect of the matter to which I and many associated with me take the greatest exception. We have been asked to-day not to enter into any controversial matters. None of us have the slightest desire to reopen any old controversy of any kind, and it is not our fault if the Government has brought in controversial matters. We have not asked the Government to introduce a full plan of tariffs in the middle of the War. If we had done so we should have been betraying all the principles for which we have stood, all the opinions for which we have stood, and all the convictions that we have held. Now we are asked without any word of opposition to allow this tariff to pass sub silentio. The right hon. Gentleman informed us that we cannot increase our exports. The right hon. Gentleman will find that since January of this year we have largely increased them—from £28,000,000 a month in January to £33,000,000 a month in June.

Sir J. WALTON

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

Sir A. MOND

We have increased our exports; it is not a question of bondage. We might have increased our exports still more if we had had some logical system of dealing with the trade of this country. The right hon. Gentleman comes down and adjures us to increase exports whilst Government Departments have set up Committees which have done their very best since the War started to kill the export trade of the country in a most unreasonable way. Nobody has objected to the most rigorous attempts being made to prevent our enemies obtaining anything of any value from this country, but there is not a practical man of business in this country who is not aware that a large amount of valuable export trade has been lost to this country by quite unnecessary and foolish restrictions, and to this day these difficulties continue. The delays in granting licences has caused us to lose markets. Will it be seriously contended that it is not important to this country that we are going to scrap our whole fiscal system? If that is not contended surely it would be worth while to make some practical effort to stop the hampering of our export trade which is going on through being dealt with by people who have really no conception of that trade. I have had personal experience in this matter. Over and over again articles which I know were the season's trade last summer were delayed a week or a fortnight in regard to obtaining the licences and thereby lost a whole season for the year. That is the kind of delay which has thrown our export trade down. I know there are articles we have not been allowed to export to neutral countries, as a result of which there has been an actual increase in the German exports to those countries.

It is all very well to come to this House and tell us that in order to develop our export trade and improve our exchange we have to scrap our existing fiscal system. The right hon. Gentleman is not consistent. If he maintains that for American exchange purposes we must reduce the imports of certain articles, he ought to have the courage of his opinion and prohibit their importation. I should not object for a moment to prohibition if I thought that prohibition was necessary, but that is very different from playing about with taxes. He is not instituting a system we have opposed for many years by prohibition; he has not erected the machinery which could be utilised for that purpose after his departure from his office. So far as exchange is concerned, here again he has fallen into a double economic fallacy. I have always been told that one of the functions of exchange was to regulate imports; that when the exchange went against you, you naturally increased exports and diminished imports. Any other method of dealing with exchange would be artificial. If you try artificially to obtain this result, how illogical it is to turn round, and having obtained one result artificially, try to obtain the other result still more artificially. It may be very well from a book point of view, but the policy is contradictory in every direction.

From the few remarks the right hon. Gentleman made on this part of his Budget, I do not think he is proud of it. I do not think he really sincerely hopes that it will go down as a monument to his fiscal skill. He told us very little indeed about figures or about results. I have had only a little time, but perhaps sufficient to approximately ascertain what the great scheme is. I will tell the Committee. According to the Board of Trade returns the total imports into this country for the first six months of this year of all the articles he has put on his tariff list amounted to £5,500,000. On his basis of his 33⅓ ad valorem duty, the total duty on those goods coming into this country would be £1,800,000 for six months. According to the Treasury return he apparently anticipates a revenue of £1,000,000. Apparently he anticipates that five-ninths of the imports will contniue to come to this country and that four-ninths will be excluded. Therefore if five-ninths continue to come in and four-ninths are excluded the effect on the exchange will be enormous. We are scrapping everything we stood for, for the large sum of £4,800,000 a year. Would it surprise the House to know that the total imports into this country in the six months to June were £429,000,000? Does anyone seriously say we are imposing this machinery in order to get £2,400,000 for the revenue? Is there any practical business man in this House or any broker who deals with exchange who would contend that this will make the faintest difference to the American exchange? No, Sir, I cannot believe that that is a serious explanation. I do not know what the other explanation is, except that the right hon. Gentleman is carrying out a kind of joke at the expense of some of his Tariff Reform colleagues, because the articles selected are ridiculous, the results are absurd, and the proposal will not achieve what is intended. It is not serious.

If the right hon. Gentleman had come down and said, "I am going to put a heavy Import Duty on a large number of articles of big consumption in order to get the exchange with America straight," I might have disagreed with him, but I might have understood him if he made it as a serious proposition in this House during the War. He is not doing anything of the kind. A large number of the things he has put on the list we do not import from America at all. He says that his tariff is not protective, but in respect of a large number of goods it is protective. For instance, why should hats be taxed? Are people to go about bareheaded in the future? Why should you try to damage one of the few industries left to our French Allies? Is it not a fact that the French exchange is very much in our favour, and surely it would be an advantage to get it established on some more normal basis. Where does plate glass come from? Why should we be protecting plate glass manufactories at this moment? Is it not sufficient that the poor shopkeeper here who has had his windows blown in by a Zeppelin bomb should have to pay for his plate glass? Is not plate glass used for the construction of ships for port holes, etc.? Why this sudden anxiety that we should have to pay more for watches which are mostly used by our soldiers going to the front, and which are mainly imported from neutral countries like Switzerland? Is it a very good policy and is it very wise to do anything at this moment to annoy a friendly nation like that by a pettifogging tax of this kind?

Then there are musical instruments. We have imported from abroad £113,000 of them during the first six months of the year—largely gramophones sent out to Y.M.C.A. camps. I suppose our poor soldiers will have to do without American gramophones for the remainder of the War. Is it not lamentable, is it not absurd, that on a Budget of hundreds of millions, at a time of the gravest national crisis, at a time when we want to concentrate all our efforts on winning the War, we should have to spend our time in discussing this absolute folly, this amateur tariff, wrong in incidence and impracticable in execution? I have already had two deputations of ruined industries this afternoon. I have already had a serious deputation, representing no less than £16,000,000 British capital and 30,000 men employed in this country, who assured me seriously that if this tax on motor cars, goes through the £16,000,000 capital will be lost and the 30,000 men will be unemployed. [HON. MEMBERS: "NO, no!"] It is not for me to vouch for the accuracy of the figures; they were given to me by the representatives of a large and important industry. [An HON. MEMBER: "What industry?"] The Motor Retailers Association. I have seen the chairman, the president, and two members of the committee. [An HON. MEMBER: "They are not manufacturers."] I did not say they were, but they employ quite as many men as the manufacturers. I am merely dealing with the facts. The mere idea of imposing this tariff has already caused me to be bombarded by the people of these ruined industries. I merely use that as an illustration. It bears out some of the prophecies made in past days long forgotten which we do not wish to revive.

7.0 P.M.

Speaking seriously, cannot the right hon. Gentleman see his way to removing a stumbling block and controversy of this kind out of the way? I do not wish, none of us wish, to raise controversies, and delay Government business, or to appear to oppose the Government. But there are many of us who will feel it to be their duty to oppose this at every stage and at every opportunity. We cannot do otherwise. We have had no case made out, and no case can be made out—no reasonable case to satisfy a reasonable mind. The right hon. Gentleman has not even paid us the poor compliment of putting on a corresponding Excise Duty—the old-established Free Trade method of dealing with Import Duties. Among the imports of motor cars, £500,000 is for motor tubes, inner tubes and covers. Does the right hon. Gentleman contend that if he puts a duty of 33⅓ per cent. on imported motor covers, he is not giving a protective benefit to the maker of motor covers in this country? Why should he not put on an Excise Duty? It is not altogether true that no British cars are being sold. I am informed on good authority that something like a hundred pleasure cars a week—small cars—are being manufactured and sold to private customers in this country, and that that number is increasing. I am not so much concerned with the retailers. I am concerned with the right hon. Gentleman's contention that he is not introducing a protective tariff. I assume that he and his colleagues do not wish us to understand that this is a protective tariff. I take it I may assume that. I hope he will give some kind of pledge on behalf of the Government that in any case this is not to be taken as representing any normal state of things, but is an emergency measure of which no one is to take advantage after the War is over, whatever happens. I hope he will give such a pledge as far as he can. That, at any rate, would be something. I sincerely hope that he and his colleagues will consider whether it is worth while, for this ridiculous mouse which the mountain has produced, to provoke a controversy in the middle of a war. Is it really worth it? Do he and his colleagues really think that the exchange benefits they are going to get for the very trifling amount of revenue, which will give him a good deal of trouble to collect, are worth it? I have no doubt that he will speedily find out, what he has always contended in days gone by, that tariff revenue is difficult to collect.

I see the Home Secretary there. No one has been more eloquent on the subject of the difficulty of valuing these things. Will the Home Secretary stand at that box and declare to an enthralled House the difficulties of collecting the revenue, the impossibility of valuing these articles, and the cost of collection, which he borrowed from me? He is in a great deal better position now to ascertain the truth of those figures than he was when he made those speeches. What has happened to all that? The facts remain the same. They must remain the same and will remain the same. The right hon. Gentleman some day may be able to tell us what the cost of collection of his variegated, large, and quite useless experiment in Tariff Reform is. He might even say that it was introduced because he wished to take the opportunity of assuring himself that his theoretical conclusions are borne out by actual facts. Let him dismiss that from his mind. This is not the moment to make experiments of this kind. He has more serious things to do, and the staff under him have more serious things to do than to try to assess the value of a Charley Chaplin film against the value of a birth of a nation film. Are we going to have a Cabinet Committee on the subject? Really, that is what we are being reduced to. We can already see the English cinema manufacturers thanking the Germans that at last they are to be protected against these terrible American films which I have never seen, and never hope to see, and which we shall now not have an opportunity to see. I am speaking very seriously on behalf of a great many men, inside and outside the House, who are perfectly ready to support the Government to the utmost limit of their health and their strength, and are ready to make great sacrifices of conviction if and when it is proved to be necessary. Why should these people be hurt and affronted unnecessarily? Why should a bone of contention of this kind be thrown among us? We have had great speeches from that side on the importance of unity at home in winning this War. Let the Government see to it that unity on this, as on other controversial questions, is maintained until the War is over, and let us have some assurance that these taxes will disappear.

Mr. McKENNA

My right hon. Friend's speech opens up a large field of controversy which I can assure him was never intended to be opened by the Budget. I can assure him that no fiscal principle of any kind is compromised by the present proposals. They are avowedly introduced with the object partly of obtaining revenue and partly of limiting the import of unnecessary luxuries from foreign countries. There is no other object, and on 31st July next, when these taxes automatically cease, it will be open to Parliament, without prejudice to any fiscal theory, to renew or discontinue the tax as Parliament may choose. No fiscal theory of any sort or kind is intended to be either bolstered up or denied by these proposals. With much of the criticism on principle of my right hon. Friend of course I personally agree, but other hon. Members do not agree. We can then, on both sides, allow our opinions upon principle, which is left entirely untouched, to remain in abeyance. When once again we have peace, and once again the taxes must come up to be reconsidered, then will be the time for us to argue upon the basis of fiscal theory. When that time comes I shall be standing on the side of my right hon. Friend. I have no doubt others of my colleagues on this bench will be standing on the opposite side. I shall then be borrowing my right hon. Friend's figures, and I hope I shall be able to make as good use of them as he himself has done, because it is perfectly idle to suggest that these taxes involve acceptance or denial of fiscal opinion.

I do not dispute the right of the right hon. Gentleman—I should be the last person in the world to dispute his right—to argue for or against these taxes upon their individual merits. My right hon. Friend may say that this or that particular article selected ought not to have been selected. It is perfectly open to him to do so, but I beg of him not to argue against them on the ground of theory, because we have deliberately abandoned theory in the special circumstances of the War. The theory of Free Trade, as I think, depends upon conditions which must be more or less permanent in their nature. In War those conditions are absolutely gone, and the theory which, as I think, is sound and true as a permanent policy may be quite unsound in the special conditions which arise in war. Consequently I am putting forward these proposals, which anyone may criticise on their merits individually, without any regard to the fiscal theory upon which we should argue in time of peace. I think my right hon. Friend was a little unjust to the proposal. He used his figures, I think, on this occasion with a little too much skill. He reminded us that the imports during the first six months of the War were £400,000,000, and he said, "How are we going to affect the exchange by shutting out from the country £2,500,000?" My right hon. Friend knows as well as I do that he should not compare the £2,500,000 with the £400,000,000. He should compare the £2,500,000 with the balance between imports and exports. It is not the £400,000,000 of imports which have to be considered, but the difference between imports and exports. Every £1,000,000 counts in reducing that difference, and consequently I hope the Committee will agree with me on this point, that his use of the figures was a little bit strained.

I will leave that subject—which on the whole I would suggest would be more properly discussed in Committee on the individual taxes—and go to the other topic which my right hon. Friend criticised. He referred to the Excess Profit Tax. Let me explain a detail in the tax which I regret I did not make clear on Tuesday. Take the case of an excess profit of £100,000. I notice that no one ever thinks of an excess profit of a smaller figure. The happy recipient of an excess of £100,000 will contribute out of that £50,000 as Excess Profits Tax. He will not pay Income Tax or Super-tax on that £50,000. That £50,000 will be regarded as an ex- pense of his business. But he will pay Income Tax, and if he is the sole owner of the profits he will pay Super-tax on the remaining £50,000. The effect of that in figures would be this: The ordinary Income Tax of 3s. 6d. in the £ on the £50,000 which the taxpayer keeps is the equivalent of a tax of 1s. 9d. on the whole £100,000 excess profit. The Super-tax of 3s. 6d., taking the maximum amount, on the £50,000 of excess profits is 1s. 9d. on the whole £100,000. Therefore the taxpayer pays £50,000 excess profit and 1s. 9d. tax on the whole of the excess profit, or in all 11s. 9d. on the whole £100,000. Disregarding Super-tax, he pays 11s. 9d. on the whole £100,000. Where there is Super-tax he will pay 13s. 6d. on the whole £100,000, so that the taxpayer pays something between 11s. 9d. and 13s. 6d. We estimate that on the average it will work out that he will pay something like 12s., or a little over, in the £ on the whole. That is why I gave the figure, in answer to one of my hon. Friends who asked a question, that it will work out at something just over 60 per cent. That is the explanation of the whole thing. The amount the taxpayer will have to pay will vary between 11s. 9d. and 13s. 6d. My right hon. Friend (Sir A. Mond) attacked the justice of that tax. I understood him to attack the general principle on which the tax was founded. He said he wanted to know what the fiscal principle was, and then he proceeded to give illustrations of how unfair the tax was in its operations. But he did not give any illustration of how fair it might be. I assumed from his anxiety about the fiscal principle and the illustrations he gave as to its unfairness, that his general judgment was adverse to the tax.

