Commons Sitting of 21 June 1916

Preamble
The House met at a Quarter before Three of the clock, Mr. SPEAKER in the Chair.

PRIVATE BUSINESS.
Land Drainage (Lilleshall) Provisional Order Bill,
Land Drainage (Welland) Provisional Order Bill,
Read a second time, and committed.

TRAMWAYS, LIGHT RAILWAYS AND TRACKLESS TROLLEY UNDERTAKINGS.
Order [28th April, 1915] for a Return of Street and Road Tramways and Light Railways authorised by Act or Order, showing the amount of capital authorised, paid up, and expended; the length of line authorised and the length open for public traffic down to the 31st day of December, 1914, in respect of companies, and the 31st day of March, 1915, in respect of local authorities; the gross receipts, working expenditure, net receipts, and appropriations; the number of passengers conveyed; the number of miles run by cars and the quantity of electrical energy used during the year ending on the foregoing dates, respectively; together with the number of horses, engines, and cars at those dates (in continuation of Parliamentary Paper, No. 463, of Session 1914). Also similar particulars relating to Trackless Trolley Undertakings, read, and discharged.— [Mr. Pretyman.]

GAS UNDERTAKINGS.
Order [28th July, 1915] for a Return relating to all authorised Gas Undertakings in the United Kingdom, other than those belonging to local authorities, for the year ended the 31st day of December, 1914 (in continuation of Parliamentary Paper, No. 311, of Session 1914–16), read, and discharged.—[Mr. Pretyman.]
Order [28th July, 1915] for a Return relating to all authorised Gas Undertakings in the United Kingdom belonging to Local Authorities for the year ended the 31st day of March, 1915 (in continuation of Parliamentary Paper, No. 312, of Session 1914–16) read, and discharged.— [Mr. Pretyman.]

ORAL ANSWERS TO QUESTIONS.
  WAR.

    EGYPT.
    Mr. GINNELLasked the Secretary of State for Foreign Affairs, having regard to the fact that he was unaware of Egyptians having been deported on political grounds, whether his attention has been called to the discussion in the mixed Courts in Cairo of the question whether certain legal notices should be served on deported persons at their exile address or at their home address; whether he is now in a position to state the number of Egyptians deported from Egypt since the War began; the number in each place of detention; the treatment to which they are subject; and whether correspondence is allowed to and from them?
    The UNDER-SECRETARY of STATE for FOREIGN AFFAIRS (Lord Robert Cecil): I have no information as to the point raised in the hon. Gentleman's question.
    Mr. GINNELL: How is it that the Foreign Office does not read matter with reference to Egypt which is submitted to them?

    CEYLON.
    Mr. GINNELLasked the Secretary of State for the Colonies whether His Majesty's Government have ever had before them for consideration the duly sworn affidavit of Lallapiteyage Sopia Hamy, of Algoda, Ceylon, that on the morning of the 18th June, 1915, some English officers and a number of Punjabi soldiers came to her house and, without asking any question whatever, searched the house, broke open a big box, took away 100 rupees and jewellery worth Rs. 300, took her husband, James Bass,

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    in a boat across the river, and shot him and two other men within her view on the opposite bank, and that she afterwards went across with help and buried her husband's corpse; and whether Sir Robert Chalmers, then Governor of Ceylon, has reported the effect of such incidents on the loyalty and affection of the Sinhalese people?
    The UNDER-SECRETARY of STATE ton the COLONIES (Mr. Steel-Maitland): I have read what purports to be a transcript of the affidavit in question, but I have no reason to believe that it accurately represents the facts.
    Mr. GINNELL: Will the hon. Gentleman say how many of these affidavits are in circulation, and what action has been taken with reference to the deponents?
    Mr. STEEL-MAITLAND: Perhaps the lion. Gentleman will put down a question.

  MILITARY SERVICE.

    CONSCIENTIOUS OBJECTORS.
    Mr. KINGasked the Under-Secretary of State for War the number of conscientious objectors who have been handed over to a civil public prison; how many, if any, still remain undergoing sentences of detention in military prisons; and how many, if any, who were sentenced to military detention have been removed from military prisons before completing their terms of sentence?
    The UNDER-SECRETARY of STATE for WAR (Mr. Tennant): The statistics asked for are not in my possession, and much time and labour would be involved in the process of obtaining them. The removal of soldiers undergoing detention would only be effected by a draft going over seas, or by remission of sentence; such soldiers could not be removed to a civil prison.
    Mr. KINGasked whether instructions have been issued to tribunals how to deal with applications for variation of certificates of exemption from non-combatant service; if so, in what sense have these instructions been given; and whether men in the Non-Combatant Corps will now be able to apply for variation of their certificates so as to place them in an equal position with those who have more recently been before tribunals?
    Mr. TENNANT: Tribunals do not receive instructions from the Army Council, but from the Local Government Board. Men who are soldiers cannot appeal to tribunals.

    NATIONAL RESERVISTS.
    Sir FORTESCUE FLANNERYasked the Under-Secretary of State for War whether his attention has been called to the fact that, since August, 1914, the 67tn provisional battalion, National Reservists, 2nd/5th Essex Regiment, have been doing duty at a considerable distance from their own locality and homes; and whether, with due regard to the interests of the Service, arrangements can be made that Reservists should be put on duty within accessible distance from their homes?
    Mr. TENNANT: The men in question are no longer National Reservists, but are enlisted Territorials, and are liable to serve anywhere in the United Kingdom. The Provisional Battalions are brigaded, and are located according to the military necessities of Home defence.

  DISTURBANCES IN IRELAND.

    TREATMENT OF PRISONERS.
    Mr. GINNELLasked whether Ernest Blythe, deported from Ireland to Abingdon some weeks before the insurrection in Ireland, has been re-arrested; if so, on what charge; when and where he will be tried; where he is now; and whether friends will be allowed to visit him?
    The SECRETARY of STATE for the HOME DEPARTMENT (Mr. Herbert Samuel): My right hon. Friend has asked me to reply to this question. As I have already informed the hon. Member by letter, Blythe has been interned under Regulation 14B of the Defence of the Realm Regulations, and is at present in Brixton Prison. He is allowed to be visited by friends on special orders from the Prison Commissioners.
    Mr. GINNELLasked the Under-Secretary of State for War if he can specify the authority under which General Maxwell, in the course of the insurrection in Dublin, intimated to the authorities of the Catholic Church there that he strongly disapproved of priests visiting and giving

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    spiritual consolation to wounded Volunteers, and that if such visits were not stopped strong measures would be taken?
    Mr. TENNANT: No such intimation was made by General Maxwell. I regret that credence and publicity should have been given to such an imputation.
    Mr. GINNELLasked whether Michael M'Cormack, of Westmeath, is still in Wakefield Detention Barracks; whether he has yet been tried or charged with any illegality; and, if not, when he will be either tried or released and compensated for imprisonment without charge?
    Mr. TENNANT: Michael M'Cormack has been released.

    GAELIC LEAGUE, GLASGOW.
    Mr. GINNELLasked the Secretary for Scotland whether it is with his concurrence that a meeting organised by the Gaelic League in Glasgow to provide relief for the starving and ill-treated prisoners of war in Barlinnie Prison has been prevented and the hall seized by the police, and whether immediate instructions will be issued for the supply of a sufficiency of wholesome food for the maintenance of health of these men, and whether all restrictions on the holding of meetings or other actions for the provision of supplies for them will be immediately removed?
    The SECRETARY for SCOTLAND (Mr. McKinnon Wood): I have no knowledge of the matters referred to, and I have not yet had sufficient time to make inquiries, but I am sure that the statements as regards food arc without foundation.
    Mr. GINNELL: Will the right hon. Gentleman answer the question whether what occurred in Glasgow had his concurrence?
    Mr. McKINNON WOOD: I have not had time to inquire what has occurred about this meeting.
    Mr. GINNELL: Does not the right hon. Gentleman know whether what has passed has had his concurrence?
    Mr. McKINNON WOOD: My trouble is that I do not know what has passed.
    Mr. GINNELL: Will the right hon. Gentleman answer the last part of the question, whether instructions will be issued for the removal of all these prohibitions?
    Mr. McKINNON WOOD: The question of prohibiting meetings must depend on the character and objects of the meeting. As to whether a meeting has been prohibited or not, I have not yet received any information. It is necessary to give time in order to obtain information from Scotland.

    EXCESS PROFITS DUTY.
    Mr. CURRIEasked the Chancellor of the Exchequer by what date, approximately, information will be available as to the probable yield in a full year of the Excess Profits Duty levied upon co-operative societies?
    The CHANCELLOR of the EXCHEQUER (Mr. McKenna): No information is available as to the incidence of this tax in the case of the various classes of taxpayer; and, in view of the labour involved in the preparation of detailed statistics not required for revenue purposes. I am unable, under present conditions, to promise that there will be such a classification as the hon. Member appears to have in mind.

    NEW ISSUES.
    Sir J. D. REESasked the Chancellor of the Exchequer whether he is aware of the dissatisfaction which exists in business circles regarding the constitution and procedure of the Treasury Committee on New Issues; and whether he proposes to increase the size of the Committee so as to include members having special knowledge of finance and company law and procedure, with the needs of the present situation, and with the capital requirements of the commercial world?
    Mr. McKENNA: As regards the first part of the question, I may refer my hon. Friend to answers which I have already given on this subject and of which I am sending him copies. As at present advised, I see no sufficient reason for increasing the size or altering the constitution of the Committee.

    NATIONAL INSURANCE ACT (INQUIRY).
    Mr. CURRIEasked the Comptroller of the Household, as representing the National Health Insurance Commissioners, whether he has observed that

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    the Investigation Committee in its recent Report describes its proposals as a scheme to bring about6 the financial soundness of the National Insurance system; and whether, in view of the anxiety likely to be caused by a statement of this kind, implying, as it clearly does, a measure of existing insolvency, he will say whether the Government has in its possession detailed evidence on which the language used by the Commissioners is founded?
    Mr. C. ROBERTS (Comptroller of the Household): The hon. Member will, I think, find that the facts on which the recommendations of the Committee were based are fully set out in their Report.

    SCHOOL ATTENDANCE (AGE).
    Mr. KINGasked the President of the Board of Education whether he sanctioned the recent circular issued to juvenile Labour Exchanges, in which it is stated that it will scarcely be practicable to raise the age of school attendance; and whether, in view of this statement being in conflict with previous statements of the educational policy of the Government, he will seek an early opportunity to explain in this House the latest intentions on this matter?
    The PARLIAMENTARY SECRETARY to the BOARD of EDUCATION (Mr. Herbert Lewis): The memorandum was referred to the Board of Education by the Board of Trade before its issue. The Government adhere to the view that the raising of the school age is a matter of the greatest importance, though the difficulties of legislating on the subject are, as experience has shown and my hon. Friend well knows, considerable. With this view there is nothing in the circular to conflict. The Report of the Departmental Committee now sitting will probably emphasise the necessity of dealing with the problem, and will, I hope, contribute to its solution.

  MUNITIONS.

    SHELLS (SUPPLIES TO CONTRACTORS).
    Sir F. FLANNERYasked the Minister of Munitions if his attention has been called to numbers of complaints by contractors for shells of the short delivery of steel undertaken to be supplied to them by the Munitions Committee; whether he
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    is aware that a firm entered into a contract in November last for the delivery of 1,000 shells per week, and that they have made between the date of their contract on the 17th April not less than twenty-eight formal requests for steel, gauges, and copper bands; if he will say whether these demands have been punctually met; whether the total quantity of steel supplied to these contractors up to the 5th April was 125 tons, being 100 tons short of the amount required to make the shells contracted for; whether the organised night-shift of workers has been disbanded in consequence of the delays in delivery; and whether the contractors will now receive the necessary supplies to enable them to complete their contract, and an admission that the contractors are not to blame for the delay that has already occurred?
    The MINISTER of MUNITIONS (Mr. Lloyd George): I suggest to the hon. Member that it is very undesirable to answer questions of this character on the floor of the House, and I have repeatedly appealed to hon. Members not to place such questions on the Order Paper. If the hon. Member will give the names of the firms to which he refers, I will cause inquiry to be made into the matter, and will let the hon. Member know the result privately.
    Sir F. FLANNERY: I will see that my right hon. Friend has the names in question.

    BRITISH DYES, LIMITED.
    Sir J. D. REESasked the President of the Board of Trade whether he can give the House any information regarding the progress of British Dyes, Limited?
    The FIRST COMMISSIONER of WORKS (Mr. Harcourt): If the hon. Member will let me know more precisely the nature of the information which he desires, I will see what can be done to obtain it.

    SHIPBUILDING IN UNITED KINGDOM.
    Sir WALTER ESSEXasked how many ships are under construction for allied and friendly neutral owners in British and Irish shipyards and upon which work is now constantly proceeding; and what is the average tonnage of such ships?
    Mr. HARCOURT: There are thirty-seven ships under construction in the United Kingdom for allied and neutral owners. On ten of these vessels work is proceeding constantly. The average gross tonnage of the thirty-seven ships is 7,276 tons, and of the ten vessels 7,291 tons.

    NEUTRAL JOURNALISTS (INTERVIEWS).
    Mr. KINGasked the Prime Minister whether he has observed the frequency with which his colleagues have given interviews to American and other neutral journalists, and that thus pronouncements of the highest political importance are set before other countries before being offered to Parliament or the British public; and whether he will arrange that such important utterances of Ministers as cannot be conveniently made in this House may be conveyed to British or Colonial journals before being made public to foreigners?
    The PRIME MINISTER (Mr. Asquith): I must refer my hon. Friend to the speech of my right hon. Friend the Secretary of State for Foreign Affairs on the 24th May, in which, in my opinion, he gave a complete answer to the criticism contained in the question.
    Mr. KING: Is the right hon. Gentleman not aware that my question would also apply to the interviews given with respect to India by the Secretary of State for India, and by the Viceroy of India, which were communicated to United States papers, though the United States have no kind of special interest in Indian affairs?
    The PRIME MINISTER: I do not see any reference to India in the question.

    OLD AGE PENSIONS.
    Sir F. FLANNERYasked whether, in view of the largely increased cost of living, the Government have any intention of proposing legislation to increase the rate of old age pensions or to remove the limitation of earnings of pensioners?
    The PRIME MINISTER: I fear I can add nothing to the previous answers I have given on this subject.

    GOVERNMENT OF IRELAND.
    Mr. MACMASTERasked the Prime Minister what proposals have been made on behalf of His Majesty's Government to the leaders of the Irish parties with a view to the settlement of Irish affairs, and what progress has been made in that direction?
    The PRIME MINISTER: In view of the delicate negotiations which are now going on, I will ask the hon. Gentleman to postpone this question until next week.

    MESSAGE FROM THE LORDS.
    That they have passed a Bill, intituled, "An Act to extend the limits for the supply of gas of the Newcastle-upon-Tyne and Gateshead Gas Company; to confer further powers upon that company in connection with their undertaking; and for other purposes."—[Newcastle-upon-Tyne and Gateshead Gas Bill [Lords].]
    NEWCASTLE-UPON-TYNE AND GATESHEAD GAS BILL [Lords]
    Read the first time; and referred to the Examiners of Petitions for Private Bills.
ORDERS OF THE DAY
  MEMORIAL TO EARL KITCHENER.
    PRIME MINISTER'S MOTION.

      MEMBERS' TRIBUTES.
      The PRIME MINISTER: I beg to move,
      "That this House will, To-morrow, resolve itself into a Committee to consider an humble Address to His Majesty, praying that His Majesty will give directions that a monument be erected at the public charge to the memory of the late Field-Marshal Earl Kitchener, with an inscription expressing the admiration of this House for his illustrious military career and its gratitude for his devoted services to the State."
      When the House adjourned for the Whitsuntide Recess Lord Kitchener had just received a strong and unmistakable expression of its confidence, and the next day he met in private conference a large number of its Members, including some of his most persistent and, as it then seemed, irreconcilable critics, with the result that he and they parted on terms not only of mutual respect, but of complete understanding. I am glad to remember that at our last interview he expressed his pleasure at what had happened, and his hope that this was the first step in a relationship of growing confidence and sympathy. When he said farewell, after nearly two years of daily intercourse, which had gone on through all the strain and stress of the War, there was no thought on either side of more than a temporary parting—no foreshadowing of a separation which neither time nor space can bridge. Providence, in its wisdom, was preparing for him sudden release from his burden of care and toil. We who for the moment remain—those of us in particular who shared, as I did, his counsels in the greatest emergencies of our time, with ever-growing intimacy and fullness—can only bow our heads before the Supreme Will with whom are the issues of life and death. Lord Kitchener, in whatever environment of circumstance or condition he might have been placed, would have been, as he was always and every-where, a great and a dominant personality.
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      He was tried in many different ordeals, and he always survived and conquered the test. He began his career in the Royal Engineers without any advantage either of birth or of favour.
      I remember well, about a year ago, when we were talking one day of the importance of promoting young officers who had distinguished themselves in war, he told me that he himself had been for, I think, twelve years, and remained, a subaltern in that fine and illustrious corps. He never chafed nor fretted after the fashion of smaller men. The hour came to him, as it comes to all who have discernment, faculty, and will, and from that moment his future was assured. His name is inseparably associated with that of Lord Cromer in one of the greatest achievements of our race and time—the emancipation and regeneration of Egypt. To his genius we owe the conquest of the Soudan, and to his organising initiative the process, which has ever since gone on, of substituting over a vast, to a large extent a devastated, area, civilisation for barbarism, justice for caprice and cruelty, a humane and equitable rule for a desolating and sterilising tyranny.
      From Egypt he was called, in a great Imperial emergency, to South Africa, where, in due time, he brought hostilities to a close, and helped to lay the foundations of that great and rapidly consolidating fabric which has welded alienated races, and given us in the great conflict of to-day the unique example of the service which local autonomy can render to Imperial strength. The next stage of his life was given to India, where he reconstituted and reorganised our Army, native and British. Recalled to Egypt, he was displaying the same gifts in civil administration which he had already illustrated in the military sphere, when at the outbreak of the War he obeyed, with the alacrity of a man who has become the willing servant of duty, the summons to direct and to recreate our Imperial Forces in the supreme crisis of our national history. He brought to his new task the same sleepless energy, the same resourcefulness, the same masterful personality which never failed him in any of the fields of action in which he was, during nearly fifty years, called on behalf of his country to play his part. His career has been cut short while still in the full tide of unexhausted powers and possibilities. No one is less fitted than I feel myself at this moment to be to make an analysis or appraisement of his

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      services to the State. I will only say this, that few men that I have known bad less reason to shrink from submitting their lives to
      -those pure eyes
      And perfect witness of all-judging Jove."
      Mr. BONAR LAW: I desire in very few words to second the Resolution which has just been moved in words so eloquent and so touching by the Prime Minister. Lord Kitchener filled a great place in the minds not only of his countrymen, but of the world. At the close of the Conference which I attended the other day in Paris the President paid a glowing tribute, amid the hush of heartfelt sympathy of the representatives of all our Allies, to the memory of the great soldier, whose death was deplored as a loss not more to England than to the Alliance as a whole. Lord Kitchener's strength, like that of most, perhaps all, men of action, lay not so much in any mental process of logical reasoning which carried him to his decision as in that instinct which so often is deeper and truer than our thoughts. It was that sure instinct which at the outbreak of war warned him of the nature of the terrible struggle in which we were involved. It was that instinct which induced him at the beginning to set about the formation of armies on a scale such as we had never dreamed of, and at a time, as I believe, when no statesman of any party would have formed a conception so gigantic, and yet, as events have shown, so necessary. That Army exists to-day to play a great and, as we hope and believe, perhaps a decisive part in securing that victory on which the future of our race and, as we believe, the well-being of the world depends. That Army exists as a testimony of the strength and determination of our country, but it exists also as a noble and enduring monument to the memory of the man who created it.
      Lord Kitchener's death was indeed tragic, but if we consider the circumstances of it there are few of us who would not say, may my last end be like his. He died after nearly two years of war, in the responsibilities of which he had a great part, a war in which there were no striking victories and in which the fruits are still to be gathered, but he enjoyed, as the House knows, in the fullest degree, the confidence of his country. He died, as the Prime Minister has said, in the full tide of potentialities and possibilities. He died with his eye not dimmed nor his natural
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      powers abated and after an arduous life in which he had served his country in every quarter of the globe. He has fallen, the tide of battle still rolls on, and it is for us who remain to close our ranks with a single eye to secure that victory in the ultimate attainment of which he never doubted.
      Mr. WARDLE: I should like to say, on behalf of those whom I represent, just one or two simple words in reference to the Motion which is now before the House. I cannot, like the Prime Minister and those others in official positions, say that I had many personal relations with Lord Kitchener. Indeed, I think I can say that I only saw him about three or four times, but two of the occasions upon which I saw him were memorable, and I shall not forget them so long as I live. Lord Kitchener on two occasions met the representatives of Labour in conference. It was a mark of confidence which we appreciated and still appreciate, and he made an impression on the minds of those present which will never fade. The working men of the country have a sure instinct for feeling worth and recognising worth when it is evident, and I believe in the case of Lord Kitchener there was no man, although to them he was largely a legend, in whom they had greater confidence and in whom they believed more firmly. It may be that in the later events his policy and theirs did not run exactly on similar lines, but that did not diminish their respect and did not diminish their belief in him, and I believe that throughout the working classes of the country Lord Kitchener's name will always be respected and revered. I think the one quality above all others which appealed to them, and which always appeals to workmen, was that they believed him to be absolutely straight. There was no crookedness. They could rely upon his word, and it is that which in their hearts, I think, will be a much more imperishable monument than any monument of stone which this House may erect to his memory. In the circumstances of his death they have been stirred in their deepest hearts. The feeling that was most characteristic when the tragic news came was that we were all stunned at the terrific news, and some of us have not yet quite recovered from that. I would join in the eloquent tributes which have already been paid to his memory. I would say, on behalf of my colleagues and on behalf of the working men of England, that we have lost a great leader whom it will be very difficult indeed to replace; but

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      the work which he began and in which he was interested—nay, more than interested —in which we, too, feel that the future of civilisation is at stake, we shall assist in helping to carry to its final and conclusive victory.
      Major-General Sir IVOR HERBERT: I do not desire to allow this Motion to pass without a word from me, for two reasons. I have had the honour of Lord Kitchener's acquaintance for over thirty years, and I value it. Likewise, I have been in this House at times, in accordance with what I held to be my duty as a Member of Parliament, a critic of the administration of the Department over which he presided, and presided, as I have always admitted, with great and conspicuous distinction. But I wish to say that in any criticism which I may have directed against acts of administration, I hope I have never given the smallest hint of a personal attack upon Lord Kitchener himself. I would like to take this public opportunity of saying that I have never contemplated doing so, and I hope that I have not inadvertently said a word which could be interpreted as detracting in any way from the great qualities of one of the greatest commanders we have ever had.
      There was one quality in Lord Kitchener which always appealed to me and, I am sure, to the Army in general and to all who knew him, and that was his unflinching courage. If I may be permitted to touch a personal note, I would like to tell the House of two impressions which have been made upon my mind by Lord Kitchener and which, I hope, will remain impressed upon my memory as long as I live. They were the impressions that were produced on our first meeting and on our last. My first meeting with Lord Kitchener was over thirty years ago—thirty-two years ago, I think—in Upper Egypt, at Korti, when I happened to be in charge of the advance guard of Sir Herbert Stewart's column advancing towards Khartoum. I met Major Kitchener—as he then was—who came to meet us with the handful of Irregular troops with which he had during the whole of that summer held his solitary watch at the edge of the desert, an outpost of the Empire. I was deeply impressed then, and with the further acquaintance which I made of him in the course of that campaign I was impressed especially with the indomitable courage with which he maintained the position which he held, and what was of such importance at that time.
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      And the other meeting was the last. I met him here, in a Committee Room of this House, when he came to meet Members of this House, readily offering to do so in response, as I understand, to a suggestion made to him by a private Member below the Gangway. It was my pleasure and good fortune on that occasion to second a vote of thanks, moved by my right hon. Friend the Member for Woolwich (Mr. Crooks), thanking Lord Kitchener for having made what I regarded as a notable precedent, and one which it required great moral courage to make. I ventured then to express my view that in making that precedent he had done a great work in bringing closer together than had ever been done before the Executive and the Parliamentary elements of our Constitution, and I ventured to express the opinion that very great developments for the benefit of the community would follow upon that precedent. Before the sad news of his end had come to us I had received from an officer who was present sent with him on that occasion an expression of the gratification it had given him to hear what I said, and of his special pleasure that I should have said it. I felt deeply the generosity of the mind which had given such a message.
      We are now here, to consider the monument that is to be erected to a great soldier. I hope it will be one worthy of his great record and reputation. But I venture to think that in the minds of all soldiers there is one monument more enduring than marble or bronze that we would like to see set up to the memory of one who devoted his life to duty and to the service of his country. We would like to see in the mind of every youth of this country that word "Duty" engraven so deeply that when he came to man's estate he would realise that there lay on him the duty of giving everything, even his life, for the service of the country.
      Sir GEORGE REID: I humbly crave the indulgence of this House and ask to be permitted to add a few words to the noble tributes which have been paid by the Prime Minister and the Secretary of State for the Colonies to the memory of their late friend and colleague, our late Secretary of State for War. His services to the nation and Empire have been so conspicuously brilliant; they have extended over so many parts of the British Dominions; his nature was so rich in manly and chivalrous qualities; his end was so sudden, tragical, and mysterious—

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      so mysterious that at some later opportunity there must be a thorough investigation of the circumstances which surround what the Prime Minister justly described as an irreparable disaster—and we need him still so much, that many millions of our fellow-subjects, and many millions more, felt his death as we did, as mourners upon whom had fallen the heavy stroke of a personal bereavement. Australia owes to Lord Kitchener the priceless boon of a sound military system. A few years before the War his presence there, and the prestige of his fame, imparted a stimulus and gave an inspiration to the young soldiers of our Commonwealth which animate them still. We all know that Lord Kitchener carried the flag of our country through many arduous campaigns—always to victory, never to defeat! We know also that his last work as a soldier was his greatest; that he did for this nation of ours that which no other living man could do; that he transformed, with magical suddenness, this nation of peace-loving citizens into a military Power of the first class. I did rejoice that the Prime Minister alluded to the double claim which Lord Kitchener's memory will always hold in the judgment of the British people. We have had many great soldiers, but this great soldier had also the qualities of a humane and far-seeing statesman. Lord Kitchener was conspicuous in repairing the ravages of war. In more than one place in dark Africa, he freed obscure, down-trodden masses from the worst evils of the worst kind of barbarism. He laid amongst them the foundations of law and order. He established amongst them the beginnings of modern civilisation. He created some sort of security for human lives and human rights. He hastened amongst those unhappy races the dawn of a brighter future. Perhaps—perhaps the exploits of his peaceful administrations will outlive the lustre even of his military triumphs.
      Question put, and agreed to.

FINANCE BILL.
Order for Committee read.
The following Notice of Motion stood on the Order Paper in the name of Mr. Hume-Williams and three other hon. Members:
"That it be an Instruction to the Committee on the Bill to take into their consideration the advisability of authorising
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the Treasury to borrow, during the continuance of the present War and a period of six months after, some part of the money required to be raised by an issue of premium bonds."
Mr. SPEAKER: The Instruction standing in the name of the hon. Member for Bassetlaw (Mr. Hume-Williams) and other hon. Members is out of order. It is a mandatory Instruction, and a mandatory Instruction cannot be given to a Committee of the Whole House. The hon. Members concerned will have an opportunity of drafting their Amendment and submitting it to the Chairman of Ways and Means whilst the House is in Committee, so that they will be in no worse position than now.
Bill considered in Committee.
[Mr. WHITLEY in the Chair.]

FINANCE BILL.