Sir A. MOND

No.

Mr. McKENNA

I am delighted to know that. Let us see what the fiscal principle is. It is a very simple fiscal principle, namely, to get money for national purposes from more persons who, at the moment, can best afford to pay. With regard to the ordinary Income Tax I do not think we should ever leave out of mind that we all think that any person who is just richer than we are ourselves has a larger margin out of which he can pay. We all find in our own experience that our own income only just meets the requirements to which we have committed ourselves. The man with £2 a week is profoundly convinced that anyone with £4 has a large taxable margin. The man with £4 a week has the same conviction about somebody else with £6 a week, and the man with £300 a year thinks that he should escape, whereas the man with £3,000 is the only true subject for such tax. When you get to the man with £3,000 a year he holds precisely the same opinion about the man with £30,000 a year. The real fact is, and we all know it from our own experience, that a great deal of our income is spent for us. We find ourselves, whether we like it or not, committed to a particular kind of expenditure—to expenditure on a house, with rent, rates and taxes, family expenses, children, school, servants, and all sorts of expenditure which it is impossible to cut down between night and morning. We cannot do it. Consequently the margin—I am not speaking of the ordinary taxpayer, but of the ordinary Income Tax payer—on which the Income Tax payer is able to pay taxes is not unlimited. You must give him time; he is willing to pay, and he will pay. I never knew a country like this for its willingness to pay. I do not believe there has ever been such a country in history. You must give them time; warn them in advance. Give people an opportunity to cut down their expenditure, so that they can have the means with which to contribute to the cost of the State at such a time as this.

We now get to the man who has got an excess income for the first time. We have also got to the man who has suddenly got excess profits with respect to the expenditure of which he is not committed. These profits are free. They are profits which have come to him in time of national emergency, and I think it is only reasonable that that man should make a contribution to the State out of those profits at such a time. There is another reason. I do not say that this second reason operates universally, but it is the main cause of the excess profits made during the War—the rise in prices. Prices have risen almost without exception. That means that men carrying on business and with precisely the same turnover are getting larger profits.

An HON. MEMBER

They are paying more.

Mr. McKENNA

I think what I have said is true.

An HON. MEMBER

He has got to pay larger prices for his goods.

Mr. McKENNA

It is true that raw materials cost them more, but their percentage of profit rises correspondingly. If a man is getting 5 per cent, profit on his turnover the rise in price adds to his profits.

HON. MEMBERS indicated dissent.

Mr. McKENNA

Let us take a case. His raw material cost him £1, and he makes 5 per cent, on his raw material. Therefore he sells at 21s. If the raw material goes up to £2 and he makes 5 per cent, profit on the £2, he sells at 42s.

HON. MEMBERS

No.

Sir G. YOUNGER

He would like to do, but he cannot always do it.

Mr. McKENNA

I simply give that as an illustration, and I think it is right. At any rate the standing charges remain; they do not alter.

HON. MEMBERS

dissented.

Mr. McKENNA

Well, as a matter of fact we know, I will put it no further than that, that the great general rise in prices has been coincident—I put it as a matter of coincidence entirely—with the great increase in profits. Of course, if they do not make excess profits, they have nothing to pay. Under our proposal we go further than that. We say that if they have made excess profits in the first year and have had a loss in the second year, they are entitled to bring their loss into account. We take the whole period of the War. We propose to take not only one year in which they have been exceptionally fortunate owing to the rise in the price of stocks of raw material, but we also take the next year in which there may be a loss in business, in consequence of the drop in the price of raw material. We allow one year to be advanced against the other. The man who this year has had a large amount of excess profits may come as a creditor of the Treasury next year if he has had any loss. I do not think he will have any loss. I think profits are very much more likely to remain high than to fall. I am sure that the public spirit of the great mass of those people who have made excess profits will lead them to pay this tax willingly as a fair and just tax.

Sir A. MARKHAM

In the right hon. Gentleman's statement on the Budget he said that the business year would be taken from September to July. Is it not a fact that many accounts go up to the end of September, and in such a case a person would be paying, if they make large profits in the first part of the year, entirely on the profits made before the War actually occurred, with only about six weeks' period of the War?

Mr. McKENNA

I think about two months of the War. That is a point which I think would be a very proper one to discuss in Committee. I can give a brief answer to my hon. Friend. Very large profits were made by businesses during the business year ended in September and October, 1914, on the rise in price of stocks which they held before the War. I think it would be most improper that those businesses should be allowed to escape this tax. There is the case of profit made without any effort of any sort or kind on the part of the proprietors of the business, while the whole of the people of the country have to pay greatly enhanced prices for everything they have to eat and drink. Cases of that kind, I think, ought to pay. Of course, if there are any special circumstances in cases of individual firms we shall be quite reasonable, and such cases will be dealt with by the tribunal which we are proposing to set up. As a general rule I think that all firms who divided profits after the outbreak of War in excess of the profits which they had made on an average of the three preceding years ought to contribute to the State.

Sir J. WALTON

All taxpayers. I should like to ask whether the right hon. Gentleman could not throw his net wider. The definition in the Bill leaves out taxpayers who may enjoy excess profits.

Mr. McKENNA

My hon. Friend wishes to include another class of person, whom I think should not be included. Take an extreme case, although I do not say it is typical. Take the case of the officer who is fighting, and who in the course of the War has been promoted. Would my right hon. Friend treat his increase of pay as an excess profit?

Sir J. WALTON

That is an exception.

Mr. McKENNA

It deals with the case of an officer, but I could give my hon. Friend thousands of instances. I think it is far better to keep to the general rule of businesses, where you do get an element of price as one of the main causes in the increase of profits.

Sir J. WALTON

Shipping.

Mr. McKENNA

Yes, shipping is certainly included.

Sir J. WALTON

Shipowners think not.

Mr. McKENNA

Some shipowners who have spoken to me about it have not the slightest doubt about it. They admit that they have made great profits. Shipowners on both sides of the House fully anticipate that they will be included in this tax. I have never met any who did not expect that.

Sir A. WILLIAMSON

In his speech the other day the right hon. Gentleman said that the comparison would be with the actual profits of the business year. There are many profits which are affected in time of war by depreciation. A great depreciation takes place in the value of certain assets, but the Income Tax authorities do not allow this to be deducted in making out the return. Will the actual figures be taken or the artificial figures?

Mr. McKENNA

I do not quite follow the hon. Member's point. You deduct a certain defined quantity from the profits made during the War. That defined quantity which we call the datum line, is made up in a certain way. If there are wasting assets in the second calculation of the profits made in 1914–1915, so there are wasting assets in the first calculation. I cannot see how the business can suddenly change.

Sir A. WILLIAMSON

(was understood to say): Supposing the proprietor of a business suffers through the loss of shares in a business which is ruined by the War. Is he not allowed to deduct the depreciation, the loss he has suffered in the fall of the value of that security, from his profits?

Mr. McKENNA

That would be a matter to be taken into account in a capital tax, if we get a capital tax. That is not Income Tax. I do not see that it is appropriate to the present case. In regard to a new tax of this kind, I do not wish in the least to be dogmatic. I shall be only too glad when we get into Committee to consider fully and carefully, and I am sure the Committee will be glad to do so, every individual case brought forward on its merits. Nothing is more easy than to make a mistake in new taxes, and we must have careful consideration of every detail of this tax before we can be satisfied that it is fair, just, and effective. Let me say one or two words as to the interesting speech of the hon. Member for Glasgow (Mr. Barnes), who opened this Debate. My hon. Friend regretted the reduction of the exemption limit from £160 to £130. I am sure that this Committee agree with him, that, except under the stress of circumstances, we would not wish to go back upon the exemption which Parliament has allowed in the past. We are now under exceptional conditions, and we have to look to new sources of revenue. What we are bound to consider is whether the reduction of the exemption really operates unfairly to the taxpayer. Owing to the very wise amendment of the law introduced by the Prime Minister when he divided the income to be taxed into two sections, earned and unearned income, and owing to the admirable change made by the Minister of Munitions, who introduced the exemption for children, it has become possible in the circumstances of the time to lower the limit of abatement without unfairness. Can it be conceived as unfair to a bachelor, or even to a married man without children, that he should pay a tax of 12s. 1d. quarterly, or 1s. a week, on wages of £2 15s.?

Mr. BARNES

Why not confine it to bachelors?

Mr. McKENNA

A married man without children can also afford to pay it. A husband and wife, where there is an income of £2 15s. a week, I think, can very well afford a tax of just under a shilling. If they have one child they have an exemption of £20, which would carry them outside the tax limit. If they have two children, there is an exemption of £40, and so on. So that, though they have to pay taxation on the extra consumption of tea, sugar and other commodities, they become relieved to a certain extent of the Income Tax. Altogether the scale, in the circumstances of the time, seems to me to be a not unfair scale. My hon. Friend regretted the increase in the Customs Duties. Far and away the heaviest increase is on sugar, the duty upon which will now stand at a penny per lb., raising the price to 4d. If there had been any great reduction in the consumption of sugar in consequence of the increase of price which has already taken place, I believe that there would have been a great deal to be said for my hon. Friend's argument, but, owing to the loss of supply from Germany and Austria, sugar after the War, all the world over, rose really enormously in price. At the beginning of the War I think it was standing at something like 2d. or 2½d. a lb. Since the War we have not been able to sell it under 3½d. per lb. If this increase in price operated severely on the people, we ought to have had a great reduction in the consumption of sugar; but we have not had any such reduction. Owing to the shortage of the beet crop, sugar went to a very high price in 1911. Then there was a great drop in the consumption of sugar. It rose to about the same, or to a rather higher price, last year, and there was hardly any drop at all. That is to say, the consuming power of the people was far greater last year than it was in 1911. They have higher wages. Perhaps the best test of all was that the consumption of sweets by children greatly increased. But that means that there was no pressure on the margin. Where there is pressure on the margin of living, the sale of children's sweets suffers first. There has been no pressure on it. Children's sweets have been selling extraordinarily well. In those circumstances, is it not legitimate to impose a tax on an article the whole of which is imported, which costs us a large sum—I think that the imported price will be something not far short of £30,000,000 a year—which brings us in a large revenue, and as to which apparently there is not inflicted any severe hardship on the people by a slight increase. It appears to me that the case in favour of putting a tax on sugar in the present year is overwhelmingly strong. My hon. Friend spoke of the £16,000,000 Customs on these particular articles, tea and sugar. £11,000,000 comes from sugar. Now, as to tea. I agree with him that the additional £5,000,000 on tea is a large amount.

Sir J. D. REES

The increase on sugar comes upon a low rate. The increase in tea comes upon an already high rate. The right hon. Gentleman said that sugar was the heaviest increase.

Mr. McKENNA

Yes; sugar rose from 1s. 10d. to 9s. 4d. a cwt.

Sir J. D. REES

There was a corresponding reduction in the price.

Mr. McKENNA

No; there was not. There has been a rise of from 8d. to 1s. per lb. on tea; I do not wish to minimise that for a moment.

Mr. JONATHAN SAMUEL

One is per lb. and the other is per cwt.

Mr. McKENNA

Yes; the increase is from 1s. 10d. to 9s, 4d. in one case, and from 8d. to 1s. in the other. If the money has to be raised—and that it ought to be raised on a wide basis, that is to say, to get as many contributors to the tax as you possibly can—what better article could be chosen? My hon. Friend behind me regretted that we had not imposed a duty on spirits.

Mr. LEIF JONES

Whisky.

Mr. McKENNA

Spirits already are highly taxed. Out of every shilling spent on spirits at the present moment sixpence goes on taxes.

Mr. T. M. HEALY

More.

Mr. DILLON

There is three times as much represented by tax as is represented by the remainder of the price.

Mr. McKENNA

I expect that in making out the statistical accounts they probably take a much better quality of whisky for the price.

Mr. J. M. HENDERSON

Whisky sold at 3s. a gallon pays a duty of 14s. 9d., so that the proportion must be greater.

Mr. PRINGLE

We used to get whisky at 2d. a gill.

Mr. McKENNA

I think that my hon. Friend's figures are quite right.

Mr. HEALY

The Treasury would be wrong.

Mr. McKENNA

Whisky sold at 20 under proof for 24s. a gallon would have paid about 11s. 10d. duty. I think that my hon. Friend is giving figures without any deduction for proof.

Mr. HENDERSON

Of course you could reduce the stuff, but it is no use at all.

Mr. McKENNA

I admit that, on the subject of whisky, I am perfectly innocent; it is not a beverage which I personally consume.

Mr. HOUSTON

Will the right hon. Gentleman apply the principle of the Super-tax to alcohol, and put no tax on weak whisky and a high tax on strong?

Mr. McKENNA

That is the principle that is applied. It is proportionate to the strength. I think, after all, that it will be found on examination that the figure which I have given is the right one, and that of every shilling spent on whisky there is sixpence paid in taxes.

Mr. BOYTON

And on tea?

Mr. McKENNA

As to tea, it would depend on the price of the material—of the bonded tea. I do not know what it is now—just under 6d., I think, with the duty.

Mr. HEALY

Where did the right hon. Gentleman get 24s. a gallon for whisky? It would only cost 1s. to make.

Mr. McKENNA

I am only giving these figures. At the present moment the rate of tax on spirits is higher than on any other article of consumption. Tea comes next; it is very near whisky. On beer the tax on every 1s. spent is 3½d., and on sugar out of every 1s. spent it would be 3d.

Mr. DILLON

What about tobacco?

Mr. McKENNA

I am not including tobacco; I am dealing with articles of consumption. The Committee will remember that last November my predecessor added very largely to the duty on beer, and yet on beer at the present time out of every 1s. spent only 3½d. is taxed. It would not be fair at the present moment to increase the duty on spirits, which is already so much higher than the duty on beer, without increasing the duty on beer also. The trade in beer has not yet recovered the heavy imposition of duty which it suffered last year, and I do not feel justified, therefore, in present circumstances, in asking the Committee to impose a duty on beer.

Mr. LEIF JONES

Does the right hon. Gentleman realise that though it is quite true that, owing to the alcoholic strength, the tax is higher on whisky, yet the taxes are so related to one another now that the effect of the taxation on beer last year has actually been to turn people from the consumption of beer to the consumption of spirits; and whereas there has been a reduction in the consumption of beer by 3,000,000 barrels in the half-year, this year there has been a great increase of nearly 3,000,000 gallons in the consumption of spirits?

Mr. HEALY

And a million men at the front!

Mr. LEIF JONES

That is in consequence of our taxes.

Mr. McKENNA

I would like to go further into the matter and argue the case, but I have a thorough recollection of the consumption of spirits being very much affected by the Act of 1909, with the consequence that the people were driven to drink beer. Apparently now the same people have been driven back from beer to spirits again.

Mr. HENDERSON

And still the duty on beer is nothing like so high.

Mr. McKENNA

It must not be forgotten that very strong measures are being taken in other directions to curtail the consumption of beer and spirits. I am sure that my hon. Friend will agree with me that those measures are in the right direction, and are better than imposing taxes which may perhaps have more effect in diluting the quality of the spirit than in reducing the consumption. I do not know that I have anything more to add to what I have said in reply to the questions that have been raised.

Sir. G. YOUNGER

Will the right hon. Gentleman kindly explain what is meant by deducting interest on deposits for Income Tax?

Mr. McKENNA

It is not a complicated matter. At the present time, as the right hon. Gentleman knows, anyone who has money on deposit in a bank on which interest is paid receives the interest in full, and is expected at the close of the year to make a return to the authorities of the amount of interest which he so received and pay Income Tax upon it. As a matter of fact a great many people forget. We propose now that the banks shall deduct the Income Tax on the interest which they pay, but we do not propose that they shall necessarily pay that tax over to the Exchequer. I will explain the point. The banks will return the interest as part of their profits, and that will swell their nominal profits. They will then be called upon to pay Income Tax on their profits. They will have already received the Income Tax on part of their profits, so that when they pay Income Tax on their whole profits, including interest, they will be paying Income Tax which they have already received from their customers. The point with regard to the banks is this: The banks have taken up a very large amount of the War Loan, and there is a tax upon their dividends on that loan which would be deducted at the source, and the amount of tax so deducted might be more than the whole tax, for which they would be liable as profits as they were then calculated. Inasmuch as we are now allowing them to bring in the interest on the full account as profits, the total for the purpose of Income Tax which they would be liable to pay will always be greater than the amount of Income Tax deducted at the source on the War Loan which they hold. There will, therefore, always be a balance in their favour, and they will only have to pay out of the Income Tax which they have received, deducting from the customer's account so much of the balance as may be due by them to the Exchequer.

Mr. MAURICE HEALY

The right hon. Gentleman says that the interest on the deposit is a profit, but is there not a liability on the bank to pay it?

Mr. McKENNA

For the purpose of the Income Tax, they are allowed to deduct from the interest.

Mr. ANNAN BRYCE

Has the right hon. Gentleman considered the effect of the depreciation in the case of the banks who subscribed to the War Loan. I think three banks subscribed 20 millions each, and the depreciation on those accounts will be about £500,000 at the present rates. Is that going to make a profit to those banks on which Income Tax is to be charged? It is entirely illusory.

The CHAIRMAN

If hon. Members continue to interject different points, we will never get to the end of this discussion. The hon. Gentleman can take that point in a speech of his own.

Mr. McKENNA

I would not like my hon. Friend to be under a misapprehension with regard to the point. They may have lost capital account, but they have not lost on income account. If my hon. Friend prefers to bring capital into reckoning, he must do it both ways. If they are to have an allowance for loss of capital, we should be glad if we had an allowance on all that they have made on the capital. But that would mean an alteration of the Income Tax law. I suggest it has nothing to do with this Budget, and nothing to do with the particular matter we are discussing now. I have only one thing to say in conclusion, and I am sure it will meet with the full agreement of the whole Committee. It has been my duty to ask the Committee and the country to assent to taxes on a gigantic scale. Surely it must have been a subject of congratulation to every Member of this House that the country has accepted these burdens with almost unanimous willingness, and it is without precedent in a great war of any country, that the nation has come forward and literally asked to be taxed. There is no better omen for our final success, and our willingness to bear these burdens is the sign of our capacity to stay. In this War it is the nation that can last longest that must win, and I look, not merely to the financial resources, but to the moral resources of the country which accepts its burden of taxation with courage, confidence, and complete willingness.

Sir J. HARMOOD-BANNER

In regard to willingness to pay the taxes I should like to mention one subject in order to emphasise what the right hon. Gentleman has said. I submit that it should be seen, in view of this willingness to bear the burden, that no unfairness should occur as between the various parties who pay the tax. I happen to know a great many firms who are most willing to pay this tax, and who are going to pay a very large sum towards the War fund, but there is one circumstance which they would like the Chancellor of the Exchequer to consider. Their point is that whilst they are contributing very largely to the tax there are numerous agents in the City of London who have paid elsewhere, and they desire to know in what way the Chancellor of the Exchequer will exact from these firms the same taxes which they themselves are willing to pay. I am not going to give the names of the firms, but the sums with which they deal are not small, they run into six figures. The Government in carrying out their plans for providing food, grain, and articles of consumption, in the Argentine and in America, have not only employed English corn merchants, who are now going to contribute most willingtly towards the taxes, but have also employed a number of other corn merchants in the Argentine and in America, and they have made equally large profits with the firms in England, who are now going to contribute most willingly and most largely to our War funds.

In the Argentine they have a very good rule. If you trade in the Argentine you are bound to pay the tax to the collectors there. One of those firms made representations to me on the subject, and imforms me that for the trade he does in the Argentine he has to pay a tax of £10,000 a year. I hope the Chancellor of the Exchequer will be able to get more than this from those other firms to which I refer. They have their agencies in this country—in London, Liverpool, and elsewhere. They have been employed by the Government to buy corn, and undoubtedly enormous sums have been made by those firms. I think it would create a spirit of considerable dissatisfaction if those firms employed by the Government, and who have had an opportunity of making large profits during the War, have not to pay in the same way as other English firms. Those agencies manage to make profits elsewhere, and they do not come under our taxation and they will not come under this war tax.

8.0 P.M.

There is one other point, and it has reference to the co-operative societies. A cooperative society is a miller, is a coal owner, is a soap merchant, is almost everything in the way of trade, and the traders in this time of stress want to know why an exception should be made in a case of such a society. If every co-operative society paid the proportion which other firms have to pay towards the war tax I venture to suggest that a very large addition would be made to the funds of the nation. There is one other matter, namely, the regulation as to business firms. I would like a definition of what comes within that regulation. Are doctors, solicitors, barristers, and chartered accountants included as carrying on a business? I mention these facts because I have had representations made very strongly to me on the subject. Men have given up their professions as solicitors and doctors and gone to the front, and their business has been taken up by others of the same profession who stayed at home and took no part in the dangerous work of the nation. The business of the men who are at the front has gone, and they say, "Here we are risking our lives in performing our duty to our country while our business is taken by others, and it will be some consolation at least to us to see that those professional men who have obtained that business should be called upon to share jointly with others this war tax which is now about to be imposed." Traders feel that there is considerable hardship in saying that a shop making a little over £100 profit has to contribute, whilst those who happen to belong to professions are not considered as carrying on businesses and have not to contribute in like manner. The question of obtaining this money from foreign houses is a big and important one, and it is one in which a very handsome contribution ought to be made to the State. I will only add with others my congratulations to the Chancellor on having brought forward a scheme which has been accepted by the large firms and banks and by traders throughout the whole of the nation, who are ready to pour out their wealth to meet the necessities of the War.

Mr. PENNEFATHER

I would like to add my word to the chorus of congratulation to the Chancellor, although I feel that having had so many compliments from the Front Benches he cannot value very highly the compliments from a Member at the back of the Back Benches. I would particularly like to say that while, like others, I may feel that there are points in the Budget about which I have my doubts, and about which at a later stage I may have something to say in the nature of criticism and suggestion, yet I entirely agree with the right hon. Gentleman the Member for Exeter (Mr. Duke) when he said that if the Government finally come to the conclusion that they must have certain taxes in certain shape we are all prepared to say to them, "You shall have them, whether we like those taxes or not." I am not one of those who have any suspicion of ulterior motives on the part of the right hon. Gentleman. I believe he has only one motive, and that is the motive we all have at heart, the motive of victory over our enemies. That, I believe, is his only motive. I feel also, if he is doing things which he does not like, and which some of us may not like, he is not doing those things voluntarily, but under the compulsion of circumstances.

I would like to ask if he could see his way to make a little more clear a reference which fell from the Financial Secretary in reply to some words which were spoken by the hon. Member for the Ecclesall Division of Sheffield (Mr. S. Roberts) and some words which the right hon. Gentleman himself used in reply to remarks made by the right hon. Baronet the Member for Swansea (Sir A. Mond). Those were in reference to a tribunal which will deal with exceptionally hard cases which may arise in the taxation of excess profits. I hold no brief whatever for anybody who has exploited the Government or the people of this country, and I quite agree that those who have made excess profits should be called on to contribute and to do so liberally; but there are to my own knowledge—indeed, such cases were brought to my notice yesterday and to-day by telegram and by letter and by personal interviews from persons in my own Constituency—many cases of very great hardship which will require to be settled on equitable lines. I understood the right hon. Gentleman to-day to say, in reply to the right hon. Gentleman the Member for Swansea, that a tribunal would take charge of those cases. The Financial Secretary to the Treasury referred also to a tribunal in his reply, but on referring to the remarks of the right hon. Gentleman the Chancellor on Tuesday last I find that the tribunal he referred to was one relating solely to the case of businesses mainly carried on before the War for supplying under Government contract munitions of war and war material, and he stated that those would be a very limited number and that he did not suppose there were half a dozen.

Mr. McKENNA

A few lines further on in that speech I stated that the tribunal would deal with other cases also.

Mr. PENNEFATHER

It is strange how that has escaped the attention of a great number of Members of the House. I am very much obliged to the right hon. Gentleman, and I take it that I have his assurance that it is the intention to appoint some tribunal which will go into exceptional cases and which will deal with them on lines of equity. There was, for instance, the case referred to by the right hon. Gentleman the Member for Swansea of a firm which had been carrying on its business for ten or eleven months before the War and made a profit, while the two months which completed the year and during which the War was going on were months during which they lost owing to the decline of business. In such cases I think the right hon. Gentleman will agree it would be very unfair to assess the profits of those ten months when they had no profits during the War, but the reverse. As the right hon. Gentleman tells me he is setting up such a tribunal, I am perfectly satisfied.

Mr. AINSWORTH

I would like to call the attention of the right hon. Gentleman to two statements from an extremely interesting paper read by Sir Charles Macara before the British Association at its recent meeting in Manchester. I am sure we are all anxious to meet the taxation which is required, and that the resources of the country should be developed to the fullest extent. The paper to which I refer was entitled "Capital and Labour: Means for Promoting Industrial Peace." It is obvious if you want to make the workers productive the great point is to have no disputes. The first of the points was— Disputes frequently arise from exaggerated estimates of the return on capital, and schemes for ascertaining this retnrn should be promoted as exaggerated views often lead to unreasonable demands. I think you have there the foundation, the fons et origo mali, of many of the labour disputes which have so much disturbed the country and interfered with industry, and, what is worse, encouraged the Germans. The other sentence was as follows: The enforcement of compulsory arbitration where large bodies of men are concerned is an impossibility, and an inquiry into the merits of the dispute by experienced men representing Capital and Labour, and publicity given to those findings, would together with public opinion generally supply the most effective means of compulsion. I think the proposal of the Chancellor to enquire into the position of employers is a capital way of dealing with the question at issue, and I trust that there shall be some means of giving publicity to all these matters. I hope that on the other side, from the ranks of the daily population, there will be more complete attendance and a thorough understanding that on all points of dispute we shall have arbitration. I had the opportunity of speaking to my hon. Friend the Member for Blackfriars (Mr. Barnes), who made such an admirable speech to-day, and he agrees with me and with the paper in every particular. If the Chancellor can make use of the new machinery for ascertaining the taxation of profits, and if at the same time there is a proper understanding between the labouring classes and their leaders in this country, and if we can get from them reasonable and proper attention to their business and the substitution of arbitration for strikes and disputes, then we shall have taken an immense step not only towards the more economic carrying-on of business but a great deal also to promote to a large extent the industrial and economic returns of the various businesses and concerns we have over the whole country. I sincerely hope we shall be able to secure that. I think if the Chancellor gives his attention to this matter and secures a thorough understanding with the leaders of labour, not only here but throughout the whole country, as well as with capital, they would fall in an endeavour to carry out such a system as I suggest. That would, I believe, lay the foundation of greater returns, and therefore a larger area from which to derive taxation in the years that are to come.