  CUSTOMS AND EXCISE.
  The DEPUTY-CHAIRMAN: Can the right hon. Gentleman inform me if the change from 5s. to 33⅓ per cent, ad valorem involves any extra charge on the subject, because, if so, it would be out of order?
  Mr. LOUGH: The intention is the opposite, and I believe this proposal would greatly reduce the charge.
  Mr. MONTAGU: No, no!
  Mr. LOUGH: What I intend to do is to reduce the charge, and I will amend my proposal by the words "whichever is smaller." I am told that some of these tinder boxes are sold at 6d. and 10d., and surely it is not intended to put a 5s. tax on articles of that kind. Some arrangement ought to be made to regulate that the tax is proportionate to

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  the cost of the article, and not prohibitive; otherwise we may be doing an injustice to a number of people, perhaps a small number, and may be depriving them of their means of living, since the imposition of such a heavy tax in proportion to the cost would do away with the manufacture.
  Amendment proposed: At the end of Sub-section (1) after the words "a duty of Customs of five shillings," insert the words "or thirty-three and one-third per cent. ad valorem, whichever is the smaller."—[Mr. Lough.]
  Question proposed, "That those words be there inserted."
  6.0 p.m.
  Mr. WILES: If the right hon. Gentleman will accept this Amendment I shall be quite willing to withdraw one which I have down on the Paper a little later on. It would be a much fairer way to have an ad valorem duty rather than to put on a duty of 5s. on an article which is going to be sold at retail prices starting at something like 6d. It will mean that a 6d. article, which is not only used for lighting a cigar or pipe, but also, I understand for lighting a fire, is going to be very much prejudiced in comparison with matches, and I think the Committee will agree that the object of the Treasury is that these little articles for making a flame shall not Toe put in a better position than matches. If, therefore, my right hon. Friend will accept this Amendment, the matches will be taxed much more lightly than this competitive method of making a flame. I do hope he will meet this point, because it seems very arbitrary to put on an article which is sold at such a small price such a large tax as 5s.
  Mr. PETO: I do not think there is anything in what the right hon. Gentleman said as to this being a very difficult or complicated matter. I agree with the hon. Member opposite (Mr. Wiles), and with regard to the Amendments standing in my name for other smaller taxes than 5s., I should be quite willing to accept this Amendment of 33⅓ Per cent, tax ad valorem. I think it would be of use to the Committee to know a little of what this industry really consists. So far as the home production is concerned, there are only two firms engaged in it, employing about seventy men, and turning out about 3,000 gross a year. The whole tax the right hon. Gentleman will collect will be about £10,000, on the Amendment of the right
  194
  hon. Gentleman (Mr. Lough). The alternative of putting 5s. on will be that he will get no tax whatever, and the only result will be practically to prohibit the manufacture of anything for lighting a cigar or cigarette except by matches which the Government tax. I do not think that is their intention, and when I add to that the fact that this small industry of tinder lighter manufacture has very largely increased during the War, as almost all these articles are sent out to our troops at the front, I think it quite obvious that the right hon. Gentleman cannot want to prohibit entirely the small manufacture of so useful an article. There are a great many of these articles which are more expensive, which produce a flame generally by means of petrol, which, when a button is pressed, lights a lamp. Seven thousand gross of these are used, which means about 1,008,000. They are mostly manufactured abroad, and the right hon. Gentleman's duty on these, which are more expensive articles, generally selling at 1s. or 2s. 6d., will be something like £50,000. I think the Amendment gives a reasonable proportion of tax, both as regards the imported and the home manufactured article, and one which does not act as a prohibition of a very small and perhaps rather useful industry to this country. I hope the right hon. Gentleman is going to accept it.
  Mr. MONTAGU:.I agree with all my three hon. Friends who have spoken, that this tax is too high. It was not put on for the purpose of obtaining a large revenue, but simply and solely because when we were putting on the Match Tax it was represented to us—and it has been found in other countries to be so—that substitutes for matches ought not to be allowed free of tax. I do not think it would be of very much use to put an ad valorem duty upon them. What we ought to try to do is to tax them on their degree of utility, and not on their value as an article, and I should be very much obliged if my hon. Friends—
  Sir G. REIDmade a remark which was inaudible in the Reporters' Gallery.
  Mr. MONTAGU: We had a shot at 5s., and it is obvious that when an article is to be sold at 9d. that is going to kill the trade in that particular article, for which there is no necessity. We are now busy, my officers at the Customs are busy, discussing this matter with the people who make these things, with a view to trying

  195
  to agree as to what would be the right scale. I would prefer not to say anything about it to-day, because it is not quite fixed, and I do not want to announce a new rate which might have to be revised or altered later on. I think, however, we must proceed by two rules. I think we must have a rate for articles which contain spirit or petrol, and which are, I think, the more competing articles, and a lower rate for articles which do not contain them. Both these, I promise the Committee, will be very substantially lower than the rate now in the Bill, and if the Committee will be content with that I will move the necessary reduction on the Report stage.
  Mr. PETO: I should like to point out that what the right hon. Gentleman proposes is very very close to what the right hon. Gentleman (Mr. Lough) proposes himself, because, as a matter of fact, the article which contains petrol, and which produces a flame, is the more expensive, to make, and, therefore, sells at a higher price—more than double that of the other. The right hon. Gentleman's Amendment, therefore, will mean, roughly speaking, a shilling in one case and sixpence in the other, and the Amendment I have on the Paper for specific duties is almost exactly what the right hon. Gentleman indicates it is his intention to introduce.
  Sir F. BANBURY: I think the right hon. Gentleman's suggestion is quite reasonable, and I have no doubt the Committee will agree to it. I hope, however, that on the Report stage there will be a considerable reduction in the duty, because it is evident that this duty cannot produce anything, and the right hon. Gentleman has admitted that he does not want to kill a small industry, which is what would undoubtedly be the effect of continuing a heavy duty of this sort.
  Sir G. YOUNGER: May I assume that if it is the case that these lighters are mostly sent to the troops a drawback will be paid on export?
  Mr. MONTAGU: Yes.
  Amendment, by leave, withdrawn.
  Mr. PETO: I beg to move, in Sub-section (2), after the word "a" ["producing a flame"], to insert the words "spark or."
  Sir A. WILLIAMSON: Has the Government noticed that this Amendment might possibly go much further than they think? The Clause would then read that a tax should be levied on other mechanical contrivances for producing a spark. Mechanical contrivances for producing sparks are required in gas engines, oil engines, and things of that sort, and we should, therefore, be careful. We are not experts in this House, and I should like the trade outside to have an opportunity of considering whether that really would not come within this Clause and whether, while we are intending to tax only things that compete with matches, we are really going to tax an essential part of a gas engine, oil engine, or other things of that kind.
  Mr. PETO: May I point out that the words "and portable" are here? Surely that excludes the kind of article mentioned by the hon Member.
  Sir A. WILLIAMSON: I did not notice that.
  Mr. JOYNSON-HICKS: I am not quite sure that the words "spark or" would not include a magneto. The very essential of a magneto is that it should produce a spark, and, if that were included, where would motor traction be? I think the right hon. Gentleman should consider between now and the Report stage whether this would not include the spark of a magneto.
  Sir W. BEALE: There are many conceivable ways in which these very useful little articles might hereafter be used, where you set a thing to work with an electric spark. There is the danger. What it is intended to indicate is where a spark operates in the same way as a match—that is, when it produces combustion—and it would be better not to use the term except with words connecting it with purposes for which a flame might be used.
  Mr. MONTAGU: I think we had better put in the words "spark or," but I quite agree with the remarks of my hon. Friend about the danger of these words, and that they require the closest possible investigation with the assistance of experts. I will see that the magneto of a motor car, or of a portable gas engine, does not come under this tax.
  Amendment put, and agreed to.
  Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill.'
  Mr. LOUGH: I would appeal to the tight hon. Gentleman to consider the question broadly when he is taking into account the rate of tax, and to ask himself whether it is worth while persevering with it. I think the hon. Baronet opposite made a good point as to what is the danger in this, and I do not think my hon. Friend behind me sufficiently considered Sub-section (2) of the Clause. If there is only a small amount of revenue to be obtained by it, and it is revenue we are out for, surely it would be better to drop the Clause altogether. I will not persevere in moving my own Motion regarding the Clause if my right hon. Friend will consider the whole case in view of these difficulties, and as to whether it is worth having the Clause at all.
  Mr. MONTAGU: I did not want this Clause at all. We only introduced it into this Bill because we were under a pledge to remove objections. It was pointed out that in other countries where they have a Match Tax—they have such a tax in France—a tax of this kind was necessary, and the people interested asked that we should tax these articles when we were taxing matches. We agreed, and I appeal to the House, therefore, in fairness to the methods we used to get through our Match Tax, to support us in this tax.
  Sir C. CORY: May I ask the right hon. Gentleman whether this will not include electrical or oil lamps for underground? Surely it would include lamps for underground use.
  Mr. MONTAGU: Surely you cannot get a lamp to produce a flame. You can only produce a flame in a lamp by introducing an outside agent.
  Sir C. CORY: An electrical lamp?
  Mr. MONTAGU: We have already dealt with that.
  Sir C. CORY: It produces a spark.

  CUSTOMS AND EXCISE.

    CLAUSE 1.—(Increased Duties on Cocoa.)
    In lieu of the present duties on cocoa there shall, as from the fifth day of April, nineteen hundred and sixteen, be charged, levied, and paid on cocoa imported into Great Britain or Ireland the following duties of Customs, that is to say:

    £

    s.

    d.

    Cocoa

    the lb.

    0

    0

    6

    Cocoa husks and shells

    the cwt.

    0

    12

    0

    Cocoa butter

    the lb.

    0

    0

    6

    Mr. LOUGH: I beg to move, after the words "duties of Customs, that is to say:" to insert the words,
    "Cocoa (not de-husked or kiln-dried)
    the cwt. £2 2s. 0d."
    I desire that the Cocoa Duties should be equalised with the Tea Duties. I have pressed this point on the Chancellor of the Exchequer on several Budget occasions. I thought that in the present Budget the Resolution passed through Committee had affected my purpose. I was therefore surprised to find, when the Resolution came into operation, that it had a somewhat different effect to that which the House of Commons believed and intended it should have. The object of my Amendment is to correct the matter. I am glad to see that in the Amendment put down by the Chancellor of the Exchequer the principle is accepted. Anyone wishing to understand this Amendment should look at Clause 2, which deals with coffee, and he will then see the point. The Cocoa

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    Duty was quite out of relation both to the Tea and Coffee Duty. This matter has been brought before the Chancellor of the Exchequer, and I am glad to say it has received sympathetic attention. The Amendment proposed to-day really establishes the Cocoa Duty on a correct and scientific basis, and if this change were not made you would not have the three duties agreeing with one another, but a most important trade in this country would suffer under an injustice. Perhaps the Committee will realise how great the trade is when I say it has more than doubled in the last two or three years. I thought it right to give that explanation of the Amendment, though I need not enlarge on the subject further.
    The CHANCELLOR of the EXCHEQUER (Mr. McKenna): Perhaps the Committee will allow me to make a few explanations in answer to my right hon. Friend's Amendment, as to why it is that we propose now to alter by 25 per cent, the original duties which were contained in the Resolution passed by this House. Our object, as I stated on introducing the Finance Bill was to secure that we should get precisely the same charge upon the beverage of cocoa as we had already upon the beverage of tea. There had been for a very long time a complaint in this House, from all quarters, that cocoa and coffee were more lightly taxed than tea, with the result that those who drank cocoa and coffee were less taxed than the tea-drinkers. We felt the force of that criticism, and we therefore resolved, in so far as we could, to invite the Committee to alter the taxation on coffee and cocoa in order to impose upon them precisely the same burden as was imposed upon tea. That meant that the cup of cocoa or the cup of coffee should have imposed upon it, having regard to the amount of coffee or cocoa contained in that cup, the same tax as the cup of tea. The Committee will understand that in any change of taxation of this kind we are necessarily very hampered in the inquiries which we can make before the Budget is actually introduced. We did all that we could by way of discreet inquiry in order to discover what would be the precise true relation between tea, coffee and cocoa. I have now to admit that our inquiries did not lead us to the right result. Since the Budget was introduced we have had a flood of facts and figures laid open to us which we never could have obtained in any circumstances before the Budget was
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    introduced, and until the great pressure of a new tax was imposed upon the trade. We have come to the conclusion, after the fullest inquiry, that the true relation between cocoa, coffee and tea is 4½d. a. pound, on cocoa, 4½d. a pound on raw coffee, and 1s. a pound on tea. It is within the experience of every hon. Member present that in making a cup of tea you put muck less tea into the pot than you have to put coffee or cocoa in making a cup of equal strength. I venture, therefore, to propose to the Committee that these rates should now be accepted as a final settlement of the question as between tea, coffee and cocoa, and I should hope that in all future impositions or alterations of the tax we should retain once, and for all these relations between the rates of duty. Therefore, while I would ask my right hon. Friend not to proceed with his Amendment, I would ask the Committee to accept the three subsequent Amendments which I shall have to move. I would only add this single point: the tax has been in existence now for some number of weeks at the rate of 6d. a pound. Cocoa has been sold to the consumer at the higher price, and I do not think it would be equitable to reduce the tax back to the time of its original imposition, which would mean that the dealers would get the money returned to them which they paid in full tax, whereas the public could not get it back. I propose therefore that the change should only date from the 21st day of June, that is to-day, and that up till to-day the original tax should remain.
    Mr. LOUGH: I beg leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.
    Amendments made:
    After

    £

    s.

    d.

    "Cocoa

    …

    …

    …

    the lb.

    0

    0

    6"

    insert the words "up to and including the twenty-first day of June, nineteen hundred and sixteen, and after that date, the cwt. £2 2s. 0d."
    After

    £

    s.

    d.

    " Cocoa husks and shells

    …

    the cwt.

    0

    12

    0"

    insert the words "up to and including the twenty-first day of June, nineteen hundred and sixteen, and after that date the cwt. £0 6s. 0d."
    After

    £

    s.

    d.

    "Cocoa butter

    …

    …

    the lb.

    0

    0

    6"

    insert the words "up to and including the twenty-first day of June, nineteen hundred

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    and sixteen, and after that date the 1b. £0 0s. 4½d."— [Mr. McKenna.]
    Question, "That the Clause, as amended, stand part of the Bill," put, and agreed to.
    CLAUSES 2 (Increased Duties on Coffee), 3 (Increased Duties on Chicory)and 4 (increased Excise Duty on Coffee Substitutes, etc.) ordered to stand part of the Bill.

    CLAUSE 5.—(Increased Customs Duties on Sugar.)
    In lieu of the present Customs duties, drawbacks, and allowance in respect of sugar, molasses, glucose, and saccharin there shall, as from the fifth day of April, nineteen hundred and sixteen, be charged, levied, and paid the duties specified in the first column of Part I. of the First Schedule to this Act, and there shall be paid and allowed the drawbacks and allowance set out in Part II. of that Schedule.
    Mr. LOUGH: I beg to move to leave out Clause 5.
    I am afraid it will seem very ungrateful to the Chancellor of the Exchequer for me now to move that these duties be left out altogether, after the handsome way he has treated me over the other Amendment. I hope the Chancellor of the Exchequer will excuse me. He knows I take a strong opinion with regard to this Sugar Tax, and whether I succeed in my proposal or not, the Committee, I think, will agree that it is a question of the greatest importance, and it is one which, I venture to say, this House has not sufficiently considered. The Clause which I propose to leave out refers to the Schedule, and proposes that certain new duties set out in the Schedule should come into operation instead of the present ones. Those changes may be all summed up by saying that a ½d. shall be added to the tax on sugar, and that makes about £7,000,000 additional tax imposed on sugar in this Budget, or a total tax on this third most important article of consumption in this country of £21,000,000 a year. Now this is a gigantic imposition, and as the price of sugar has been greatly raised, quite apart from the tax, I do think the matter ought to be carefully considered before we agree to this great additional burden. One of the points I desire to make with regard to this Sugar Duty is that this House does not know what is being made on sugar. The Chancellor of the Exchequer has admitted to us that sugar is being sold at a profit,
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    but we do not know how much profit. It is important we should be told, and we ought to have been told long since. This House has allowed for eighteen months the Chancellor of the Exchequer and the Sugar Commission, a body in which I have no confidence whatever, to be the sole importer of sugar in this country, and to sell it at what price they like to the trade. I say that this has been done at a fearful cost to the nation, and the House of Commons has scarcely done its duty in allowing that to go on for so long. Beyond the duty we are imposing, the Chancellor is levying another secret duty, and has been doing so for a year past on sugar, and it is totally unconstitutional for this House to allow any burden to rest on the backs of the people without letting them know the amount, and without agreeing that its imposition is just and necessary in all the circumstances.
    Mr. McKENNA: I will explain that.
    Mr. LOUGH: I hope the right hon. Gentleman's explanation will not blind the eyes of the House into allowing any secret charge of this kind to be made without the people knowing all about it. I found amongst the letters awaiting me last night one of the monthly Returns issued by the Board of Trade dealing with the price of food. Only last week the Government appointed a Committee to inquire into the cost of food. The way the Government proceed in these matters is very mysterious, but this ought not to escape the vigilance of the Committee. One would think that the Government do not know why food is dear, but I would like to point out that the Chancellor of the Exchequer is the great source of the dearness of sugar at any rate. [Laughter.] The Chancellor of the Exchequer laughs. I am very glad he is in a pleasant mood, because we are more likely to do better with him when he is in that mood. Nevertheless, I ask the Committee not to be put off any of these points by the merriment of the Chancellor of the Exchequer. I maintain that the right hon. Gentleman is mainly responsible for the dearness of sugar, and the Government are responsible for it since the commencement of the War. Some time ago the Prime Minister, with the feeling that lawyers know more about these matters than anybody else, secured the services of the Chancellor of the Exchequer to deal with sugar, and then we heard rumours of the millions my right hon. Friend had invested in sugar. This information got

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    about, and my right hon. Friend took an easy way of settling the matter by taking charge of the supplies of sugar as they came in, and then he was in a position to do as he pleased. The result of the action of the Government in this matter has been that a burden of £20,000,000 has been placed on the backs of the people of this country. I have got here a paper showing the rates at which the prices of food have gone up. The table I am quoting from will be found on page 197 of the "Board of Trade Labour Gazette," and it is a very curious thing that whereas there have been advances in the price of everything else, sugar out-tops them all. Fourteen articles were taken, and the average shows an advance of 55 per cent., but in the case of sugar the advance is 155 per cent. When you take into account the fact that sugar is the third article in quantity, and more than that in cost, of the articles of food imported into this country, the Committee -will readily appreciate what an increase of 155 per cent, in the price means. I think lion. Members ought to think once and twice before putting another halfpenny per pound on this article.
    But for the action of the Government this country would have been in an extraordinary position as compared with belligerent countries with regard to the rise in food prices. There are only fourteen articles dealt with in the table to which I have referred, and the average rise in price in small towns and villages in regard to those articles is 55 per cent., and I believe that sugar accounts for about 10 per cent, of the whole, so that the average rise might have been 40 per cent, or 45 per cent, only but for the extraordinary rise which has taken place in the price of sugar. That is a fact which I think the Committee ought to have before it in dealing with this tax. Owing to the action of the Government sugar is already so dear, and the burden on the backs of the people at the present moment is so great, that the Committee ought really to pause and consider once and twice before it adds another halfpenny per pound to this article. Supposing we were asked to place a tax of 12s. per quarter on wheat, what a fuss there would be here, and what Government could live and propose it? The Government, however, have done just as bad, for sugar is just as bad an article as wheat to tax, as far as the burden on the people is concerned. Many of my hon.
    158
    Friends behind me are rather suspicious about my views on this subject because I am a Free Trader, but I am sure they would sympathise with me if they thought there was anything in the nature of a tariff in my proposals; but the imposition of a heavy burden on the people, even from a Tariff Reformer's point of view, is of no good whatever to this country. It may be said that the production of sugar is not increasing and therefore the placing of a heavy burden on sugar comes as an undisguised blow on the backs of the people. When I agitated this question in reference to the Russian Sugar Convention, I remember having a conversation with the late Mr. Lowther, who was then the Member for Thanet, a man we all respected very much, although many of us differed from his opinions. Mr. Lowther used to say to me constantly, "Lough, you are perfectly right about sugar; I do not want any burden put on sugar, because we get it mostly from abroad, and we shall only be paying money into the pockets of the Germans at the cost of our own people." I do not want any burden of that kind on sugar, and Tariff Reformers, if there are any here now, ought to support me in putting in a protest against this heavy burden being placed on sugar.
    4.0 P.M.
    I have tried to find out broadly what the price of sugar was before the War, and I have been told that for ten years the average price of sugar before the War ranged from 1¾d. to 2d. per pound, and that was what we were paying for sugar then. To-day we are paying from 5¼d. to 5½d. per pound for granulated sugar, and 6d. per pound for cubes, and the Sugar Duty is two and a half times as great as it was then. The rise is 150 per cent., and it really means that this great article of consumption, which is the basis of many of our manufactures, has been raised in price from 2d. to 6d. per pound, and I maintain largely raised by the action of the Chancellor of the Exchequer. I have to come back once again to the merriment my right hon. Friend displayed when I first made that charge definitely against him. I want to make the matter perfectly clear to the Committee, because I want in this effort to carry everybody with me. How is it that the Chancellor of the Exchequer has raised the price of sugar to 6d. per pound? It is simply because he shuts the

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    ports to sugar. If we can get sugar cheap, what harm will it do to let us have it?
    Mr. McKENNA: Where from?
    Mr. LOUGH: Anywhere. I am not going to answer that question. If I begin to answer the right hon. Gentleman I put myself on a level with the Chancellor of the Exchequer, a thing which I entirely protest against doing. Who is it that manages the supply of sugar? The right hon. Gentleman has the assistance of one or two small committees mainly composed of lawyers, but I believe in experts in dealing with sugar.
    The CHAIRMAN: This is not the occasion for that criticism. The proper occasion to criticise the action of the Chancellor of the Exchequer administratively is when we are in Committee of Supply. I have no objection to the right hon. Gentleman bringing in the question of sugar control as far as it is relevant to the additional tax, but he must not use this occasion for criticising the Chancellor's action as Chairman of the Sugar Commission.
    Mr. LOUGH: I think your interruption is most reasonable. I was led into this digression by the Chancellor of the Exchequer himself, because when a short time since I asked him when we should have an opportunity of discussing the sugar question he said, "On the Budget." I admit that answer was not binding, but you. Sir, have already given me all the liberty I desire. You have admitted that as far as it is relevant the matter may be mentioned. I do not want to push it one bit further. What good would I do my argument by pressing it further? The Government, instigated by the Chancellor of the Exchequer, has shut the ports of this country to sugar, and therefore he ought to hesitate before he puts on a tax of ½d per pound. Let us not get back into the argument whether the Government's handling of sugar since the War broke out has been all that it should have been. The question this afternoon is: Shall we add another halfpenny to the price? Shall we add this seven-million blow to our industries and this very heavy burden on the people of this country? I say that we ought to hesitate, and I will close by merely dealing with one argument which may be used against me. The Chancellor of the Exchequer will say that we must have
    160
    money. In the first place, you need not have the money. I believe that without this tax the Chancellor of the Exchequer would have £500,000,000 this year, and at any rate he is putting on other heavy burdens. There are many ways of getting the money besides this way, and whatever other means the Chancellor of the Exchequer might resort to, this is an exceedingly bad method, because, looking at the blow given to our manufactories as well as to the burden on the people of the country, it will probably cost a great deal more than the £7,000,000 which it will produce. The Chancellor of the Exchequer is in a very pleasant mood. Perhaps he has made up his mind to abandon the tax. If so, I should be very glad to hear that he is prepared to abandon the Clause.
    Mr. ARNOLD: I desire to associate myself with the right hon. Gentleman in his protest against this tax. All taxation should be equitable, economically sound, and productive. This tax is productive, but in so far as it is productive it is to a large extent inequitable and economically unsound in its incidence. Leaving out of account questions of equity as between rich and poor, the tax is inequitable as between poor and poor because the amount of a man's contribution through it depends not upon his ability to pay but upon the size of his family. The Sugar Duty now amounts to a charge of about 10d. a week on the working man with an average family, and all the food duties, including sugar, come to about 1s. 6d. a week. I do not think it requires very much imagination to realise that those are very heavy items for poor households, where every penny has to be watched. We are told, however, that all such considerations should be set on one side because we are at war, but I submit that is a reason why all the more attention should be paid to them. Sugar, as everybody knows, is a great producer of physical energy, and this tax is trenching on the margin of subsistence in hundreds of thousands of families, and is tending to reduce the efficiency of the workers, and it is doing that at this critical juncture when it is most important that the physical capacity of the workers should be maintained at a maximum level, because it is vital that the productive output of the country, not only in munitions but in many other industries as well, should be as large as possible, and, indeed, the successful prosecution of the War depends in no small degree on this being

    161
    accomplished. Moreover, this is not a War Tax in the sense that it will terminate when the War ends. We should constantly bear in mind that we are budgeting, not only for the present year, but in all probability for many years ahead. For my part I see small prospect of any substantial reduction in any of the War Taxes which have been imposed for a long period to come, and therefore it is all the more wrong to impose on the poorer classes this heavy burden, a burden which will remain when the lean days have come upon us. I recognise, of course, that money must be got for the prosecution of the War. As much money should be raised from revenue as can wisely be obtained, but money may be got too dearly if it means any lessening of health or efficiency, and however great the emergency it is not right to increase the Sugar Duty to the level which is proposed. This is all the more true in view of the great increase which has taken place in the cost of living. That increase is, of course, proportionately a much heavier burden on the poorer classes than on other classes. The rise in food prices alone now amounts to a charge of nearly 10s. a week on the working man with an average family. That is a very serious matter, especially for the poorer households, say, for the man with 30s. a week.
    I hold that in principle no taxation on the necessaries of life should be levied on those who are below the level of subsistence, and owing to the prevailing high prices many of the poorer classes are having a hard struggle to make both ends meet. It is true, on the other hand, that large numbers of the workers are, for the time being, earning high wages and their position has been improved, but such improvement will, in all probability, only be temporary. The prosperity is likely to pass away, but the Sugar Duty is much more likely to remain. If the Chancellor could impose this tax for the period of the War solely on the better-paid workers well and good, but that is exactly what he cannot do, and it is the inherent vice of the Sugar Duty and all kindred taxes that they fall alike both on those who can afford to pay and on those who cannot afford to pay, and in levying these taxes the Chancellor is creating much more inequity than equity. Whereas, as I have said, many of the workers are enjoying a period of temporary prosperity, it is a great mistake to suppose, as some people seem to do, that all the poorer classes are
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    rolling in wealth. Nothing could be more untrue. As a matter of fact large numbers of them, owing to the increased cost of living, are no better off in real wages than they were before the War. Amongst these are the old age pensioners, who number nearly a million, some sections of industrial workers, particularly in the printing and building trades, and in certain branches of the textile trades, many railwaymen, post-office servants, policemen, and municipal employés, despite war bonuses, and the vast majority of the clerk and shop-assistant class and lodging-house keepers, especially on the East Coast, and tens of thousands of widows and spinsters and people with very small fixed incomes, and lastly, though by no means least in importance, the families of many of the better-paid artisans who have gone to the War. In the case of the better-paid workers the separation allowance does not equal the wages previously earned, and also, be it remembered, the separation allowances were fixed in the autumn of 1914 to meet a cost of living which was very much lower than it is now. Owing to the high prices at present ruling many of these persons I have enumerated have been driven near or below the level of subsistence, and they ought not to be called upon to bear certainly not on the necessaires of life, and sugar is a necessary of life, such a heavy indirect tax as is involved in this duty, and I say this quite irrespective of whatever tax may be levied on the direct taxpayers, for all of them have a considerable margin above the subsistence level. Further, I should like, in passing, to point out that a great majority of the direct taxpayers, who pay Super-tax, or who pay Income Tax at the higher rates, are men above the military age, and a few are ladies. Neither of these classes can go to the War, and therefore it is only right that they should contribute heavily in money, and should continue to contribute heavily in money when the War is over. Moreover, if, owing to the war, their income in reduced, or, again, if the income of direct taxpayers who are fighting in the War is reduced, they get corresponding relief from liability for Income Tax. I am not complaining of that. It is only just, but it is very different with the Sugar Duty. This tax goes on all the time, however much income is reduced. It is a hardship now on the families of many of our soldiers who