Mr. MAURICE HEALY

(indistinctly heard): I wish to ask a question in connection with Schedule B of the Income Tax and its application to Ireland. As the Chancellor of the Exchequer knows, hitherto one-third of the annual value has been entered under Schedule B, with the result that, allowing for the exemption limit, you did not pay Income Tax under Schedule B unless your land was valued at least £480. Farms valued at £480 are not common in Ireland, and consequently Ireland has largely escaped Income Tax under Schedule B. The tax is now to be levied not on one-third, but on the whole. That will have the effect of introducing Schedule B into Ireland. The question I want to ask is, how does the right hon. Gentleman propose to fix the annual value in Ireland? In England a valuation is made for the purposes of Income Tax by the Assessment Committees; but in Ireland that system does not prevail. Hitherto the Poor Law valuation has been taken as the annual value. To take the Poor Law valuation as the annual value in applying this Schedule to Ireland would be most unjust. Rent is the test in England, but it is notorious that in Ireland the Poor Law valuation is very much in excess of the rent. I should suppose that in three provinces of Ireland—Leinster, Munster, and Connaught—where judicial rents have been fixed, those rents have been below the Poor Law valuation to any extent between 10 and 30 per cent. That being so, I think the right hon. Gentleman will agree that it would be most unjust to take the Poor Law valuation as the annual value for the purposes of Schedule B. In regard to Schedule D the injustice does not exist, because, although you take the Poor Law valuation as the annual value, the owner can correct, it by substituting the rent for the annual value. But when you come to Schedule B and deal with the occupier there will be no means of correcting it. Accordingly I suggest that in applying Schedule B to Ireland, instead of taking the annual value as the immutable standard of taxation you should give the occupier the choice of substituting either the existing judicial rent or, if he has bought his holding, a judicial rent fixed on some previous occasion, or if he would prefer it, the amount of the annuity which he is paying to the landlord, which would be another fair test of value. I have had cases in County Court where, although the rent was already half the valuation, I have got large reductions. The district was at onetime a large wheat-growing country; it was valued as a wheat-growing country. The valuation has existed ever since, and it is now enormously in excess of the rent. We, of course, have to acquiesce in this proposal, but I suggest that the right hon. Gentleman should mitigate its hardship by adopting a standard of value which will treat the Irish tenants fairly. In conclusion I would congratulate the right hon. Gentleman on the manner in which his proposals have been put forward and received.

Mr. GLYN-JONES

I wish to refer to the proposal to double the duties on what are wrongly called "patent medicines." The proper designation is really "proprietary medicines." The object of this increase is either to raise revenue or to discourage consumption, or to achieve both those ends. The right hon. Gentleman established a Departmental Committee which sat for about two years, and reported on 4th August, 1914, on the whole question of these proprietary medicines. I do not propose to trouble the House with anything but one fact. They found this: That these remedies are of a widely different character, comprising:—

1. (a) Genuine scientific preparations;
2. (b) Unobjectionable remedies for simple ailments; and
3. (c) Many secret remedies making grossly exaggerated claims of efficacy, causing injury by leading sick persons to delay in securing medical treatment; containing in disguise large proportions of alcohol; sold for improper purposes; professing to cure disease incurable by medication; or, essentially and deliberately fraudulent."

In other words, that Committee divided these medicines, all of which are at present taxable, into these three classes. Firstly, genuine scientific preparations; secondly, unobjectionable simple remedies for simple ailments; and thirdly, those which were objectionable from the point of view that they were either dangerous or fraudulent. If the object of this tax is to raise revenue, surely it is an illogical and unscientific tax. I cannot think that the right hon. Gentleman thinks it for the moment, but if anybody in the House thinks that by this tax you are going to reach some of the profits of the so-called millionaires who are making great fortunes out of proprietary medicines, it is quite a mistake, because of all the indirect taxes that I know, there is no tax easier to pass on to the consumer than the tax upon a proprietary article. It is quite obvious that this additional tax will be borne by the consumer. In the great majority of cases the consumer belongs to the industrial classes. So much the better, it may be said, this will be one of the ways the Chancellor may have of getting the industrial portion of the population to bear their proper share of the burden. But the right hon. Gentleman must see that the portion of the industrial classes you are taxing in this case are the sick, and to suggest that you are to take advantage of the man who needs one or other of these first two classes that the Committee refers to, namely, those that desire to take genuine scientific preparations or unobjectionable remedies for simple ailments is, I think, not arguable.

It may be said that this tax has a double object: that it is intended and should be used to curtail the consumption of these articles. The Chancellor says that the extra yield of the new taxes will come to £520,000, which means that on the present estimate, that is the present amount realised, £330,000, that the Chancellor is budgeting for a decrease in these medicines of 12½ per cent. I do not think he will argue that it is a proper thing to seek to lessen the consumption of the first two articles referred to by the Committee. He may argue that he wants to reach the third class—those medicines which are fraudulent or harmful. Surely, if that is so, this is the most absurd way that I know to deal with the matter. What does it amount to? To this: to say that if there are fraudulent or harmful medicines being, sold to-day, on which the right hon. Gentleman takes a stamp of 1½d. in the shilling, that it is an improper thing and should be stopped; but that if a quack or fraudulent maker is prepared, with the help of the Government, to go on defrauding or poisoning his victims, he may do that, provided that the victim in addition pays in the future an extra tax on his bottle. Really it is absurd to try and protect the ignorant from the third class of proprietary medicines by making him pay an extra 1½d. while being so defrauded and injured.

What, however, I do want specially to ask the attention of the Government to is this: 29th September has been fixed as the date upon which these new taxes are payable. Only this afternoon the manager of a large firm of wholesalers, handling these things, told me that of six articles alone of which he has to-day in his warehouse a sufficient number to require 53,512 extra stamps on. I hope the House understands that these articles are now stamped. That is just one instance. That manager will have to unpack in all sorts of forms, and in all kinds of cases, these various articles, and they will have to be opened and re-stamped. I can assure the Government that the view taken by a meeting of the trade this afternoon was that it was really a physical impossibility to restamp the existing stocks by 29th September. They are asking that the Government, if they are to proceed with the tax—because this trade, as all other trades, are not going to carry to any length their protest at such a time as this against the additional tax—to consider the facts. They say the Government should be reasonable in these matters. Incidentally, may I say that it as not many months since the Government were dealing with spirits. They made a hopeless muddle of the matter in so far as it applies to medicines. Complaint was then made that the authorities did not approach the people who understood the business in order to hear what they had to say about it. What has happened in regard to these medicines? So far as we have been able to ascertain, the Government have consulted no one whatever who could give them any definite knowledge based upon actual experience. The consequence is that they put forward this proposal which, from a practical point of view, is impossible. I know perfectly well that the Government cannot give the public notice of ordinary indirect taxation. The Government cannot call a trade together and say, "We shall proceed in the Budget to tax tea, or coffee, or cocoa." In regard, however, to these medicines there was no danger of forestalment. Forestalment cannot take place, because the tax is payable as announced. The best evidence that the tax could not be forestalled is that the resolution gives the trade a week's notice, so if there was any forestalling to be done there was a week in which to do it.

It is quite clear that the reason that those dealing with these matters were not consulted was not the danger of the tax being forestalled. I do say to the Government that business men who are not politicians have to judge the capacity of the Government by what they understand. When business men have a proposal such as this, expecting that the impossible should be done by 29th September, what do they say? They say: "If this is how the Government act in matters that we can understand we can quite accept the stories of muddling in other directions." I want to make an appeal to the Government that they will at any rate give some further time for this stamping to be done; that they will receive a deputation from the trade, and hear what these gentlemen have to say with the view of making some modifications in the incidence of the tax. I can only again say that I do hope the Government will sooner or later learn that there are people in all trades whom they can trust, and that they might just as well take advantage of any absolute technical knowledge that can be given them, as this is the second instance in a trade of which I know something about of making what the responsible people in the trade realise to be unnecessary blunders, and giving unnecessary trouble, not only to themselves, but to the Department. I ask the House to forgive me for having raised this matter, but it was my only opportunity of dealing with it, in order that if anything is done at all it should be done before the 29th September.

Sir J. D. REES

I will not do more than indicate one or two subjects, which I may, perhaps, be allowed hereafter to elaborate, in order that the right hon. Gentleman may mention them, if possible, to the Chancellor of the Exchequer. The first is, Why cannot cotton and silk lace be included among the commodities upon which an import duty is now to be levied? Those are luxuries. Nobody can say they are necessaries. The import in August of one was £100,000, and of the other £7,000; £107,000 worth a month roughly of these goods is imported, and my information is that at the present moment on the borders of Switzerland and Germany large stocks of this lace are being laid in so as to flood England to the detriment of the English lace trade as soon as the War is over. I should like the Chancellor of the Exchequer to be so good as seriously to consider that matter, together with hats and other things which, at any rate, are not of greater importance. I hope the right hon. Gentleman will represent that to his chief in the most sympathetic manner. As regards tea, to deal with which an opportunity will come again, I want to point out that when the Chancellor of the Exchequer said that alcohol was more highly taxed than tea, I do not think he quite did justice to the case. It should be remembered that the 50 per cent. rise on tea, coffee, and cocoa has a specious appearance of equality which really does not exist.

In the case of tea 50 per cent. is put upon an extremely high rate of duty, and on sugar, for instance, upon a low rate of duty, and, although the rise in the sugar duty appears to be large, the Government immediately countervail it by bringing about a large reduction in the selling price. The consequence is that the tax on tea at the present is upwards of 100 per cent. of its value. I do not say this for the sake of objecting to this tax, but merely for recognition of the sacrifice made by the tea trade, who do not object to being taxed now, and realise the need of the occasion, and, I believe, will cheerfully pay. But they, at any rate, would like it to be understood that the Tea Tax cannot well be compared with a tax on alcohol, which is of a restrictive character, whereas the Treasury Bench has never admitted any desire to restrict the consumption of tea. Tea, moreover, is grown with British capital in British Possessions by British labour, unlike, for the most part, coffee and cocoa. It rests on a totally different footing from all those other substances, and when the tax is increased to make it upwards of 100 per cent. it is desirable that the facts should be clearly understood. I do not think the Chancellor of the Exchequer entirely brought out the difference there is in these two cases; nor did he attempt to tax mineral waters, which he should have done. I suppose sugar is supposed to attach also to them, because sugar is used to a large degree, but the fact remains that mineral waters are still exempted, although, I believe, in the opinion of a great many people, mineral waters are far more destructive than beer. I should like the right hon. Gentleman to remember, and the public so far as I get get at them on this occasion, that the export of tea to Holland, Norway, and Sweden is stopped, perhaps properly, whereas the export of cocoa is not stopped, and the inequality of treatment to this very day continues to exist. Therefore the sacrifice that is made by the tea trade should be thoroughly understood and appreciated by the public.

I want to associate myself entirely with what was said by the hon. Member for Liverpool regarding the tax on co-operative societies. I will not trouble the House now with some references which I brought here on that subject, but the fact is that the Chancellor of the Exchequer declined to see some 1,400 grocers who wished to see him on this subject. I think that was a pity, as so many people are affected by this tax. I do not think it is the case that all the shareholders are people of under £160 a year. They can very easily, by not limiting their numbers, bring themselves under this favourable treatment. At the present moment, when co-operative stores are competing successfully with every kind of individual tradesman, when building societies, money societies, and savings banks have to pay Income Tax, it is a curious thing that this particular immunity continues to exist, and I should not be doing my duty if I did not add my voice to that of the hon. Member for Liverpool and urge that this matter, which may be referred to at greater length on some other occasion, should receive sympathetic attention.

With regard to the Tobacco Duty, I want to urge that it should be collected by stamps, and not in the manner suggested. That would be easier to small tobacconists who cannot provide the capital. If the duties were imposed by stamps, things would obviously be made very much easier for them without any detriment—indeed, with an advantage—to the Revenue. Of course, the collection of the duty by stamps costs less than the collection of the duty in any other way. The Chancellor of the Exchequer, who is an expert on the subject, will also appreciate the fact that if the duty were collected by stamps it would include the duty on the moisture, which the manufacturers put in after they have taken the tobacco out of bond. I have only further to express my regret that a tax is not put upon bicycles or amusements. I think it is regrettable that that was not done; also that a graduated Income Tax has not been introduced, and the present distinction abolished, and that the Super-tax, and the methods in which it is proposed to levy it, including the extreme injustice of assessing it on the gross and including the Income Tax before the Super-tax is struck, has not been redressed on this occasion.

I also find it necessary even now and here to say that the proposed abolition of the halfpenny post will hit a great many people very hard. I am not talking now so much of the picture card people as other people. I think it is rather a serious matter. I would suggest that the halfpenny postage should be retained and that telegrams should be charged 1s. for twelve words. Nobody would object to that, whereas a great many people are much concerned about the loss of the halfpenny postage. I take this opportunity of asking when the change is to be introduced. I rather gathered from what the Postmaster-General told me that it would not be for a month or two. I think the public will be glad to know when these changes introduced in his Department, and particularly that of the halfpenny post, will be brought into effect. I should like the Postmaster-General to consider the case of the Press telegrams, which will press rather hardly upon people who have, on the whole—some hon. Members may think there are some exceptions—very gloriously behaved right through this campaign, and have endeavoured not to give away any information which it was considered ought not to be given away. I should be greatly obliged if these matters are considered now. They must be considered at once if anything is to be done. I have, therefore, ventured to trouble the Committee—I hope not at very great length—and I sincerely trust that the matters brought to notice will be taken into account.

Sir RICHARD COOPER

It is very difficult for me to regard it only as a coincidence that on every occasion when I wish to address the House I am always very unlucky in catching your eye. In four attempts out of five I have been unsuccessful. I think I have a right of public representation in this House along with others on the Government Front Bench—

The DEPUTY-CHAIRMAN

I do not quite understand what the hon. Baronet means, and perhaps he will explain himself a little more distinctly.