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    are fighting at the War. They cannot avoid or evade it. It eats into separation allowances, and it will remain a burden on our soldiers when they return from the War.
    One of the main reasons given by the Chancellor for increasing the Sugar Duty was to bring the price of sugar more in conformity with the quotation in New York. He said that we were selling sugar wholesale in bond at a slightly lower price than in New York, and therefore he must impose this duty to adjust the matter. Personally, I am not impressed with this argument, and I think it will be small consolation to the poorer classes to be told that, although their sugar is costing them more, it is not costing them more than it would do if they lived in New York, though I am not sure that the retail price of sugar in New York is as high as here. But, however, that may be, I think the poorer classes are entitled to ask, not only what is the price of sugar in New York, but what is the price of all other articles of food in New York now as compared with before the War. If this inquiry is made the reply must be that, although sugar has risen in price in New York, the general rise in food prices has been infinitely less than here. According to the latest returns the general rise in food prices in the United States during the War has been about 4 per cent., as against 59 per cent. here. Why, then, should sugar be singled out for this exceptional treatment? If New York is to be the standard I should have thought that sugar should be taxed as little as possible, in order to do something to adjust the general average of food prices as between the two countries This contention has, I think, all the more force because, after all, the Government has not shown any very great zeal in attempting to arrest the upward cost of food prices in this country. I know the difficulties of the problem, but I do think they might have done more than they have done, and apparently they now think so themselves, because they have at last appointed a Committee to investigate the matter. Meanwhile, it is certainly unfortunate that, in the case of sugar, that is the one article where the Government do control the price, they raise it very materially by this duty. So much so that sugar has risen much more in price than any other article in the Board of
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    Trade list of food commodities. In fact, it is now about two and a half times the price it was when the War broke out. [An HON. MEMBER: "No, no!"] If my hon. Friend will refer to the "Labour Gazette" he will find that fact stated officially. I think the Government policy should have been to have taxed sugar as little as possible, so as to have done something to reduce the general upward tendency of food prices here.
    I have one further point. When introducing the Budget the Chancellor said that the additional ½d. to be got from sugar would be imposed on the price, and he would take it in the form of duty, as if it were a matter of indifference whether the ½d. were put on the price or on the duty. In point of fact there is a most important difference. If the ½d. had been put on the price I should still think it, in all the circumstances, a wrong thing to do, but in the long run it would be far less burdensome to put the ½d. on the price rather than on the duty, because later on, when the War is over and the sale of sugar is not in Government hands, the price will adjust itself, but having put the £d. on the duty the burden is likely to remain. Clearly, if it is sought simply to make the quotation conform more nearly with New York, the ½d. should have been put on the price instead of on the duty. The fact is the whole of this New York argument will not bear serious investigation, and it only shows that the Chancellor is hard put to it to justify a tax which he has been most eloquent in denouncing in past years. The Chancellor has also sought to defend his policy on the ground that the increased price and higher duty have not materially reduced the consumption of sugar, but I do not think that means that the increased price is little or no burden. On the contrary, I think the correct conclusion to be drawn is that the great bulk of sugar used in the country is an absolute necessity and the people must have it, although the price has risen, just as they must have bread, and if bread were taxed I should not expect to see the consumption reduced, and I should be sorry if it were reduced.
    It is true that a small proportion of the total sugar consumed in the country is used in what may be termed luxury trades for the making of confectionery, sweets, and so forth, and if the Chancellor desires to see the consumption of sugar reduced on sound lines here is his opportunity. Let

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    the Government further curtail the amount -of sugar supplied to these trades. This is a practical proposition, and if it is given effect to some of the labour engaged in these non-essential occupations would be freed for other and more useful purposes, a certain amount of mercantile tonnage would be saved, consumption of sugar would be somewhat reduced, and the price of sugar required for the necessary needs of the people might be slightly lowered. I do venture to hope that he will at least give favourable consideration to the proposal I have made.
    Mr. McKENNA: My right hon. Friend opposite (Mr. Lough) and my hon. Friend who has just spoken (Mr. Arnold) have made speeches in opposition to the proposed increase of duty of ½d. on sugar. My right hon. Friend did not confine himself to his Motion, but he addressed the major part of his remarks to the activities of the Sugar Commission. It is true he was ruled out of order, and was informed that while it might be proper to make a reference to the activities of the Commission it would not be proper to enter either into a general attack or a general defence of the work of that body. I therefore will only make this reference in passing, to the prices of sugar sold duty free—the present prices of sugar in bond, and having stated that I shall have done with that part of the question. At this moment the wholesale price in bond of sugar in this country is lower than the wholesale price of sugar in America, also in bond.
    Mr. OUTHWAITE: Can the right hon. Gentleman tell us the price in America?
    Mr. McKENNA: 30s. 6d. to day. I think there is some duty.
    Mr. OUTHWAITE: Can the right hon. Gentleman give us the retail prices?
    Mr. McKENNA: I hope I may be allowed to go on with my argument. The wholesale price in bond is cheaper to-day in London than in New York. It appears to be overlooked by my right hon. and hon. Friends that before the War our main source of supply of sugar was beet sugar obtained from enemy countries. We were, in fact, exclusively supplied with German and Austrian sugar, and the price which they have given us as the pre-war price of sugar represents the price of German and Austrian beet sugar. The withdrawal of German and Austrian beet sugar from the world's market has greatly restricted the
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    supply of sugar for the general consumption of the world outside Germany and Austria. We have to remember that those two countries were almost the biggest exporters of sugar in the world. I say "almost," because more sugar was obtained from Cuba than refined sugar from Germany and Austria. The outbreak of War withdrew at once from the world's supply of sugar an enormous source in the German and Austrian output. The effect was immediately a rise in the price of sugar. What my right hon. and hon. Friends overlooked is this great fact, that to-day it is no longer German and Austrian beet which governs the price of sugar for consumption in this country. At this moment it is the price of Cuban sugar which governs the price of sugar in the American markets. Cuban sugar is now the great source of supply during these months of the year—the great source of supply of raw sugar—and it is the price of Cuban sugar which governs the price of American refined sugar in the American market. When my hon. and right hon. Friends complain of the price of sugar in this country, they must remember that we do not produce sugar, either in our own country or in any of our Colonies, in any appreciable degree. We have to depend on foreign supplies.
    Mr. LOUGH: What about Indian sugar?
    Mr. McKENNA: There is no export of Indian sugar; they consume their own. We have to depend for consumption in this country on foreign sugar. We get a certain amount from the West Indies and Mauritius, but in the main we have to depend on Cuba and Java. Consequently, the price of sugar is entirely outside the control of the Sugar Commission, or, as my hon. Friend seems to think, my control. It depends entirely on the price of the raw material in Cuba and Java. The raw material has risen in price owing to the restricted supply by the destruction of the German and Austrian sources. Owing to that restricted supply the price has risen all over the world. It has risen, as my right hon. Friend correctly points out, to a greater degree than the price of any other article. Obviously that would be the case, because in no other instance were Germany or Austria the main sources of supply. As this source of supply has been closed to the world we have, necessarily, a greater world demand for the limited product. We now, as I say, sell in this

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    country, wholesale in bond, sugar cheaper than it is sold in America in bond. We cannot continue to do that. We can only do it now because in the past we have bought large quantities of sugar at prices far below the present prices. We anticipated there would be a great rise in sugar, and consequently bought as much as we could while prices were still low. But I warn the Committee if there is no fall in the price of sugar we cannot continue to sell it below cost price. So far from anticipating a drop in the price of sugar, I anticipate there will have to be a rise in the price of sugar sold by the Sugar Commission. My hon. Friend asks, "Do we sell it cheaper here retail than do the Americans?" You have to add to our wholesale price in bond our duty of 1-Jd., and as our duty is far higher than the American duty we cannot, of course, sell it cheaper retail than the Americans do. But I will say this, that if the markets were open, having regard to the existing American wholesale prices, having regard to the existing freights, and having regard to the existing retail profit on sugar, if there were no duty—if the ports were open, there would still be no profit on the price of sugar to-day in this country. We sell it, having regard to the cost of freight and insurance—we sell it at a price lower than the American price, and the difference is very nearly the equivalent of the whole of that duty. Now I come to the duty itself, and to the question whether sugar is a proper subject for a Customs Duty. If we realised the whole of the sugar which we now hold at existing prices our profit would be something like £2,000,000, and it is because of that profit that we are enabled to sell the sugar cheaper than we are actually buying it at the moment.
    Mr. LOUGH: Does the right hon. Gentleman mean that, suppose the account was closed now, and the balance of the stock sold, the amount of profit realised by the Government deal would be £2,000,000?
    Mr. McKENNA: Yes, if ail our stocks were sold at the present price and the business closed, the amount of the profit would be £2,000,000. It is necessary to keep some profit of that kind in hand, because in going out of business we shall have to sell off our stocks and be at the mercy of the market. Now, as to the tax itself. Sugar was sold before the War at from 2d. to 2¼d. per pound. At that price there was a total consumption in this
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    country of about 1,800,000 tons—an enormous consumption! It was a consumption far greater than that of any other European country. It cannot therefore be said that a consumption of that magnitude was necessary for health. [HON. MEMBERS: "Why not?"] Because the health of the other countries, both of colder and warmer climates in Europe, was maintained with a consumption varying from something like one-fourth to one-half of ours.
    Mr. OUTHWAITE: Did that include sugar used in manufactured articles and exported from this country?
    Mr. McKENNA: That included the whole of the sugar used in manufacture and exported, which is not a very large proportion of the whole. The price has now risen from 2d. or 2¼d. up to 5d. or 5¼d. Notwithstanding that enormous increase in price the consumption has not been very greatly reduced. So little has the consumption been reduced that for other reasons, namely, of freight and now of exchange, we have found that we have had to use compulsion to reduce consumption. That is to say, that putting up the price has not been a sufficient inducement to cut down consumption from that enormous pre-war level, far higher here than in any other country in Europe, and we have had to reduce the consumption by limiting the amount which we will sell week by week. Let us see what that really means, and if it can possibly mean, as my hon. Friend suggests, that the masses of the people in this country are being seriously affected by the Sugar Duty. We know, according to experience, that whenever the price of sugar rose owing to the ordinary fluctuations of the market there was a great reduction in consumption. For instance, in 1911, owing to the comparative failure of the beet crop, sugar went to a price not very much below the price in bond to-day. The duty then, of course, was very much smaller. My right hon. Friend will remember that fact. Immediately on that increase of price the consumption was greatly lowered. But it has not been lowered to-day to that level,, showing, as proved beyond the possibility of contradiction, that the power to purchase sugared articles to-day is greater than it was in 1911. I quite admit that my hon. Friend can make an excellent case against this or any other tax in individual cases. He is a champion of the Income Tax as

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    against the Sugar Tax. He says the Sugar Tax is inequitable not merely as between the rich and poor, but as between poor and poor, and he gives the case of a poor man with a large family who has to spend more on sugar than a poor man with a small family. But that is just as true of the Income Tax.
    Mr. W. ROCH: The Income Tax payer gets abatement.
    Mr. McKENNA: Yes, he gets abatement for children under a certain age. The man who has a great many children, who is also a poor man, may be supporting his sisters, or his father and mother, and has other expenses which he cannot get rid of. It is just as true of the Income Tax and can be shown to be just as true of every tax. The only answer to all these arguments is, "Do not tax at all." We have to raise a revenue to the amount of £500,000,000. We must raise a revenue even of that gigantic total if we are to maintain our credit, to finance ourselves and to assist in financing our Allies in the War. If we are to undertake that great burden we cannot help imposing taxes upon every class. I readily admit that all the taxes we impose will operate, in individual cases, with great hardship and great inequity. I make my hon. Friend a present of that admission, but I may assure him that if he stood in my place he would never dream of giving up this tax. He would know that with an Income Tax of 5s. in the £ the burden of the inequities which exist in that tax operates far more unfairly than the inequities which I admit exist in the case of the Sugar Tax. If the Income Tax were 1s. in the £ and I had to choose between the addition of another 2d. or 3d. to the Income Tax or a ½d. to the Sugar Tax, I would unhesitatingly say, "Add to the Income Tax." When the Income Tax is at 5s. in the £ my hon. Friend does not know, or does not appreciate, the extraordinary hardships which necessarily arise. I would appeal to the Committee not to be led away by the force of the argument, which is undoubtedly true when the Income Tax is low, into believing that we can get a remedy for all our tax evils by adding to an Income Tax which is already 5s. in the £.
    I have endeavoured to show, first, that sugar is an article which is consumed in this country now to an amount greater than is consumed in any other country in Europe. Secondly, I show that it is consumed to a degree greater than our freight,
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    or our power to find foreign exchange—it all has to be paid for abroad—can allow; and, thirdly, I have shown that it has been necessary to cut down the consumption, not merely by adding to the tax, but by limiting the amount which comes into the country and by limiting the sales and consequently making people go short altogether. When we find these three conditions existing in regard to an article, I put it to the Committee that it is proper that taxation which has to be imposed should be imposed in respect of an article of that kind. We must cut down the consumption because we carry the sugar; we must cut down the consumption because we cannot, except with difficulty, pay for the sugar. Paying abroad is not the same thing as paying at home. When we pay abroad we have to pay with our capital securities. There is no other means of paying. There is a limit to the amount of our capital securities. We, therefore, have to cut down the consumption of the articles we import. There are two methods open to us in cutting down consumption of sugar—raising the price or prohibiting the sale. In either case the poor suffer; in either case they have to go short. Somebody has to suffer if we cut down the sales. [An HON. MEMBER: "Ration them with sugar!"] I wish my hon. Friend had to deal with the sugar-using trades, with the retail traders, with the wholesale traders and the manufacturers; he would then begin to know something of the difficulties of rationing. Rationing in this country is a very different thing from rationing in Germany. We have a great import and export trade to carry on. We are not self-contained, and the conditions are absolutely different. We may have to come to that, among other expedients, but do not let us come to an expedient of that kind before we must. If we have to cut down, as we must, the consumption of sugar, is there any better way than by raising the price by an increase of the duty, giving us at once a revenue and leaving the cutting down to the ordinary operations of supply and demand? I admit, of course, that it affects the poor. All taxation on necessary foodstuffs affect the poor; but we believe, and I put it to the Committee that the whole graduation of taxation, with this enormous Income Tax, has been based upon the assumption of making everybody and all classes pay according to their ability, and in that belief I beg the Committee to accept this additional tax of a ½d. on sugar.
    Sir A. MOND: The right hon. Gentleman has made a very interesting speech on the subject before the Committee. We all sympathise with him, of course, in the difficulties in which he is placed. His speech fell into two parts, not altogether consistent. The first part of his speech was occupied with a great defence of the Committee he has set up and the sugar operations it has carried on. The right hon. Gentleman first prided himself on being in the position of being able to sell sugar cheap.
    Mr. McKENNA: In bulk.
    Sir A. MOND: Quite so. He then prided himself on being in a position of being able to make it artificially dear. What is the object of buying it cheap? He has revenue to get, I know, but he cannot pride himself on the one hand upon having bought cheap, and on the other hand of producing artificial scarcity. The other part of his speech dealt with the question of production in the British Dominions.
    The CHAIRMAN: I do not think the right hon. Gentleman was in the Committee when I dealt with that part of the subject earlier in the afternoon. There will be another occasion for a general sugar discussion. The question before the Committee is only whether the tax is justified in the present circumstances of the case.
    Sir A. MOND: I will not venture further on that point, except to say that the Chancellor of the Exchequer went into it at great length, especially as to the sources of the supply. After your ruling, Sir, I will not pursue that subject. I will now deal with the question of the tax. The right hon. Gentleman says that we must curtail the supply of sugar and, therefore, must curtail the sale of what he has in hand. He lays down an extraordinary proposition which I was astonished to hear, namely, that whatever policy he adopts for raising the price or curtailing the supply, the poor must suffer. It is a doctrine which I am amazed to hear laid down by a member of a responsible Government. Imagine what an expression of opinion of that kind is going to carry outside the walls of this House. Enormous as the difficulties undoubtedly would be, the Government will have to overcome them before the people of this country will acquiesce in the doctrine that if suffering is to be imposed those least able are to bear it and the rich people
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    are to be excused. The proposition will not hold water that if anyone is to go short of sugar the poor must go short and the rich must have as much as they want and more than is good for them.
    Mr. McKENNA: I never said that.
    Sir A. MOND: That is the logical conclusion.
    Mr. McKENNA: Every rise in price of an article of general consumption obviously affects the poor more hardly than it does the rich. All other conclusions of my statement than that are entirely erroneous. That is a conclusion which I should have thought would be obvious.
    Sir A. MOND: It is perfectly true that the conclusion is obvious. If owing to economic laws over which the Government has no control there is a rise in price it is obvious that those with the least purchasing power will suffer. Surely that is very different from the case of an article over which the Government has entire control and to which the ordinary economic laws therefore no longer apply. It is in the power of the Government to equalise what is always a hardship—a hardship sometimes produced by natural laws, but always a hardship, and one which the Government ought to endeavour to modify and not to intensify. The right hon. Gentleman is intensifying the economic difficulty by his tax. He has said that sugar would be dearer still, but he overlooks a growing danger, and that is the growing dissatisfaction of the mass of the people of this country at the increased cost of living. That is a difficulty which the Government apparently have realised by appointing a Committee of which my right hon. Friend (Mr. J. M. Robertson) is the chairman. It is apparently appointed in order to consider how to obviate the rise in the price of food. I should think their first recommendation would be that this tax should be taken off. That is the only practical recommendation they could make. What is the object of appointing a number of eminent people to discuss the question of how food is to be cheaper if this House on the other hand sits down solemnly and makes food dearer? This question is naturally becoming a very serious one. I come in contact with it perhaps in some ways more practically than my right hon. Friend as an employer of labour who gets claims for advances of wages based on the increased cost of living. These claims