Sir R. COOPER

Yes, I will. When this Debate began there were only three other Members besides the hon. Member for Blackfriars and myself who rose to speak, and yet one is unfortunate in seeing hon. Members come in at 6 or 7 o'clock, and they are called upon at once, whilst in four times out of the last five times I have risen I was unsuccessful in catching your eye.

The DEPUTY-CHAIRMAN

I understand the hon. Baronet to complain that he rose but did not catch the eye of the Chairman. All I have to say is that other speakers caught my eye, and the hon. Baronet must derive as much satisfaction as he can from the fact that I have now called upon him.

Sir R. COOPER

I will raise the matter on the Adjournment.

The DEPUTY-CHAIRMAN

I may inform the hon. Baronet that he will not be in order upon the Adjournment in raising this question, because the discretion of the Chair is a matter which can only be raised by a proper motion placed on the Order Paper of the House.

Sir R. COOPER

On an occasion like this, when a Budget of this magnitude is brought forward, very naturally there are a great many matters with which I suppose hon. Members like myself desire to deal. This evening I only want to refer to a few of the more important ones which I desire to bring before the notice of the Financial Secretary. Like other hon. Members I welcome quite readily the burdens which the Government find it necessary to impose upon the country. There are, I think, only two directions in which anyone can in any way disapprove or show any adverse criticism. I do not think we can be satisfied that the money raised by the State for covering the expenditure incurred by the different Departments of the Government is done with a proper regard to economy. I think that will be held to be one legitimate direction for criticism. The more important one which I wish to deal with is one in which, I think, I can show presently that there is an unequal distribution of the burden of taxation. With regard to extravagance I have on several occasions brought before the House concrete and definite cases of great extravagance. I have other cases with me now in regard to munitions, which I understand we shall have an opportunity of bringing more usefully before the Department concerned, which is not represented to-night. I believe I am right in reminding the Committee that the means by which the Government have thought it right to obtain sulphuric acid for their requirements, in the light of information which has been brought before the public, is another case where extravagance is unnecessarily being incurred. While we are talking about the difficulties in which the country is situated owing to the state of the exchange, it is another form of extravagance which I think ought to be avoided when we find that very large orders have been placed in past months with Canada for a particular type of article at a time when our own Colony has installed the necessary machinery to produce what the Government require; and when that machinery was in process of being completed or has been completed we find that orders for these things are going to the United States, and our own Colony is being asked for a similar article but of a greater size, which she has not the machinery to produce—

The DEPUTY-CHAIRMAN

I do not quite see the relevance of a discussion upon that point in Committee of Ways and Means.

Sir R. COOPER

I only referred to that subject because I thought it dealt with a waste of public money which might be avoided with more care, and would therefore diminish the demands that have to be made upon this House from time to time, more especially in the direction of protecting our gold reserve, which, judging from the speeches which have been made this afternoon, properly comes under this discussion. The right hon. Gentleman the Member for Swansea made a speech this afternoon which struck me as being rather more of a party nature than is likely to help us in carrying out successfully our present great struggle. It is only natural that I approve of the proposals of the Chancellor of the Exchequer with regard to tariffs for specific purposes, but it does seem to me that it is extremely unscrupulous, either on the part of a Free Trader or a Tariff Reformer, to try and make the slightest capital out of what the Government has done, because we are living under totally different circumstances than usually prevail. Even if the right hon. Gentleman the Member for Swansea is right in his assertion that the consumer pays the whole of this tax, I think it is a right and proper thing for the Government to impose such taxes for a specific object which arises under abnormal circumstances. My only regret is that the number of these taxes has been so limited, because there are so many things that might have been included with every advantage in the direction of balancing our trade, of encouraging the people to economy, and cutting down their expenditure, and to some extent, at any rate, raising a certain amount of money. I understand from the remarks made by my right hon. Friend the Member for Exeter (Mr. Duke) that he, at any rate, believed that what was happening now would be some guide to the country in the future. That will not even be true, because the main channel chosen by the Government for taxing imports is through motor cars and parts which for the time being, owing to war conditions, are practically not being produced in this country at all, and therefore there is no competition to meet the imports which come in under the new tariff. From every point of view not only has the country not done everything in the right direction, but it has been driven to do this under abnormal times and circumstances.

I want to turn now to the Income Tax, with which in itself I can find no fault. I am particularly glad to see that the Chancellor of the Exchequer is going to enable the people of this country to pay Income Tax in two instalments instead of one. That is a proposal which I made last November, and which the late Chancellor of the Exchequer took up quite seriously, and probably this may be a result. Speaking from my own experience and the experience of others, I can say that this is going to be a very great advantage indeed to the country. Last Tuesday and this afternoon, when the Chancellor of the Exchequer addressed the Committee, it was abundantly clear that it is the intention of the Government in the case of this Budget to be very reasonable and do everything they can to assist in particular cases of difficulty in the interests of the country, because they want the money and they do not want to cripple the sources that produce the money. It is certainly a step in the right direction and one which I am sure is going to be of very great advantage both to them and to the Income Tax payers of the country. When we come to the effect of the Income Tax and Super-tax on industries there does arise a different situation from that which has ever existed before. I am not asking for any favour of any description for industry as opposed to any other source of income, but we want the taxes to be raised so that they shall do every justice to every source from which they come.

9.0 P.M.

There are in industry some peculiar circumstances which I should like to give by way of illustration. Let me assume that the tax the State requires is one-fourth of an income of £5,000 per annum. A professional man with an income of £5,000 would pay £1,250, leaving him with an income of £3,750. If that £5,000 were the amount assessed on a particular industry and the man paid his 25 per cent, tax, or the same amount of £1,250, he would not be left with the same income upon which to live, and for the very obvious reason, which everybody will recognise, that a profit of £5,000 on an industry includes book debts and other assets and does not represent the cash that can be drawn out of the business to be used as income. I have consulted several people, and I am told that on an average, because businesses vary very much, it would not be possible for a man to draw out in cash in the case of a business which showed a profit of £5,000 and to use as his income more than £3,300. If those figures, and they are only given by way of illustration, are anywhere near correct, the amount left for a man to live upon is very much less where the income is derived from a business than it is in the case of a professional man. He would pay some 38 per cent. of his income in tax instead of 25 per cent. I am quite sure that the Financial Secretary will readily see that in past years when the Income Tax has been comparatively low it has not been such a very serious matter, but at the present time, especially in view of the upset of trade in many industries which are not in any way producing for the Government, the situation may, and in many cases undoubtedly will, be an extremely difficult one, and I think the Chancellor of the Exchequer should give a little more consideration to it. The burden of the heavy taxes is not to-day under the present Income Tax laws equitable as between the man who derives his income from an industry and the man whose income is derived from a profession. In the case of a lawyer the tax is levied on income, but in the case of a business man it is levied not on income but on profit. It is a profit tax and not an income tax, and the two are totally different things. There is no objection to my saying that I have paid two lots of Death Duties within twenty months. One's power to pay in the case is not the same as that of the man exactly in the same situation of life who is not in that position. Many people cannot realise their properties or their assets in order to pay legacies and Death Duties and so on. I want to throw out the suggestion that there really will be in practice many difficulties which were not referred to or foreshadowed by the Chancellor of the Exchequer last week. One feels very encouraged, however, by the fact that the Government to-day do show such proper consideration and reason in the manner in which they tell us they are going to handle people in different situations.

I want to mention one other point in connection with the system under which the profits of a business are assessed for Income Tax. It is one which I think the Treasury ought to do something to rectify, although I know that they are in the old difficulty which we are so often up against in this House when dealing with these matters. You have to penalise the honest man to protect the Treasury against the less scrupulous man. I want to give the case of a commercial traveller who has worked twenty-odd years for one firm and has received the salary of £250. That man has a stroke, and is incapacitated for the rest of his life. Surely it is only right that the firm or business who have had the services of a man like that for so long should do something to help him in the years of his incapacity. We will assume that he is given a pension of £125 a year, or half his salary. I am, of course, giving an actual case that does exist. According to the laws of equity that £125 ought to come in the expenses, of the firm. It is no personal advantage to the owner or owners of the business. If a business man travels about and entertains people at dinner for business purposes, and by way of advertisement to increase his profit, the Income Tax authorities never question any expenses of that kind. I feel that the particular cases I have given do show how unsatisfactory the question of allowances in commercial concerns at present stands, and it is so serious to-day because of the very heavy taxation which we all recognise the Government are very properly asking from us. Here, the man or the firm who are good enough to treat their people well, and to pay pensions, have to lose out of their private pockets somewhere about £40 in Income Tax, and Super-tax as well, assuming, of course, that the business is a large and prosperous one. [An HON. MEMBER: "Charge it up!"] I am sure the hon. Gentleman will agree with me that if business men are to start the trick of trying to diddle the authorities by charging up dinners or pensions, the commercial morality of the country will be no better for it.

The Chancellor of the Exchequer this evening has rendered us a great service by explaining more clearly the tax on profits, and has given us facts which nearly everyone had not appreciated before. It is now clear that all business and commercial houses and agencies are to pay 50 per cent. on excess profits. But I want to ask the Financial Secretary if it is right that a firm nine-tenths of whose business is exporting to countries below the Equator, and whose books are made up to the 31st December, 1914, and who will, therefore, under the Chancellor of Exchequer's regulations, have to pay 50 per cent. on the profits, is it right that that firm should pay on increased profits seeing that for nine-tenths of their export trade below the Equator the books are made up to the 30th June, over a month previous to the War, and the profits obviously had nothing, even indirectly, to do with the War. The Chancellor of the Exchequer used words to the effect that the intention was to rope in everybody whose profits had increased in a time of national emergency arising out of the War. He explained clearly to us, and quite rightly, that he had to protect the Treasury against losing those profits which might have been made in the first one, two or three months of the War. If he is right in that principle, it is equally right the profits which have been made, and are returned from Buenos Aires or Sydney in accounts made up to the 30th June, 1913–14, should not be called upon to pay a share of the Profit Tax.

I come now to another case which I think is worth presenting to the Treasury which may not be quite aware of what is going on in certain directions at the present time. I will give a specific case in which I was asked to join. There is a demand arising in this country to-day for the production of new things which we did not produce here before. Especially is that the case with the War Office, which is pressing for the supply, at almost any cost, of certain high grade chemicals which have not hitherto been produced here. One or two, or more, men get together, and say: "The War Office want these things. They will pay almost any price for them; we can produce them at a much lower cost, and we may as well make them and pocket the money ourselves." After all that is only human. This thing happened just before the Budget came out. The men said: "If we put our money into a factory, and start making these high grade chemicals, and the Government are going to take the profits, and when the War is over we are going to be subject again to dumping from abroad, it will be better for us to go to the United States at once, and start making the chemicals there, as we shall be safe afterwards, and more than that the British Government cannot touch our profits, and cannot take a penny of them." That is simple business when men are starting out on a new venture, and try to get the best return they can for their capital, whether at home or abroad. I do not think anybody will say there is anything immoral in it. At any rate it is done.

I have one other little detailed point which I will put in the form of a question, in the hope that the right hon. Gentleman may be in a position to answer it. In the case of the Income Tax, which is to be levied in January next, I think I am right in saying that the Government only ask for it for six months, and do not make it retrospective. They will ask for 20 per cent. instead of 40 per cent. But I cannot find in the statement of the Chancellor of the Exchequer anything about charging 20 per cent. instead of 40 per cent. on the Super-tax. I want to know whether it is the intention of the Government to put the Super-tax in January next on identically the same lines as the Income Tax, or are they going to ask for only half of the Income Tax which would otherwise have been payable, and the whole of the Super-tax and make it retrospective. I hope the right hon. Gentleman when he answers will be able to give me information on that point. He will agree that it is a very important matter. I am sorry when everybody wants probably to be getting away that I should have kept the Committee so long. I have tried to confine myself to important points, which want clearing up, and obviously it would be of no use bringing them up after we have passed the Committee stage of the Bill.

Mr. PETO

I should like to ask the right hon. Gentleman when he answers if he will be good enough to remember a suggestion I made on Tuesday that the halfpenny additional stamp should be placed on the newspaper, and not on the wrapper, and to state the reason if the Government have arrived at a decision adverse to that suggestion?

Mr. J. M. HENDERSON

I think the Chancellor of the Exchequer and those associated with him may feel very happy at the manner in which the Budget has been received by this House and by the public. I have heard ten Budgets produced, and I never heard one so clearly and explicitly explained, and I never heard one received with so much hilarity by the House of Commons. It speaks well for the stamina of the House and of the public that they can receive a Budget of a character which would have simply have staggered us some years ago with such high expressions of good humour. If we can stand this, I think we may be able to judge from the temper of the House and the people outside that we should be willing to face even greater demands than are made in this Budget. There are two points upon which I should like a little explanation. The right hon. Gentleman in his Budget speech stated that relief is to be given in certain cases to the extent of the whole additional duty where the income is lower by one-fifth. That refers, of course, to the Income Tax, and I wish to know whether it will also refer to the Super-tax. There are some very hard cases in regard to that tax due very often to the fact that it is charged upon the previous year's income. I have here a case where the income from a business has dropped from something like £9,000 to £2,000, and yet in this year, when it is only £2,000, Super-tax has to be paid upon the £9,000, because the charge is based on the income of the last year. Had it not been so based this firm would have been free from Income Tax, but now they have to pay something like £700 or £800, which is a very heavy tax to take out of a total income of £2,000. I mention these figures to show that there are some very hard cases which require to be considered, and deserve the relief of this one-fifth in the same way as in the case of the Income Tax.