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    are based on this contention, that the cost of living is going up, and therefore wages must be advanced, and when you get wages advanced you get back in the eternal vicious circle. You are not making these people pay the revenue. They are passing it on to the employer, who passes it on again. This is one of your fallacies, that you distribute it among people who can compel higher wages. You are placing the burden on the helpless people, on the old age pensioners, on women and children, on the people who are not enjoying higher wages. The curious position is that the better wages people are receiving the more they are in a position to pass on these duties, and the lower wages people are receiving, and the worse off they are, the more defenceless they are. The right hon. Gentleman says he must have this money for the purposes of our trade. We are not balancing our Budget at all. No one knows better than the right hon. Gentleman that all the increased taxation he is raising is a very small fraction indeed of the money which is required to pay for the War or to finance the Allies. All he is doing, and all he can do, is to raise as large an amount of taxation as may be reasonable during the War, in order to pay off as much of the War as he can. There is a huge balance that he has to borrow, and his choice is not necessarily between Income Tax and Sugar Tax, but between Sugar Tax and loan. The consideration that arises in my mind is this. Is it reasonable, in the middle of a great War like this, to intensify the burden on a large section of your population in order to avoid a trifling increase in your floating debt or your permanent loan?
    Mr. McKENNAmade an observation which was inaudible in the Reporters' Gallery.
    Sir A. MOND: That does not make it any better or any worse. It is not a good argument. The right hon. Gentleman is not financing the whole War out of revenue. His division must be an arbitrary one at the best, and therefore I think it is a perfectly legitimate consideration as to whether it is a wise thing at a moment like this to increase the difficulty, which is a growing difficulty, and to increase discontent, which is growing, at a critical moment of the War in order to raise a day and a half's cost of the whole War. That to my mind is a serious financial consideration, and I think it is a mistake to go on
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    piling taxes in this manner for what is only alter all in the long run a very trifling percentage of the total cost of the War. I quite understand the right hon. Gentleman feeling that he ought to raise as much taxation as he possible can, and that he has a willing public ready to make sacrifices, but there is a danger of driving a willing public too far. There is a danger of loading the patient donkey so far that the burden will become too great for him to carry. Automatic increases in cost will occur; all over the country you have petitions that old age pensions should be increased; you have a demand growing in volume and becoming more and more irresistible every day; you have increased demands for wages; you have increased demands in other directions. You are endeavouring to find means of reducing the cost of living, and it seems to me that it is flying in the face of the whole tendency of the present movement to go out of your way to increase the price of an article artificially which is of such enormous value as a foodstuff. The right hon. Gentleman seemed to imply that because the British people consume more sugar than people in Continental countries, therefore they can do with a great deal less and maintain their present level of subsistence. The right hon. Gentleman makes a very great assumption. He assumes that all the people on the Continent have always been properly nurtured. That is the first time I have heard such an assumption made. It is a notorious fact that in all countries in the world, even in this country, but especially in highly Protectionist countries, a good many people are living under the proper margin of subsistence, and the fact that they did not consume more sugar did not show that they did not physiologically require more sugar in order to produce a better state of efficiency, but that they could not afford to buy the sugar.
    The right hon. Gentleman now says you must cut down the people's sugar consumption and ration them, as Germany, Austria, and Hungary have done. You could do the same with meat and arrive at even more striking figures, and also with bread, when you would probably discover that the British people have been in the habit of consuming more foodstuffs of every description than any country ort the Continent. That argument is absolutely unsound. Has the right hon. Gentleman had any real expert advice from skilled hygienists in this country that

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    a diminution in sugar consumption would not be a bad thing either for growing children, to whom sugar is a most important food, or for people who are working hard and who have a natural tendency to eat more sugar at a time when the price of meat is rapidly rising? That is a thing the right hon. Gentleman must not forget—that the rapid rise in the price of meat will have a tendency to keep up the consumption of sugar, because sugar and meat in many physiological respects have the same effect on the human system. Therefore I do not think that argument of the right hon. Gentleman, effective as it may be from the debating point of view, will stand very much scientific investigation. The right hon. Gentleman says, as far as I can understand him, firstly, that he has not got the sugar, and therefore he must curtail its use. If you must curtail its use, curtail it as equitably as you can. Secondly, he says that everyone must bear burdens throughout this War. I have pointed out that, war or no war, it is not sound finance to throw burdens on shoulders least able to bear them, to endeavour in a concentrated period to overload those who are bearing the present struggle for the benefit of future generations for whose emancipation we are fighting. Thirdly, you are tending to endanger that very efficiency of the people of this country at a moment when you are asking them to make the greatest physical effort in order to continue the War. The points made by the right hon. Gentleman are not good points. All the objections urged against his increase of tax are unanswerable, and I think he would be well advised even at this moment to sacrifice his dearly beloved revenue and withdraw this increase on an already heavy tax.
    Mr. McKENNA: I will ask hon. Members to excuse my absence for a short while. There is a War Committee which I have to attend. I will come back.
    5.0 P.M.
    Mr. DAVID MASON: The Chancellor of the Exchequer has made a speech ostensibly in support of this addition to his tax, but it was a most convincing speech in opposition to the arguments which he submitted. He gave the most eloquent and most convincing testimony that this increased tax should not be proceeded with. Austria and Germany have been big exporters of sugar in the past. The crop from Cuba varies, of course, but I think the average is under a million tons. The
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    right hon. Gentleman would have the Committee support him in his increase of this tax because the supply is limited. If the supply of an article is limited I cannot see what advantage is to be gained by increasing the tax upon it. It seems to me that is an argument in favour, not of increasing the tax but of letting it come in as freely as possible. To retard the import is not, surely, to improve the position. He has argued that his object is that this might perhaps decrease the consumption, but he admitted that, owing to the high level of wages and this great prosperity which we are at present enjoying, largely an artificial prosperity, the consumption had not decreased. He condemned himself out of his own mouth by saying that the high wages which the better working classes are enjoying have not led to any reduction, and that we were the only people who are suffering, and that this proposed addition falls most heavily upon those least able to bear it and those who are quite unable to stand a further increase. He referred to the old age pensioner. We know that a pension of 5s. per week is only worth about 3s. or 2s. 6d. compared with what it was worth previously, and we all know that there is to be an increased number of people in receipt of old age pensions and other pensions. The Chancellor of the Exchequer himself admitted that. He said that the better paid worker was not affected. We know that there are higher wages being paid on the average to-day than ever before in the history of the country, and it seemed to me that his argument, instead of convincing any single Member of the Committee to his view, was rather calculated to convince the Committee that it is a very serious crisis at which we have arrived. It seems to me that even at this eleventh hour we might appeal to the Chancellor of the Exchequer and the Financial Secretary to the Treasury to reconsider this proposal as to whether we should proceed with this increased duty. I hope that the proposer of this Amendment will proceed to a Division, because I am convinced that there is a large section of Members of this House on both sides who, while holding quite different fiscal opinions, are averse at this particular period to placing an increased burden upon the poorer classes of the community.
    The right hon. Gentleman who moved this proposal and, I think, the right hon. Member for Swansea (Sir A. Mond) argued

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    that the only alternative to proceeding with this duty would be to increase the amount of money borrowed by Loan or by Treasury Bills, or some other form, and did not seem to think that that meant very much, because it was so small in comparison to the large amount which the Government have to raise in the shape of Loans. I did not quite follow the right hon. Gentleman in that argument. While I agree that the amount here involved, some £7,000,000, is not a very large amount, still it is a considerable item. I am entirely with the Chancellor of the Exchequer in raising as much revenue as possible from taxation which will not in any sense militate against the productive power of the country, but I do not agree with him that all taxation is alike, and that, all taxation would have the same effect. There are undoubtedly certain taxes which are sound taxes, but I think my hon. Friend (Mr. Arnold) showed that this tax particularly, because it is not equitable, and because it is not economically sound, is one which we are justified in opposing. I suggest that a much better method of raising the necessary revenue would have been to carry out the suggestion which I think was made by a former leader of the Labour party, who is now the Minister of Education, and that is to have a graduated Income Tax upon wages. Then you would have tapped the higher paid workmen, and you would not, as you will by this increased duty, penalise the poorer, underpaid worker. I do, therefore, ask the Financial Secretary to the Treasury and the Government to reconsider this proposal, both in the interests of equity and in the interests of sound finance, because the fact that at a time like the present we are increasing the duty upon sugar, which is very likely to become a permanent part of our machinery, means that we are accentuating rather than alleviating the increased cost of living, and we are doing something which I believe to be both economically and financially unsound and unjust.
    Sir J. D. REES: It does not seem to me to be quite honest to sit here and listen to the speech of the right hon. Member for Swansea (Sir A. Mond) without making a protest against the tone and substance of that speech. Any hon. Member could get up with the greatest ease and protest against any tax, particularly any indirect tax, on the ground that it affects the poor. I believe that every hon. and right hon. Member of this House as much regrets
    178
    every increased tax, and every additional burden placed upon the poor as the right hon. Member for Swansea, but they would not get up at a time like this and address the Chancellor of the Exchequer and the House in the manner in which the right hon. Gentleman did. It is very easy to make the difficult task of the Chancellor of the Exchequer more difficult at a time like this, but there is not one hon. Member who has spoken in the tone of the right hon. Gentleman and asked the Chancellor of the Exchequer to sacrifice a miserable day's beloved revenue. How can the Chancellor of the Exchequer, with the difficult task he has to perform, possibly apportion taxation, and endeavour to levy it all over the country fairly when he is met in that way by the right hon. Gentleman. I am unwilling to sit behind the right hon. Gentleman and listen to such a speech without entering my protest against it, although it is merely by accident that the right hon. Gentleman and I happen to be sitting together again. He says it is only a day's revenue. Is a day's revenue a small matter? Is five millions, six millions, or seven millions a small matter at a time like this? Is not the principle a thing of moment? The right hon. Gentleman's speech amounted to a claim that everything should be transferred to the Income Tax payer. Does not the Income Tax payer pay now? In all conscience, does he not pay as heavily as he possibly can? It is not that the Income Tax payer is objecting to pay more, but it amounts to this, that the right hon. Gentleman gets up and protests against this tax, which anybody else could have done. Every other hon. Member sympathises quite as much with the poor as does the right hon. Gentleman, but perhaps they have more conscience and are unwilling to embarrass the Chancellor of the Exchequer in his exceeding difficult task at a moment like this. The right hon. Gentleman spoke as an employer of labour. I do not know whether he has any proof that large numbers of people in this country are living under the margin of subsistence, or whether he spoke for his own employés, and in that sense was a special representative of people in this country. I protest against such a statement coming from such a quarter. The right hon. Member for Tyneside (Mr. J. M. Robertson) who sat beside the right hon. Gentleman exercised an exceedingly wise discretion in preserving silence on the subject. Had he

    179
    followed in the same sense it would have emphasised the objection raised at Question Time to his appointment on the Price of Food Committee.
    Mr. SHERWELL: Even at the risk of offending the susceptibilities of my hon. Friend (Sir J. D. Rees), whom the accident of political fortune and political changes of opinion have separated from me, I feel bound to enter one word or two of protest against, this particular tax. It is perfectly true, as the Chancellor of the Exchequer has reminded us, that there is great pressure upon all classes to bear special burdens of taxation in consideration of the enormous and almost incalculable cost of this War, but I am always of the belief that while there is at all times, even under normal conditions, a most urgent need that the character and incidence of every proposed tax should be analysed and carefully weighed, that need is never more urgent and never more imperative than when it is the duty of the Chancellor of the Exchequer, under quite abnormal conditions, to ask for special contributions in aid of the national revenue. The Chancellor of the Exchequer did not attempt to meet the very weighty points made by the hon. Member for Holmfirth (Mr. Arnold), who pointed out the essential inequitableness of this tax, especially in its incidence. The Chancellor of the Exchequer's reply to that was that all taxation is inequitable, and that even in the Income Tax there was inequity in its incidence as between man and man. By that reply the Chancellor of the Exchequer showed that he had not appreciated the point made by my hon. Friend. My hon. Friend was dealing with those who are not liable to Income Tax, but who have a very slender margin of subsistence, and whom it is the imperative duty of every Chancellor of the Exchequer, in time of war or in time of peace, to protect to the utmost of his capacity and power. Some of us feel very strongly that the inequitableness of this tax in relation to large classes of the population, whose condition is not materially benefited by the abnormal prosperity due to the War, does present a case to which we are bound to give very special emphasis and very special consideration.
    The Chancellor of the Exchequer laid very special stress, in supporting this duty, upon the fact of the maintenance of a high level of consumption in this parti-
    180
    cular commodity, sugar. If he were here now, and if this were the proper time, I should like to analyse the causes and explanation of the maintenance of the high level of consumption in this particular commodity. He would not for one moment suggest seriously that the large consumption of this particular commodity is explained by the ordinary consumption of the people of this country in their ordinary domestic life. He knows perfectly well that the Government itself has done an enormous amount to maintain a high level of consumption in connection with the needs of the Army. He is also aware—he must be aware—that there has been quite an abnormal demand for sugar in connection with gifts sent out to the troops. I doubt whether, despite the abnormal prosperity of large classes of the industrial population to-day, the real bonâ-fide domestic consumption of sugar has been at such a high level during the last fifteen months as in the years preceding the outbreak of war. If the right hon. Gentleman feels that the national interest demands that by some process or other he should reduce this high level of the consumption of sugar, is the imposition of a tax the only or the best way in which to bring about a lower consumption? He says it is necessary in some way arbitrarily to reduce the demand for sugar, and the only way that he sees presents itself is that of raising the price. He did not meet the point raised by my hon. Friend (Mr. Arnold), who seemed to me to offer a very weighty suggestion when he drew a sharp distinction, I believe a perfectly just distinction, and, economically, a perfectly legitimate distinction between the relative injustice of the tax and the increase of the price of the commodity. If the Chancellor of the Exchequer desires to restrict the consumption of sugar or to restrict the demand for sugar by increasing the price of the article, why not, while he has extraordinary power in respect of sugar, at once raise the price of the commodity directly rather than raise it in the form of a duty? There are vices inherent in a duty which are not inherent in the mere raising of the price of the commodity.
    The Chancellor of the Exchequer must be well aware that in connection with every tax imposed you not merely force the consumer to pay the amount of the tax but you force him at the same time to pay something extra in the way of interest on capital advanced in the payment of duty-

    181
    We all know in the ramifications of ordinary trade to-day that what happens is that the ordinary consumer of the article that is subject to the tax pays in his retail price an enormously greater sum than the amount of the tax. I have repeatedly urged as one of the essential duties of the Chancellor of the Exchequer that in imposing any tax upon an article of ordinary consumption he should take steps not merely to procure his revenue but to see to it that the consumer who pays the tax does not pay more by an undue increase in the price of the commodity, than the amount of the tax which the Chancellor of the Exchequer has imposed. I must protest against the idea which has become an accepted axiom of the procedure of the Treasury, and that is that the Chancellor of the Exchequer's sole duty is to impose a tax without paying any regard to its actual effect in retail prices to the consumer. No Chancellor of the Exchequer at any time, whether in peace of war, has the right to select a particular article as the subject of additional tax without setting up machinery at the same time to protect the consumer against abuse in the shape of undue increase of the price. The Chancellor of the Exchequer did not meet the point in contrasting the wholesale price in bond in the United States with the price in this country. After all, the question that really matters is not the wholesale price in bond but the retail price to the ordinary consumer. I entirely endorse what the right hon. Member for Swansea has said as to the effect of attempting by an economic process to diminish the consumption of an article like sugar. It is unquestionably in the highest interests of the State to secure the physical interest and development of the people in all possible legitimate ways. This House will be making a profound mistake if, under pressure of needs of the War, it lends countenance to anything which may lower the permanent efficiency and stability of the people. This War will count for something worse than disaster in the ordinary sense if we win it by permanently lowering the physical health of the people of this country. While it is right that the Government should be supported and provided with all the sinews of war which are required, neither
    this Committee nor the country as a whole should give any support to the idea that the Government may be provided with the-sinews of war at the cost of a permanent effect upon the physical health and fitness of the whole people.
    My hon. Friend put a point which should be seriously considered by the Chancellor of the Exchequer even at this late hour of the day. Why not raise the price, if it is desired to restrict consumption or merely to raise revenue? With the complete monopoly of the sugar market, which the right hon. Gentleman possesses, it is open to him to know to a farthing the yield which he will get by yielding the price to the consumer. In that way he secures his revenue. He does what he desires to do. He exercises a restraining force upon the consumption of this commodity; but to free the country, and particularly the poor, from the very serious danger that in order to secure a certain amount of revenue and in order to restrict consumption he imposes a duty upon the consumer as to which there is no guarantee that it will be taken off at the close, of the War. I know perfectly well, as everybody knows, that this duty will not be taken off when peace is declared. We have all experience to guide us in this matter. My right hon. Friend the Financial Secretary to the Treasury knows that already demands are being made upon various Departments of the Government for the maintenance of certain conditions which will make a very large demand upon the Exchequer, and that these demands are likely to grow in the coming twelve months. This will mean the maintenance of a high scale of taxation in this country in order to provide the revenue for these exceptional purposes. I share fully the scepticism of my hon. Friend as to the taking off of this duty at the close of the War, and I join my appeal to his that the Chancellor of the Exchequer should get his revenue and exercise his I restraining influence by means of an increase in the price rather than by additional taxation of this kind.
    Question put, "That the Clause stand part of the Bill."
    The Committee divided: Ayes, 170; Noes, 37.

    Division No. 36.]

    AYES.

    [5.19 p.m.

    Adkins, Sir W. Ryland D.

    Balfour, Rt. Hon. A. J. (City, London)

    Baring, Sir Godfrey (Barnstaple)

    Ainsworth, John Stirling

    Banbury, Rt. Hon. Sir F. G.

    Beauchamp, Sir Edward

    Allen, Arthur A. (Dumbartonshire)

    Banner, Sir John S, Harmood-

    Beck, Arthur Cecil

    Bellairs, Commander C. W.

    Hibbert, Sir Henry F.

    Priestley, Sir W. E. B. (Bradford, E)

    Benn, Arthur Shirley (Plymouth)

    Hickman, Colonel Thomas E.

    Prothero, Rowland Edmund

    Bentham, George Jackson

    Hill, James

    Pryce-Jones, Colonel E.

    Bethell, Sir John Henry

    Hobhouse, Rt. Hon. Charles E. H.

    Radford, Sir George Heynes

    Bigland, Alfred

    Hohler, Gerald Fitzroy

    Randies, Sir John S.

    Bird, Alfred

    Holmes, Daniel Turner

    Rawlinson, John Frederick Peel

    Birrell, Rt. Hon. Augustine

    Hope, James Fitzalan (Sheffield)

    Rea, Walter Russell (Scarborough)

    Bliss, Joseph

    Horne, Edgar

    Rees, G. C. (Carnarvon, Arfon)

    Bowerman, Rt. Hon. C. W.

    Houston, Robert Paterson

    Rees, Sir J. D. (Nottingham, E.)

    Broughton, Urban Hanlon

    Howard, Hon. Geoffrey

    Roberts, Charles H. (Lincol)

    Brunner, John F. L.

    Ingleby, Holcombe

    Roberts, Sir J. H. (Denbighs)

    Bull, Sir William James

    Jackson, Sir John (Devonport)

    Robertson, Rt. Hon. John- M.

    Butcher, John George

    Jacobsen, Thomas Owen

    Robinson, Sidney

    Cecil, Evelyn (Aston Manor)

    Jones, William S. Glyn- (Stepney)

    Roe, Sir Thomas

    Cochrane, Cecil Algernon

    Joynson-Hicks, William

    Rowlands, James

    Collins, Sir Stephen (Lambeth)

    Kinloch-Cooke, Sir Clement

    Samuel, Rt. Hon. Sir Harry (Norwood)

    Cooper, Sir Richard Ashmole

    Larmor, Sir J.

    Samuel, J. (Stockton-on-Tees)

    Cornwall, Sir Edwin A.

    Layland-Barrett, Sir F.

    Samuel, Samuel (Wandsworth)

    Cory, Sir Clifford John

    Lewis, Rt. Hon. John Herbert

    Scott, A. MacCallum (Glas., Bridgeton)

    Craig, Ernest (Cheshire, Crewe)

    Lloyd, George Butler (Shrewsbury)

    Shortt, Edward

    Craig, Col. James (Down, E.)

    Lonsdale, Sir John Brownlee

    Smith, Sir Swire (Keighley, W.R.)

    Craik, Sir Henry

    Lowe, Sir F. W. (Birm., Egbaston)

    Spear, Sir John Ward

    Currie, George W.

    M'Callum, Sir John M.

    Stewart, Gershom

    Dairymple, Hon. H. H.

    MacCaw, Wm. J. MacGeagh

    Strauss, Arthur (Paddington, North)

    Dalziel, Davison (Brixton)

    Macdonald, Rt. Hon. J. M. (Falk. B'ghs)

    Sykes, Col. Alan John (Krutsford)

    Davies, David (Montgomery Co.)

    Macleod, John Mackintosh

    Sykes, Sir Mark (Hull, Ctral)

    Davies, Timothy (Lincs., Louth)

    Macmaster, Donald

    Thomas-Stanford, Charles

    Denniss, E. R. B.

    M'Micking, Major Gilbert

    Thorne, G. R. (Wolverhampton)

    Dixon, C. H.

    Magnus, Sir Philip

    Toulmin, Sir George

    Dougherty, Rt. Hon. Sir J. B.

    Marks, Sir George Croydon

    Turton, Edmund R.

    Duncan, C. (Barrow-in-Furness)

    Mason, James F. (Windsor)

    Walker, Colonel William Hall

    Duncan, Sir J. Hastings (Yorks, Otley)

    Meux, Hon. Sir Hedworth

    Walters, Sir John Tudor

    Edwards, Sir Francis (Radnor)

    Millar, James Duncan

    Walton, Sir Joseph

    Essex, Sir Richard Walter

    Molteno, Percy Alport

    Wason, Rt. Hon. E. (Clackmannan)

    Eyres-Monsell, Bolton M.

    Money, Sir L. G. Chiozza

    White, J. Dundas (Glasgow, Tradeston)

    Fell, Arthur

    Montagu, Rt. Hon. E. S.

    Whiteley, Herbert J.

    Ferens, Rt. Hon. Thomas Robinson

    Morgan, George Hay

    Whittaker, Rt. Hon. Sir Thomas P.

    Fletcher, John Samuel

    Morton, Alpheus Cleophas

    Wiles, Thomas

    Gilbert, J. D.

    Munro, Rt. Hon. Robert

    Wilkie, Alexander

    Glanville, Harold James

    Newman, John R. P.

    Williams, Aneurin (Durham, N.W.)

    Goddard, Rt. Hon. Sir Daniel Ford

    Nuttall, Harry

    Williams, Col. Sir Robert (Dorset, West)

    Greenwood, Sir G. G. (Peterborough)

    O'Malley, William

    Williams, Thomas J. (Swansea)

    Greig, Colonel J. W.

    Paget, Almeric Hugh

    Wilson, Rt. Hon. J. W. (Worcs., N.)

    Gretton, John

    Parkes, Ebenezer

    Wing, Thomas Edward

    Gwynne, R. S. (Sussex, Eastbourne)

    Pearce, Robert (Staffs, Leek)

    Wortley, Rt. Hon. C. B. Stuart-

    Hardy, Rt. Hon. Laurence

    Pearce, Sir William (Limehouse)

    Yate, Colonel C. E.

    Harmsworth, Cecil (Luton, Beds)

    Pease, Herbert Pike (Darlington)

    Yeo, Alfred William

    Harmsworth, R. L. (Caithness-Shire)

    Pease, Rt. Hon. Joseph A. (Rotherham)

    Young, William (Perth, East)

    Harris, Percy A. (Leicester, S.)

    Pennefather, De Fonblanque

    Younger, Sir George

    Henderson, Rt. Hon. Arthur (Durham)

    Perkins, Walter Frank

    Yoxall, Sir James Henry

    Henry, Sir Charles

    Peto, Basil Edward

    Herbert, Maj.-Gen. Sir Ivor (Mon., S.)

    Pratt, J. W.

    TELLERS FOR THE AYES.—Mr.

    Hewins, William Albert Samuel

    Price, Sir Robert J. (Norfolk E.)

    Gulland and Mr. Bridgeman.

    NOES.

    Adamson, William

    Hogge, J. M.

    Richardson, Thomas (Whitehaven)

    Barlow, Sir John Emmott (Somerset)

    John, Edward Thomas

    Roch, Walter F.

    Barnes, Rt. Hon. George N.

    Jones, H. Haydn (Merioneth)

    Rowntree, Arnold

    Burns, Rt. Hon. John

    Jowett, Frederick William

    Sherwell, Arthur James

    Byles, Sir William Pollard

    King, Joseph

    Snowden, Philip

    Chancellor, Henry George

    Lambert, Richard (Wilts, Cricklade)

    Stanton, Charles Butt

    Clynes, John R.

    Macdonald, J. Ramsay (Leicester)

    Sutton, John E.