With regard to the tax on war profits, I say nothing beyond this: You take 80 per cent. from controlled establishments and 60 per cent. only from other establishments. If there is any relief to be given at all, the lesser should be the controlled establishments, for the reason that most of the controlled establishments are those of engineers who have abandoned, to a large extent, their ordinary work. You called upon these men in the time of your emergency to throw aside their usual business, and to lay out their factories with special machines. You asked them to come and help you, and you now say, "We are going to charge you 80 per cent.," whereas the other man who only helps himself, who is in no way of use to you so far as munitions are concerned, and on whom you do not rely, him you only charge 60 per cent. That wants reconsideration. On this subject I should like, some expression as to how the Committee which is going into these matters is to work, and I should like to ask whether or not the Treasury or the Chancellor of the Exchequer will lay down rules and regu- lations by which this Committee of adjustment will be bound. I can assure them, from practical experience, that they are up against a very difficult thing. I will give only one instance, that of a firm whose overturn was round about £40,000 for the last four years. It was gradually making a little money, and this year it has-laid down machinery for Government work to the amount of £12,000. It has doubled its output, which is now about £88,000, and has made a profit of some £13,000. The whole of that profit is in machinery. If you ask that firm to-day to give you 50 per cent. of their extra profit they will simply say to you, "Take the machinery, or half the machinery," because they have no money whatever. That is a matter of serious concern.

Another point to be considered—it is, perhaps, more a point for Committee on the Finance Bill, therefore I will only indicate it, so that in drafting the Bill the Government may lay down regulations to meet the case—is the case of engineering firms who have given up their usual business and you have taken control of it, while another firm has taken up their ordinary business and annexed a large portion of it. When the War comes to an end, you must not say to these men, "Now we have finished, there is your plant, take it," because they will reply, "That plant is of no use to us. We have plant in excess of our requirements, and this is extra plant we got in for you, and it is entirely useless to us." These points will all have to be carefully discussed on the Bill itself. I understand—perhaps my right hon. Friend will correct me if I am wrong—that the case of the banks is met by allowing—I should have put it in a more mandatory way—the deduction of Income Tax on deposit and current interest. I believe the Chancellor of the Exchequer made a little technical mistake, which he will no doubt correct in the proof of the OFFICIAL REPORT, because he said the interest paid to depositors was added to the profits. As a matter of fact in readjustment they will be allowed to deduct the tax from the interest, and it will not be deducted from the general profits. As that interest in most cases will be more than the net profit, I think the case is met. I should like to understand quite clearly that the meaning of this is that where Income Tax on the interest is deducted, the understanding is that in no case shall the bank be asked to pay more in total than the Income Tax which it would pay on its ordinary net profits. If that is established, I have no more to say, because I think the case is met.

With regard to the Customs Duties on cocoa, there is great complaint among merchants who have bought cocoa, tea, and other things. I have one case in which a man paid the duty as far back as the 7th September, but has never been able to get delivery of the stuff. Having paid for it, and got his receipt from the Customs, I want to ask whether, when the docks are able to deliver, he will be franked, or will he have to pay extra duty? The legal position ought to be that the moment the duty is paid the goods should be free from further duty. I do not know whether the Government has made any reckoning as to the profit they will make during the twelve months on aircraft and bombardment insurance. I rather gather from the insurance companies I have consulted that there will be a very considerable profit. I do not know how that may be, but I should like to know whether allowance has been made for any surplus or deficit. While on that subject I should like to ask a question, which perhaps the right hon. Gentleman may be in a position to answer. I find in the north of Scotland that the people are not anxious to be protected against aircraft so much as they are to be protected against bombardment. They do not fancy that Zeppelins will fly so far perhaps as Peterhead. I think they are quite right. But when they come to insure against bombardment they find that they must insure also in respect of aircraft. You can insure for aircraft alone, but not for bombardment alone. There is something very wrong there; you ought to be able to make your choice, whether to secure yourself either against bombardment or aircraft. I think that on that point the Government will have to recast their insurance.

The DEPUTY-CHAIRMAN

I do not see the relevancy of this in Committee of Ways and Means.

Mr. J. M. HENDERSON

In Committee of Ways and Means we have to find the money. Suppose my place is blown up, I want my money from the Government. If you say the money to pay these damages is not to come out of the Exchequer, and is not to be provided for by the Budget, I admit I am entirely wrong. There is one point with regard to our expenditure on which I think I may be within the limit of your ruling, and that is the enor- mous expense to which we are being put, and I hold the unnecessary expense, in the War Office.

The DEPUTY-CHAIRMAN

That has nothing to do with Ways and Means. I explained to the hon. Member that the object of Ways and Means Committee is to devise methods for raising money, the objects of which have been intimated by the Chancellor of the Exchequer in his opening statement.

Mr. HENDERSON

I should have thought that if we could devise the means we might have something to say as to what was done with the money.

The DEPUTY-CHAIRMAN

The Chancellor of the Exchequer made no reference to that topic in his opening statement at all.

Mr. HENDERSON

Still I presume the bulk of the money is to go to the Army, and if I can show that the money might be reduced I am within my rights surely.

The DEPUTY-CHAIRMAN

These matters are for Committee of Supply. The hon. Member must confine himself to the Resolution before the Committee.

Mr. HENDERSON

I suppose I shall have another opportunity of dealing with that. A great many of these points will come in for discussion on the Finance Bill. I only indicate the points to my right hon. Friend so that he may have them well in view in framing the Bill, because they are sure to arise in a more or less contentious form. There is, first of all, the extending of the one-fifth to the Super-tax as well as to the ordinary tax, the framing of proper regulations with regard to dealing with excess profits, and then, with regard to the claims made by people who have paid their duty before the Bill came in, that also must be dealt with.

Sir JOHN SPEAR

I desire to mention two matters on behalf of my Constituents. One, which may be considered a somewhat small matter, is the abolition of the halfpenny post. It is felt among my Constituents that it will deprive especially the poorer classes of an opportunity of communicating with their friends which they appreciate very much, and it is also felt that it will greatly reduce the dissemination of picture postcards. In a county like Devon where you have beauty spots all over the district, visitors come to see us and send these picture postcards to their friends and thereby advertise the beauties of Devon, and we would rather that the opportunity was still retained.

Sir A. MARKHAM

Will not the beauty stand a halfpenny extra?

Sir J. SPEAR

The beauty would stand a shilling, but the disseminators will hesitate when they have to pay double what they pay now, and the beauty is always there, but the visitors only come occasionally and we want them to be the means, as they have been hitherto, of giving to the people in other parts of the country the advantage of knowing the beauties of Devon. It has amounted to a very considerable industry and more than that, judges I have conversed with are of opinion that the Government will get rather less revenue than more from the proposed alteration. I would ask the Financial Secretary to give that point his consideration.

There is another matter of considerable importance, and that is the question of the proposed assessment of the farmer's Income Tax. I quite admit that it is not unreasonable, in fact agriculturists are anxious to bear their fair share and make their contribution towards the cost of this War. Not only agriculturists but all sections of my Constituents recognise the desire of the Chancellor of Exchequer to be fair all round, and though, perhaps, there may be a little criticism here and there, as a whole it is accepted with more than resignation, but with the determination on all hands to supply the necessary funds to bring this War to a victorious conclusion. But I am not so sure that the way of assessing the farmer's Income Tax to the Budget is the best, either for the Government or for the agriculturists. Hitherto he has paid on a third of his rent. It is a big increase to treble that, but while I admit that the farmer hitherto has got off very easily on the question of Income Tax, at the same time he is extremely hardly hit over the question of his local rates. He is taxed on his raw material, which is not the case with any other members of the community, and it would have been desirable that the increased assessment should be dealt with at the same time as the rearrangements of the basis of local taxation. I know it is impossible on the present occasion, but only last year the Chancellor of the Exchequer said to a deputation of the farming community that the burden resting on agriculture in the matter of local taxation was intolerable and must at once be redressed. We know the reason why that has not been dealt with, but it would have been well if the two things could have been done together.

Dealing with the present proposal, I am a little anxious lest it should deter that further development of our land and the efforts which have set in to produce upon all land the greatest possible amount of native food supply. I notice in this discussion that Member after Member has said we must raise more food in our own country. I agree with that entirely. I am a little anxious lest this system should deter that. As I understand the Chancellor of the Exchequer, the basis of the assessment is to be the rental; but if the former—and this applies to any other industry—can show that his income has been a fifth below the rental he can claim repayment of the entire increased Income Tax. I am afraid that will somewhat deter the development of our land and the food production which has set in. After the great depression which lasted from 1879 for twenty-five years, when farmers lost so much capital and only carried on their business at great loss, it was the fact that the depression caused a reduction of the expenditure of money, manure, and energy in the cultivation of the soil, with the result that the whole native food supply was greatly reduced. In the last five or six years, when we have had remunerative prices, we have seen a great development of agriculture, until to-day we have seen in our country a larger live-stock supply than ever was the case before. We want to see that continued and increased. I am not sure that the temptation to the farmer to relax his efforts so as to bring his income one-fifth below his rental and avoid the payment of the increased duty will not, having regard to the difficulties connected with agriculture, the lack of labour and the increased price of manure, check the development of our land which we are all so anxious to see in the interest of the public and in the interest of the farmer.

I think it would have secured more revenue to the State if there had been a definite fixture of the assessment at one-half of the rent. I am aware that the farmer is entitled to resort to Schedule D, and, taking one year with another, under Schedule D I think he would pay far less Income Tax than he would on the basis of one-half of his rental. We know it is ex- tremely difficult for the farmer to estimate and show exactly what he has done during the year, and the expenditure he has made on manure and improvements is hardly classified under capital or current expenditure, and, more than that, the farmer does not like accounting. Of course, if the Budget stands as at present, he will have to establish a system of accounting, and, if he does, in the long run the Government will get smaller proceeds from agriculture on the basis of Schedule D than they would from a permanent assessment of half the rent. I hope the Financial Secretary to the Treasury will consider that point. We are anxious to do our part in supporting the Government. To whatever extent money is wanted, providing it is assessed fairly between the different sections of the community, and in the least objectionable way, agriculturists, like every other section of the community, are going to back the Government up. I think the proposal to which I have raised objection will bring confusion into the conduct of the agricultural industry. It will compel agriculturists to resort to the assessment under. Schedule D, which is very difficult, and I think it will result in the Government receiving less revenue from this industry than would be the case if they fixed a regular basis of half the rent. We are anxious that our land shall be developed in the greatest interests of the community, affording the largest amount of employment, and the largest quantity of food production, and while we wish to bear our fair share of the financial burden of the country, we want the taxation to be applied in the way that is the least harassing to our industry.

Mr. RUSSELL REA

I am sure the Chancellor of the Exchequer must be extremely gratified at the reception with which his proposals have been met, not only in this House, but in the country generally. It is quite gratifying, and very singular, to observe how few are the people who really object to the taxation under this Budget. There are some, of course, who are ready to applaud the Prime Minister when he said that "we have to support this War to the last ounce of our strength, to the last drop of our blood, and to the last penny in our pocket," but who raise violent and vehement protest when they are attacked in their first penny. That class has certainly not been prominent. The response to this heavy taxation has been patriotic, and, generally, extremely gratifying to those who have proposed it. My criticism of the Budget would be not so much a criticism of the taxes that have been imposed, but a criticism of those that have not been imposed. I rather wonder that the Chancellor of the Exchequer has not put taxes, upon our various activities, as well as upon our possessions, and that there are not such taxes as taxes upon advertisements and upon amusements. The old Match Tax of Mr. Robert Lowe might have been revived. It was an excellent tax, and complied with all the canons of taxation. Even the rejected Wheel and Van Tax of Mr. Goschen might have been revived. However, I accept the Chancellor of the Exchequer's explanation. He told us that the activities of his Department were limited; that they were able to carry out the taxes that he proposed, but that they were, perhaps, unequal to the task of an extended series of taxes. Nevertheless, I think we may say that his proposals are somewhat heroic.

The addition of £105,000,000 of taxation is a very considerable achievement. It is really more than that, I think. I conceive that the Chancellor of the Exchequer's estimate of the probable results of the taxation of excess profits is extremely inadequate. I think that that tax will by far exceed the estimate given by the Chancellor. The fact is that the income of this country by the War has been dislocated and rearranged in a surprising manner. About three people out of four have had their incomes reduced, but I think the fourth man has had his income increased by much more than the other three have had theirs reduced. It is a calculation that Sir George Paish has made, and he believes that the income of this country has not been reduced by the War. When these proposals have been put before us, no doubt our first feeling is that we are being bled very heavily, and we feel, probably, poorer. We contemplate with something like consternation—at any rate, some of us do—a taxation of £380,000,000 and a dead weight debt at the end of this financial year of £2,200,000,000. I would point out, however, that the sacrifices we are asked to make are trifling compared with those which our grandfathers were asked to make, and which they cheerfully made. A hundred years ago this country, with a population of twenty millions, against forty-seven millions to-day, had, according to an estimate by the best authorities, a realised wealth of something like £2,500,000,000. That is little more than our annual income to-day. Our realised wealth is estimated at £17,000,000,000. The income of the country a hundred years ago, at the end of the great war, was probably not more than £300,000,000. We estimate our income today at £2,400,000,000. The comparison is more striking if we consider what the income was per head of the population in those days compared with what it is today. The income in 1816 per head of the population was something like £15. Before the present War the income which was the basis of our taxation in this country was something like £52 per head of the population, man, woman and child. Our grandfathers, out of their slender income of £15 per head of the population, submitted to a tax of £3 1s. per head. Our taxation was scarcely more before this War began, although our income was four times as great. We look with some alarm at the prospect of a dead-weight debt at the end of this financial year of £2,200,000,000, but that is light compared with the £895,000,000 which our grandfathers shouldered. That debt represented one-third of the total wealth of the country in those days. The weight of our debt at the beginning of this War was almost imperceptible. It was not 1 per cent. on our income. The interest on our debt was something like three-quarters of 1 per cent. on the income of our country. Our grandfathers shouldered a deadweight annual cost of their debt representing 11 per cent. of their whole income. Our debt, as it is calculated it will be at the end of this year, namely, £2,200,000,000, does not amount to one year's income. The debt that our grandfathers faced was three years' income. Take the taxation of this country as it was before the War, and remember that our taxation implied far greater results, far greater services than the taxation of a hundred years ago. It covered old age pensions and all sorts of benefits, assistance to local education, local taxation, and other matters, but it was not 7 per cent. of our income. Our grandfathers faced a taxation of 25 per cent. of their income. Suppose our taxation is doubled, as it is now by this Budget, after all it is little more than half that—it is only 14 per cent.—and yet our grandfathers shouldered their debt and they paid their interest and paid their Sinking Fund and maintained the credit of the country, and they did it in a way, so far as the resources of the country were concerned, which put very heavy taxation on the poor.

Mr. CROOKS

They were half starved.

Mr. REA

Yes, but they did it. The rich, the owners of property, and large incomes a hundred years ago, escaped very lightly. Now we are putting much lighter burdens on a much stronger back. It is not only more scientific and more humane, but it is really more economic to do so. It is rather amusing to remember that when we were asked to try to arrange for a debt with a foreign country with all these enormous resources we were by some people asked for collateral security. Of course, that claim has not been pressed. It is rather curious to see how Americans shouldered their obligations in their day of distress after the war from 1861 to 1864. We must remember that America then was not the country it is now, but, taking the North alone, it was a small country with a population of about 21,000,000, poor and undeveloped compared with what it is now. The total wealth was estimated then as something like £2,500,000,000—that is to say, something scarcely exceeding the total estimate of our annual income. Now the Americans had a four years' war, and their four years' war cost them £800,000,000 sterling, and the Northern States of America shouldered far more than we are asked to shoulder. They sacrificed 40 per cent. of their whole wealth in that war. Now at that rate Great Britain could go on with the present War at the present scale of expenditure for five years before we had spent 40 per cent. of our wealth. There can be no doubt about it that, judging from the point of view of realised wealth, we stand not only able, but abundantly able to continue this War to the exhaustion of all our enemies. But we have to remember this, that all I have said refers to a basis upon which we ought to be able to raise a debt and pay it. But this realised wealth is not wealth available for war purposes. War has to be paid for out of the articles which are produced within the year.

The time of the men engaged in the Army and Navy is this year's time. The articles which ought to be consumed are to be this year's production. The available wealth, the accumulated wealth, cannot be turned into such articles. So that we are brought down to the axiom which has been enforced upon us by the Prime Minister and the Chancellor of the Exchequer, that we have really in the first instance to pay for this War out of savings. Ultimately it will be paid for out of wealth, but in the beginning it must be paid for out of savings. That is, the production of our nation must be diverted, and is being diverted, from the production of things which we want to enjoy in our ordinary and natural life to the production of things which are wanted for the War, and of course the payment of these things has to be found by taxes or by loans. I have heard in this House criticism of the conduct of the country. They say that we are not realising this War. My hon. Friend the Member for Northampton, I think, gave an example of the levity with which the people who have money were treating the War. He spoke of three young men of military age whom he met in a country hotel who were going round in their own pleasure motor cars doing nothing for the country. That is not my experience. In all the circle of my acquaintances I know no such young man, and the country has tackled the problem of saving and has tackled it in a way that has not been acknowledged, and it does no good to disparage our country in that respect. It does no good to recruiting to say that our men are shirking It does no good to saving to say that we are not saving. The fact is that we are saving. We are not saving in mere minute Lenten penances, but we are saving in great chunks of expenditure all over the country. I may give one or two examples. Take the amount of money that was spent in this country on sport. That is mostly being saved to-day. Grouse moors are unlet. Fishings are unlet. House parties in the Highlands and elsewhere are unknown. Even the popular expenditure on football and sport is contracted enormously.

Take all the suspended expenditure on social entertainment, not only in London, but all over the country; take the expenditure on holidays, not only Continental holidays, which are almost impossible, but all holidays—the people of this country have not taken their holidays, and, where they have taken them, it has been in an economical way. Take the element of dress. A few months after the beginning of the War, in the smoke-room of this House, I put to a group of Members this question: "How many of you have been to your tailors since the War began?" Not one of them had been to his tailor. The saving in this country on women's dress is perceptible to any man who has eyes for female attire. The new fashions are not running, and women of all classes are wearing hats of old dates, and even of the last three years. Then take trades. I am told that the furniture trade is absolutely stagnant, with the exception of those dealers who supply the working classes and who are doing well. But the great furniture dealers have their business almost at a standstill. I was told by a man who is connected with the decorating and wallpaper business that all their trade has been suspended during the War. Again, everybody knows that ordinarily at this season of the year, in going through the streets in all parts of London, painters were found at work, and one's progress was impeded at every step. There has been very little of that this year. I think the Chancellor of the Exchequer will find, when he comes to apply again for the savings of the people, that they are of surprising amount. All these items which I have mentioned mean blocks of millions of money; huge chunks of savings are being effected.

Mr. J. SAMUEL

We are spending £39,000,000 more for coal.

10.0 P.M.

Mr. REA

Somebody is spending it, but others are getting it. I protest not only against those people who say we ar not saving but those people who say we are not working. I was present the other day when my hon. Friend the Member for Ince (Mr. Stephen Walsh) spoke up for his class, the miners of England. He said they were doing their duty and doing their work. He said that the miners in his district and other districts had made up their minds, and declared that during the War there should be no stopping of work. I think I am in a position to know something about this particular item. I have a return week by week from the Census of Production of coal production in this country, and I should like to say that the miners have shouldered their work bravely. Although 200,000 miners have gone to the front, and their places have been taken up by people of less experience and less skill, yet, during the month of August this year, the output of the mines of this country was greater than the output of the mines in 1913, which was the record year of the trade.

Sir A. MARKHAM

The percentage of absenteeism is larger, including Wales and all over the Midlands and the United Kingdom than at any time in the history of the coalfields, and the reason of this increased production is that many of the collieries ceased work soon after the War broke out.

Mr. REA

I was not comparing this August with August, 1914, which is the year of the War, but with August of 1913, which is the record year of the trade. However it may be accounted for, it is the fact that the output in August of 1915 was 21,290,000 tons, according to the estimate of the Census of Production, and according to the record at the Home Office, it was 20,464,000 tons in August 1913. I think that speaks extremely well for that large class of men, the miners. They may in August of 1913 have taken long holidays, and extended their Bank holidays to a week—they probably did; but this year they did not, though they had money in their pockets, more money than they ever had before. I object to disparagements of the efforts of our country. I object to its being said that we are not saving in cash or not increasing production. I think it is well for us in this country that our enemies in other countries should know that we are putting our shoulder to the wheel and doing it well.

In this Debate, and in all Debates having relation to the cost of the War, with all our loans, all our taxes, all our loss of trade, and all the devastation caused by the War, we should ascertain what is its real cost; and the real cost of the War can only be estimated in one way, excluding the part that has been borne by taxation during the War, by the valuation of our country at the end of the War as at the beginning. Sir George Paish, whose figures I have already quoted, doubts if Great Britain is any the poorer after one year of War than it was at the beginning. Let me illustrate this more fully by taking the case of Germany. Germany has not incurred a large outside debt. She has no external debt, and at the end of the War Germany will have one great asset, and that will be Germany. The question for the Germans will be one which has not yet arisen in this country, and that will be, who will own Germany. There will be legal possessors of everything that is in Germany, but they will have on their backs two or three other sets of claimants and the liquidation will be a problem which I am sure our Chancellor of the Exchequer would not like to tackle. I made these remarks and felt impelled to do so because, although the Debate has been marked by courage and resolution and a spirit of self sacrifice, this Committee and the people outside do not quite realise what our resources are, or the efforts that we have been making to liquefy and to bring them into operation for the purposes of the War. I think that so far as the economic position is concerned we can face it with confidence.

Mr. HOLT

I think we must congratulate the Chancellor of the Exchequer on the general principles of his Budget. I entirely disagree with one remark of the right hon. Gentleman who has just spoken, and I am very glad the Chancellor did not introduce a multitude of taxes. I cannot see the advantage of having a multiplicity of taxes. I think it adds to the cost of collection and relatively to the yield of the tax. I would like at the end of the year to have a single Bill presented by the tax collector and have done with the whole business. I cannot see any conceivable advantage in paying taxes on this, that and the other thing. The more individual taxes you have, the more they become a nuisance as well as a financial burden. I wish to say a word about the taxation of so-called war profits. I am very glad my right hon. Friend in the few words he said in justification of the tax took quite honestly and frankly the only ground on which he could have justified it. It was the highwayman's ground. "I want to get money, and I will get it from those people who have it, and who are least popular in the community." I am very glad he did not try to advance any serious justification for this tax. Let me put this case to the House. Supposing you have two people who have now an income of £12,000 each, and that one of those persons previous to the War has had £10,000 and the other an income of £14,000, why on earth, may I ask, should they be asked to pay different sums in the year in which they both have £12,000? If it is right that they should do it in a year of war surely it is equally right that they should do it in any other year. I should have thought prima facie that the gentleman who raised his income from £10,000 to £12,000 was a good citizen because he had been doing something to add to the financial strength of the Nation. In the main people who have increased their incomes during the War are people who have shown spirit and enterprise. If it is not a good thing for a citizen to increase his income, then the conclusion seems to be that the most perfect citizen would be the man who went bankrupt.

If you are going to raise these taxes on war profits, at any rate, let us understand what the result is going to be. You propose to tax almost entirely commercial enterprise. Before the War we heard a great deal about capturing German trade and expanding British trade. Where does the right hon. Gentleman suppose the capital necessary to capture German trade is to come from if not out of the profits made during the War? If you are going to tax commercial trading profit, especially at a very high figure, you are bound to prevent that increase in trade which many people look forward to after the War. I really cannot see on the right hon. Gentleman's own argument what justification there is for not including every person whose income has been increased. I know he gave a particular case of officers serving the Army and who have been promoted. That would make a very suitable exception, although I was not aware he proposed to make any exception. What about the right hon. Gentlemen who find themselves on the Front Bench as a result of the War? No one, I suppose, will suggest that it was due to any action of their own, or that it was due to any intrigue or manipulation, but that it was a response to a general long-felt want on the part of the whole nation. I desire to question some of these new duties. I am going to pursue the line of argument of the right hon. Gentleman the Member for Swansea, because I do not think that any of us who are convinced Free Traders can let the matter stand where it is. I would remind the Government that a majority of this House were returned with a definite, clear mandate to maintain Free Trade principles, and there is no reason whatever, because a Coalition has been formed, why we should abandon Free Trade principles. It is bad enough to have to abandon plural voting, and it is rather stiff to have to abandon Free Trade as a result of the Coalition. The principles of Free Trade are just as good in war time as at any other time. There is nothing in the War which can make the smallest difference to the principles of Free Trade one way or the other.

I would turn to the question of motor cars. As I understand, the object of this taxation of motor cars is to check the use of a luxury and to help the foreign exchange. I quite agree that if you can stop people from acquiring motor cars for pleasure purposes it is a very good thing to do; but I submit that the proper way to do that is by putting on either a thumping licence duty or an import duty coupled with a corresponding Excise. What is the argument against an Excise Duty? If you want revenue you certainly will not get less by an Excise Duty; you will probably get more. If you want to maintain exchange you will damage exchange just as much by allowing workmen in this country, who might be manufacturing for the export trade, to go on manufacturing motor cars nearly the whole of the important parts of which are imported into this country. Almost the whole of the raw materials of motor cars—certainly the expensive parts—are imported into this country, so that in any case you are only going to save to the extent of the labour, and not to the extent of the intrinsic materials of the cars. I cannot see what conceivable reason there is why we should not put on an equivalent Excise, unless it is that for some reason or other the Government want to make a concession to the Tariff Reformers—in other words, to give away the principle of Free Trade.

What is the position we are going to be in when the War comes to an end? You are to have your duty on motor cars. People at once set to work to manufacture motor cars in this country. When it is proposed to remove the duty they will at once come to the House and say, "We have a vested interest. You must do something to help us. You have no right to take off this protectionist duty." I do not agree with the protectionist character of the tax under any circumstances. Suppose, however, you make it a Free Trade tax, a purely revenue tax, it is all very well if you direct it against motor cars for pleasure purposes. Heaven knows, the difficulties of internal transport in this country are bad enough! Why should we try to prevent people from importing from America motor cars for commercial purposes? One of our difficulties in clearing the congested ports of goods has been lack of cartage facilities. If we can get good motor cars from America or anywhere else for carrying on our internal commerce, for Heaven's sake let us do it as cheaply as we can! As to the proposed postal changes, I am rather glad that the letter rates are being put up. I have the feeling that anything which reduces my correspondence will be a benefit. When it comes to the picture postcard, surely of all the forms of foolish waste the general dissemination of picture postcards is the most foolish. If you want economy, to stop the production and distribution of these not always very beautiful articles would be rather a good thing than otherwise.

Sir W. BYLES

Oh!

Mr. HOLT

I am glad that my hon. Friend the Member for Salford thoroughly likes them. Every man has his own taste. Another question connected with export trade and exchange mentioned by the right hon. Member for Swansea is that of Customs regulations and impediments to export trade. Everybody who has any practical dealings with the export trade knows perfectly well that these regulations and the way in which they are applied are very vexatious, and seriously hamper our export trade. I am certain that if the Government want, as they must do, to foster our export trade, they could do a great deal by getting rid of old restrictions which are perfectly senseless. By risking an occasional trifling irregularity which would make no difference to anybody they would get rid of much waste of time and energy and avoid delays, and thus make a very material difference to the trade of the country. It really does require the most careful attention from the Government. The right hon. Member for South Shields takes a very optimistic view of the financial resources of this country. Frankly I think he puts it altogether too high. He made a comparison between what we are doing now and the present crisis of the country and the state of affairs at the close of the Napoleonic Wars, after we had been fighting for twenty years and had won a striking and conclusive victory. It was not a fair comparison. Nobody says we have won a striking and conclusive victory at present, and it is not fair to compare the financial position at the beginning of a war which has only gone on a year, and the financial position of the country after a war of twenty years. If you are going to make a comparison, you must make one between a war one year old, and the end of 1795.

Mr. REA

I said we can go on for five years at the present scale of expenditure before we are in the position in which our grandfathers were at the close of the Napoleonic Wars.

Mr. HOLT

That is not a very satisfactory situation—to find that we can only go on for five years. Our grandfathers had to go on for twenty. If you are going to make a comparison you ought to compare the same cases, unless the right hon. Gentleman is going to say that the War will be brought to a triumphant conclusion at the end of five years. He made another comparison with the United States of America. Was it quite fair. Did he take into account the vast undeveloped wealth of that nation which enabled the Americans to bring in a large amount of new population to develop the riches of the country, so that the taxpayer was enabled to take a portion of the burden on his shoulders of those who had been in possession? I feel that we are going about talking—my right hon. Friend will excuse my phrase—in a somewhat jaunty way of our great financial resources. If we do this we shall only encourage people to squander. My view of the financial position, and of the whole Budget is, that the right hon. Gentleman had better spend a great deal more of his time looking at the debit rather than at the credit side of the account—if we want to be successful. There is not a single person in this House and very few in the country who do not want to win this War. What we have to look at in this question is the expenditure upon the War. We have got to make ourselves quite certain that we can stay the course, at the pace. We have been told by no less an authority than Lord Kitchener that this is going to be a long war. We have been told by the Prime Minister and other persons that this is going to be a war of attrition. Let us make quite certain that we are not going to be the first persons to suffer from attrition. I am honestly afraid—and I say it quite openly—that at the rate of expenditure we are going on at the present time, comparing it with the ratio of military successes that we are attaining at present, that we may be the first persons to suffer from attrition. I hope when the Budget and the whole financial statement of the Chancellor of the Exchequer is laid before the people of this country it will really draw their attention to the question of economy; not merely to economy in regard to their own personal expenditure, but economy on the large and much more effective scale which can be made by the Government in their conduct of the War.

No price, as we have been told, can be too high for victory. That is a sentiment with which we all agree, but a great many people when they use those words mean simply this: There is not the slightest reason why they should not spend as much money as they please, utterly regardless of whether there is going to be victory or not. What I want to see is those responsible for the conduct of this War realise more than they seem to me to do at present that, if you are too lavish in your expenditure of money, you may utterly deprive yourself of any hope of victory whatever. Victory in this War is just as likely to depend upon frugality of national resources by the Government as upon any other single item, and I hope my right hon. Friend, who I really believe to be a sound man financially, in spite of his ecstacies about War Profit Taxes, and a few things of that sort, will give some assurance to this House that he is not only going to try to preach economy to the civilian citizens at large, but really going to give a lecture on economy to the gentlemen at the War Office and the Admiralty, and even those people who have borrowed £400,000,000. I hope that will be the lesson of his Budget—that, more than anybody else, the Government will seriously put before themselves the task of seeing that this War is conducted with economy, and not with the reckless extravagance which has characterised so much of it.

Mr. SHIRLEY BENN

I am not going to take up the time of this Committee by discussing this wonderful Budget and its far-reaching character. I only rise because the Chancellor of the Exchequer this afternoon, in dealing with excess war profits, made the statement that, although he intended taking one-half of those profits, in case the firm that made these war profits lost money in the succeeding year, they would have a claim upon the Treasury. I should like to ask the Chancellor of the Exchequer if he has considered whether it would not be advisable to prevent firms and companies from paying dividends during the War in excess of the dividends they have paid on an average during the past few years, and to insist upon their putting profits made solely through war conditions into the War Loan, to be held as a trust fund until the conclusion of the War, and that this trust fund should be liable for any future losses made by the firm. It is, perhaps, a small matter, but I think we all realise that the country is calling upon every one of its citizens to lend a helping hand, and those of us who cannot go to the front and fight for our country ought to be willing to place the whole of our ability and the whole of our business experience at the disposal of the country, so that we can do our share just as well as those fighting for us.

Sir A. MARKHAM

One cannot blame the Chancellor of the Exchequer inasmuch as the present Minister of Munitions did not deal with this question of war profits before. Let us see what position commercial firms are going to be in, especially trading companies. My right hon. Friend knows that, owing to this long delay in dealing with this question of war profits, many companies have divided the surplus profits already, and it will cause great dislocation in many trading companies now that the Government have at this late hour of the day produced their Excess Profits Tax. I have always pressed upon my right hon. Friend during the time he has been Chancellor of the Exchequer that he should take all the war profits above the average, economy being so necessary at the present time that no one ought to make a profit out of the War. On the question of war profit, and the way it is now going to be dealt with, I do not think it is wrong, even although he is taking, as he may do in a few odd cases, ten months of pre-war profits into the account. I do not think, as he wants the money, it is an unreasonable way to find the money, seeing that the people who pay in the present year will have a larger amount to pay in the following year.

I wish to say a word or two on behalf of the Super-tax payer, a person who is always being kicked about because he is considered a necessary evil; he has no voice to speak for him, and it is not a popular thing for anyone with over a certain amount to speak up for that particular class. I do not object to the 3s. 6d. tax at all, and if I had my own way I would have doubled it. What I wish to ask is why you should tell the country that the Super-tax payer is only being charged 3s. 6d. when you are in reality charging him 4s. 3d. I know that the country likes to know what the Super-tax payer is actually paying, and it is a popular thing with the masses of the people that he ought to pay a larger amount. I will point out how much the Super-tax payer is paying out of every sovereign. The country believes he is paying 3s. 6d., but my right hon. Friend knows that out of every £100 received by him he has to add to that the amount deducted at the source, and therefore for every sovereign he pays 4s. 3d. in the £. I could never understand the reason why the Minister of Munitions insisted that the Income Tax should be added to the income upon which Super-tax was payable, and I would like the Chancellor of the Exchequer to see whether he cannot alter the present basis. I can never work out the figures for myself, and I let the authorities make the calculation for me. I do not see what useful purpose can be served by adding the Income Tax which has already been deducted. What I wish to emphasise is, however, that if 4s. 3d. is actually the amount, that fact ought to be stated and the country should know it.

I wish now to deal with the man whose income has been reduced by 50 per cent. during the War. Under Section 13, Subsection (2), of the Finance Act of 1914, the Chancellor of the Exchequer gave relief to the taxpayer whose income was less than two-thirds of the amount for which he was liable, but that was merely a postponement. Owing to the special circumstances of the War this seems very hard, because so many of the professional classes have lost all their income. I think yor should charge on the actual amount which has been given out to the electorate of the country. The man with £5,000 a year will this year pay Income Tax and Super-tax to the amount of £1,029, but in many cases the taxpayer is actually paying double that amount. When the Income Tax was 1s. in the £ it does not seriously matter to many people whether you had the tax falling on a diminishing income or not, but it was a very great hardship on the people who had only just got a margin. Of course, these remarks do not apply where the profits have not diminished. A previous speaker in this Debate said that the extra coal tax imposed on the public at large is probably not much less than £60,000,000 more than in the preceding year. That is the increased cost to the consumer at large. The whole of this trouble has been brought about by the failure of the Government to take action. The Government are now going to take the greater part of the profits, and therefore the coal miners are going to be the chief people who are going to benefit by the War. They are going to get still higher wages. I do not agree with my right hon. Friend the Member for South Shields (Mr. Russel Rea). There was not a single sentence of his speech to which I did not take exception, and I was glad that my hon. Friend the Member for the Hexham Division (Mr. Holt) dealt with it in the way in which he did. He said that the people are all working to-day. All I can tell him is that absenteeism is growing, working men, living to-day in a time of national distress, are travelling in char-a-bancs, picture palaces and cinemas are full, and at the same time the consumption of beer and spirits has largely increased.

Mr. REA

I get the returns every week, and I can tell the hon. Baronet that the very best returns are from the districts in which he is particularly interested—South Yorkshire, Nottinghamshire, and Derbyshire.

Sir A. MARKHAM

I think it was Lord Palmerston who said that there were liars, and liars, and statistics. In point of fact, all I can tell the right hon. Gentleman is that people do not understand the seriousness of the position, and the country is giving itself far too much amusement in beer-drinking and pleasure-making than it ought to do, or than they are doing either in Germany or in France. Therefore, we in this House ought to do all that we can to set an example to the country at large, and, as I have previously argued, one of the first economies we ought to make is to do away with the payment of salaries of Members of Parliament who are in receipt of incomes, say, of over £3,000 a year. There would be no desire on the part of the taxpayers that any man should be prevented from coming here by reason of the misfortune or the good fortune that he happens not to be possessed of worldly goods. But to give £400 a year to Members many of whom have large incomes is merely a wasteful and extravagant course which the Government ought to stop. I have had my £400 a year. When I first had it I was opposed to the principle of wealthy men coming here and being paid by the State. I hold the same view which Mr. Gladstone held, that no Member of Parliament should receive a salary until he requires it, and that the fact that a man is poor ought in no way to be a detriment. I have always thought that a poor man has an advantage over a rich man in fighting a constituency. After all the argument usually advanced at a political meeting is that the rich candidate is a bloated capitalist, while the Labour candidate is himself one of the people. This is a point the Govern- ment should deal with. There is no reason why this money should not he saved to the State. It is unnecessary expenditure. My own case is similar to that of other Members. I took the money and paid it into a special fund. I paid Super-tax on it, and intended when I left Parliament to devote it to a certain purpose, taking care my Constituency should have none of it. I see some Members are publishing letters saying what they are doing with it. One hon. Member writes that he sends the salary to the chairman of his association to be divided among certain charities in his constituency. Parliament did not grant the money for the purpose of enabling Members to corrupt their constituents. It was to enable working men to come here. The Chancellor of the Exchequer could save from £150,000 to £200,000 per year by abolishing this wasteful expenditure. He will have to do it later on, and when we have to save every possible penny of money, I think we should save it in this direction at once. By so doing we should be setting an example to the country, and we should be showing that we are really in earnest in our desire to bring about a necessary and essential economy in the wasteful way in which the War is being carried on. There is no control over the way in which money is being spent. It is being thrown about in a reckless way. There are many old gentlemen who have been brought back to the Colours who are drawing pay as well as full pensions. How many of these dugout generals are drawing £1,000 a year? I am told there are hundreds of them who are sitting in London for many hours daily not doing the work they are supposed to do, because, although anxious to serve their country, their age does not permit them to do it.

The hon. Member for Hexham said the Chancellor of the Exchequer should turn his attention to the debit rather than to the credit side of the account. I am sorry to say that in recent years the Treasury has failed to exercise proper control over expenditure; it has proved itself a spending Department instead of being the custodian of the public purse. I hope the Chancellor of the Exchequer will keep his eye on the other Departments; he will have his job, because they have too long been allowed to run riot. We have heard of the silver bullets which are going to stop the War. It seems to me steps should be taken by the Government to stop the reckless expenditure which has been going on in connection with this War owing to the way in which it is conducted by these old gentlemen whom Lord Kitchener has brought back to manage the War. It is not too late for the right hon. Gentleman even now to get the assistance in the War Office of business men in the same way as Germany has done. The time will come—and before long—when you will have to reduce the payments to both officers and men.

The CHAIRMAN (Mr. Whitley)

The hon. Member is travelling a long way from the purpose of Committee of Ways and Means. The subject is quite in order in Supply, but he really must not debate it in Committee of Ways and Means.

Sir A. MARKHAM

I am sorry I have travelled outside, as I fear I have, and I apologise for it, the scope of the Resolution now before the Committee. The right hon. Gentleman the Member for South Shields (Mr. Russell Rea) did not refer throughout the course of his speech to the Resolution before the Committee, therefore I was led by my right hon. Friend, who is a Privy Councillor, to speak on these outside questions. I want to congratulate the Chancellor of the Exchequer particularly on the way he met us at Question Time to-day. He was most kind in dealing with every interruption. Everyone who asked questions got a full reply from the right hon. Gentleman, and although he was subjected to fire in every direction he gave everyone who wanted information a courteous reply. I am sure when we get into Committee to deal with these many difficult points he will give full consideration to all that is said. There is one more point on which I wish to ask him a question. Under this Bill will the man who is a landlord of coal have to pay the profit tax on his royalties? My interests are not very much in line with those of landlords, but my right hon. Friend ought to remember that it might happen by chance that a landowner, who has let his coal at a royalty of 2d., 4d., 5d., or 6d., or whatever it may be, per ton, might have had the whole of his coal worked in a particular year, just before the War or during the War. It would be manifestly unfair to take that income away from him, considering that the amount of the royalty is an annual one and does not vary as profit varies, because it is a fixed charge. [An HON. MEMBER: "There may be a sliding scale."] Where there is a sliding scale it may be possible to get some of the profit, but to take the coal, which is after all the corpus of the estate, would be unfair. Perhaps my right hon. Friend will consider that point and tell us later on how he proposes to deal with it. I do not think it would be fair on the face of it to treat it as war profit because his coal happened to be worked in any one year.

Lieutenant-Commander WEDGWOOD

rose—

Mr. McKENNA

I do not wish to stand in the way of my hon. Friend, but I would remind him that there are two Resolutions we shall have to take, if the Committee will allow us, before eleven o'clock, and it is ten minutes to eleven now.

Lieutenant-Commander WEDGWOOD

Do we rise at eleven?

Mr. McKENNA

Yes.

Lieutenant-Commander WEDGWOOD

Then I cannot speak.

Question put, and agreed to.

c699
1. LIQUOR LICENCE DUTIES. 71 words