    Crooks, Rt. Hon. William

    Mason, David M. (Coventry)

    Thorne, William (West Ham)

    Davies, Ellis William (Eifion)

    O'Grady, James

    Whitehouse, John Howard

    Finney, Samuel

    Outhwaite, R. L.

    Williams, W. Llewelyn (Carmarthen)

    Gelder, Sir W. A.

    Ponsonby, Arthur A. W. H.

    Goldstone, Frank

    Pringle, William M. R.

    TELLERS FOR THE NOES.—Mr.

    Harvey, T. E. (Leeds, West)

    Raffan, Peter Wilson

    Lough and Mr. Arnold.

    Hinds, John

    Question put, and agreed to.

    CLAUSE 6 (Increased Excise Duties on Sugar) ordered to stand part of the Bill.

    CLAUSE 7.—(Customs Duties on Table Waters).
    (1) There shall as from the first day of May, nineteen hundred and sixteen, be charged, levied, and paid upon table waters as defined by this Section im-
    184
    ported into Great Britain or Ireland, the following duties of Customs, that is to say:
    On table waters which contain as the result of the ordinary process of manufacture, or are prepared in the ordinary process of manufacture with, sugar or other sweetening

    185
    material, or which are fermented beverages, a duty at the rate of four-pence per gallon; and
    On any other table waters a duty at the rate of eightpence per gallon.
    (2) In this section "table waters." includes any aerated waters and any beverages to be sold or kept for sale in bottles other than—

    (a) Any liquor for the retail sale of which an Excise licence was at the time of the passing of the Finance (New Duties) Act, 1916, required; and

    (b) Syrups or other liquors intended to be consumed only in a diluted form.

    Sir J. D. REES: This Clause indicates some compunctious visitation of conscience on the part of those who are generally ready to penalise the moderate drinker, the man who follows the prophet and observes the Evangelistic recommendation of drinking wine for the stomach's sake. I desire to know whether it is intended equally to penalise French Allies and enemy table water. I do not quite understand how that is. If you take table waters as denned, imported into this country, it would look like as if you would affect Appollinaris in the first instance. That is a German water. Then there is Contrexeville, which allays the pangs of gout and is French, and Evian, which is as soft as silk and as mild as milk and is also French. Is it an accident that they are all lumped together under Customs Duty, and is it intended, whether they come from the friendly French or the hostile German, that they should come alike under the Customs Tax? In Sub-section (2) table waters includes any aerated waters and any beverages to be sold or to be kept on sale in bottle. Does bottle include flask and stone jar, because table water used to be imported in stone bottles? Will the right hon. Gentleman kindly answer these questions? I will not detain the Committee a minute longer, except to make this one remark, that if this is to be considered a great victory for the drinkers against teetotalers, it must be remembered that these table waters are properly used for diluting strong drinks, and this tax is paid quite as much by the moderate drinker as by the teetotaler or any other man.
    Mr. LOUGH: I wish to ask the right hon. Gentleman why this Clause has wan-
    186
    dered out of the Finance (New Duties) Act into this Bill? I remember well that there were no Customs Duties on mineral waters, and with his usual courtesy the right hon. Gentleman explained to me-that everything was covered by Excise-Duty. But here I find a new Clause which' ought to have been in the other measure.
    The FINANCIAL SECRETARY to the TREASURY (Mr. Montagu): In answer to the hon. Member for Nottingham (Sir J. D. Rees), I would point out that this duty applies to all waters, of whatever sort or kind, that are imported into this country. If these importations are going on of which he speaks, I trust he will give the authorities information, in order that the matter may be dealt with, not by tax, but by the provisions of the law.
    Sir J. D. REES: Is it a purely temporary tax, or how long is it to continue?
    Mr. MONTAGU: If the tax is in existence where there is importation of waters from countries which are now enemy countries, then will be the proper time for my hon. Friend to raise the question.
    Sir J. D. REES: After the War, if this tax is continued, French waters will be subject to this duty. That is the point I am on now.
    Mr. MONTAGU: All imported waters are subject to this tax. With regard to a glass, or a jar, or a bottle, the hon. Member will recollect that when the Finance (New Duties) Act was passed earlier in the Session the definition was made that a bottle included a stone jar. In reply to the question of my right hon. Friend the Member for Islington (Mr. Lough), if I may refresh his memory, I think he will see what is the explanation. When the tax on mineral waters was originally proposed it was to be levied by a stamp on the cork or bottle, but that would have had to be put on imported waters as well as upon home-made waters before they could be sold. In the course of the Debate it was decided to substitute a duty on waters, and then it became necessary to have corresponding Customs in regard to the home manufacturer as against the foreign competitor. Therefore, we have put into this Bill the second duty, which apparently was thought not to be necessary until it was occasioned by the alteration suggested in the course of the Debate.
    Sir GEORGE YOUNGER: I would like to ask one or two questions of the right hon. Gentleman. It is proposed to place light beers which contain 2 per cent, of proof spirit under this tax because they are made in breweries, while other liquids which are stronger and which are much favoured by the Board of Control are not taxed, and are not made in breweries.
    Mr. MONTAGU: The right hon. Gentleman is referring to an old grievance, and I do not think this is the time or place to raise it.
    Sir G. YOUNGER: On the contrary, it is not an old grievance; it is a new grievance. These light beers are now sold, and are very much pushed by the Board of Control, who I do not think know much about the matter.
    Mr. MONTAGU: I do not think, in levying the tax, we should regard competition as between one drink and another.

    CLAUSE 9.—(Licence Duty in Respect of Table Waters and Cider.)
    There shall be charged, levied, and paid on a licence to be taken out annually, when required, by persons who sell table waters and by persons who sell cider or perry, an Excise Duty of ten shillings.
    Mr. MONTAGU: I beg to move to leave out the words "when required" ["annually, when required"], and to insert instead thereof the words "in cases where such a licence is required under Section six of the Finance (New Duties) Act, 1916."
    I understand there has been a certain amount of suspicion about the Clause as drafted, in case it should give the authorities uncontrolled power to require that licence shall be issued for the sale of table waters and ciders whenever they thought fit. In the Finance (New Duties) Act, passed earlier in the Session, the Commissioners have power to make Regulations under which a licence will be granted, and it is only in connection with those Regulations that a licence can be required.
    Amendment agreed to.
    Question proposed, "That the Clause, as amended, stand part of the Bill."
    Mr. DENNISS: I wish to call the attention of the Chancellor of the Exchequer to a certain class of people selling table waters. I have letters from my Con-
    188
    stituents on the matter. There are people who are selling herb beer, the tax on which 1s 4d. a gallon. Herb beer is sold for 6d. a gallon, whereas mineral waters cost 6s. a gallon, and the tax on mineral waters is also 4d. I submit that this is a most unequal tax—4d. on a liquid which is 6d. a gallon, and 4d. on liquids which are 6s. a gallon.
    Mr. MONTAGU: This Clause does not deal at all with the duty on herb beer.
    Mr. DENNISS: It seems to me that this very small class of people who make herb beer ought to be safeguarded. Fourpence a gallon on herb beer costing 6d. a gallon is so onerous that already 7 per cent, of their business is gone. Those who are affected are a small class of poor people, who have got together a small business in the sale of herb beer, from which they really have their livelihood. They are being very unjustly treated, and very hardly hit by the tax, and I want to ask the right hon. Gentleman to kindly consider whether he can in some way mitigate the tax on herb beer or put on none at all.
    The DEPUTY-CHAIRMAN (Mr. Maclean): As far as I understand, the hon. and learned Gentleman is making a speech on the subject of herb beer. That is not in order upon this Clause.
    Mr. DENNISS: I understand that this is a duty on table waters; however, I have finished now, and I hope the Financial Secretary will give me some reply.
    Mr. MONTAGU: The Clause deals only with table waters, in which herb beer is included, but it does not deal with the duty on herb beer. My hon. and learned Friend asks me to tax herb beer lighter or not at all, but that does not come within this Clause, which simply deals with the licence for making.
    Mr. LOUGH: I think my hon. and learned Friend has made a good point in mentioning herb beer, but it is important to take generally the question of the Licence Duty of 10s. which is being set up by the Clause. Lemonades and table waters are still being manufactured by people in all parts of the country, and anybody selling these beverages without a licence will be committing an offence, and may be locked up. That is a very-serious grievance, and I think the Government ought to justify their proposal. Is this Licence Duty necessary for protecting their revenue? Hundreds of thousands of

    189
    people throughout the country, small people, make a little living by the sale of these beverages, and they are to be suddenly obliged to take out a licence, the Licence Duty being 10s. per annum. I think the matter might very well receive a little more consideration.
    Mr. GLYN-JONES: If it is in order to go into the whole question of the taxation of these articles which come within the definition of table duties, then there is a good deal more to be said than has already been said during the course of the Debate on this point. In reply to the right hon. Gentleman who has just sat down, I would point out that he has chosen a rather unfortunate example, because lemonade which is sold by the glass does not come within the definition of table waters at all. It does not pay the tax and no licence is required under this Clause. Under the Finance (New Duties) Act, the authorities are empowered to licence all manufacturers and sellers of articles coming within the definition of table waters, and this Clause limits the amount of the licence to 10s. I am obliged to the right hon. Gentleman for the Amendment which he has moved, because that makes it perfectly clear that the Commissioners can only require a licence from those they were empowered to require it from under the Bill which we passed the other day. The Clause as it now stands, with that Amendment is, I think, in so far as the tax and licence are advisable, a satisfactory Clause.
    Mr. JOYNSON-HICKS: Perhaps the right hon. Gentleman would tell us how much he is going to get from poor old women who sell lemonade and ginger beer to cyclists. Apart from the question of still lemonade, one sees lots of little cottages where ginger beer and lemonade is sold, and if you make this charge of 10s. en those poor women for selling that refreshment they may be obliged to shut up their tiny shops, and you will force people into patronising public-houses. I suggest that there is no need to impose a Licence Duty on the good woman of the cottage who often sells lemonade and ginger beer.
    Mr. MONTAGU: The difficulty with the hon. Member is simply due to the fact that he comes into this controversy at an old stage, and deals with a question which was amply discussed a few months ago. Let me remind my hon. Friend of exactly what occurred. My right hon. Friend the Chan-
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    cellor of the Exchequer imposed a duty on mineral waters which was to be collected by a stamp. The whole of the trades concerned came in deputation to my right hon. Friend and myself and begged that it should be done by a tax upon their output. We pointed out that it was difficult to do that, because we felt there were so many manufacturing these waters that we should lose revenue. We warned them, when we made the promise to suit their conditions, that we must ask for a Licence Duty with a small charge, in order that we might know by the application of the Licence Duty exactly where the taxed article was being made. Therefore the imposition of the Licence Duty was part and parcel of the alteration we accepted after argument in this House and outside. All those points about the small seller of still lemonade and the small woman who keeps a ginger-beer shop and the cottage which sells lemonade were brought to our notice and instanced in this House. There is not the slightest intention of asking them to take out a licence, because this licence will only have to be taken out in accordance with Regulations which are going to be laid on the Table of the House. With regard to mineral waters, in no case will a Licence Duty be asked unless the person manufactures them and then sells them. The case of the person who sells without manufacture was only inserted in order to cover the case of cider, where we made a concession to meet the objections of those who represented the position of people who grew apples. In those cases we propose to make Regulations to enable us to collect the duty from the seller and not the manufacturer. I think that is the only case in which we should have to collect from the seller. In no case will anybody be asked to pay a licence who is not liable to duty.
    Mr. DENNISS: The persons who sell herb beer make it, and therefore you will be putting this 10s. Licence Duty on them. May I ask the right hon. Gentleman to consider that case?
    Mr. MONTAGU: May I suggest that the hon. Member is not really concerned about the Licence Duty at all, but what he wants to do is to remove taxation? Why does he not put down a new Clause, when we can debate it as an issue before us and not one which lies behind?

    CLAUSE 10.—(Duties on Tinder Boxes, etc.)
    (1) There shall be charged, levied, and paid on any tinder box, tinder lighter, or other mechanical and portable contrivance for producing a flame, imported into Great Britain or Ireland, a duty of Customs of five shillings.

    (2) There shall be charged, levied, and paid on any tinder box, tinder lighter, or other mechanical and portable contrivance for producing a flame, manufactured in Great Britain or Ireland, an Excise Duty of five shillings.

    (3) If any person manufactures for sale a tinder box, tinder lighter, or other mechanical and portable contrivance for producing a flame, without paying duty in accordance with this Section, that person shall be liable in respect of each offence to an Excise penalty of fifty pounds.

    Mr. PETO: I beg to move, in Subsection (1), after the word "a" ["producing a flame "], to insert the words "spark or." The Clause as drafted provides for a charge on any tinder box, tinder lighter, or other mechanical and portable contrivance for producing a flame. It is very much open to doubt whether a tinder lighter which does not produce a flame is taxable at all, and therefore I propose the Amendment to insert the word "spark." I notice that the right lion. Gentleman (Mr. Lough) has given notice of an Amendment to exempt electric contrivances for doing exactly the same thing. I do not know exactly what his motive is in doing so, since an electric contrivance is not at all as cheap as a tinder lighter with which say to light a cigar. I suggest that my Amendment is necessary to make it clear that tinder lighters are included.
    Mr. MONTAGU: In the drafting of the Clause the word "spark" was not inserted, simply because we were of the belief then, and are still, that "flame" includes all that is required. In order, however, to be quite sure, I am willing to accept the hon. Member's suggestion and include "spark."
    Amendment agreed to.
    Mr. LOUGH: I beg to move, in Subsection (1), after the word "flame," to insert the words "other than electric." Is it intended to include articles which are not used for lighting purposes, such as an electric lamp, in which the light burns in a vacuum? I suggest that it
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    must be an open spark or flame. The Clause has been, I think, rather hurriedly drawn up, but I do not suppose it is intended to include those small electric lamps, and therefore some words ought to be inserted to that effect.
    Mr. MONTAGU: I recognise I am in very deep waters in talking about these technical matters, but I am given to understand that the right hon. Gentleman need have no apprehensions on this subject. What we intend is to tax those articles with which you make light and not those things which are light in themselves. The right hon. Gentleman is referring to an electric light which is not, I think, a flame or spark, but if I were to accept his words I should run the risk of excluding those who get a spark or flame by electric aid.
    Amendment, by leave, withdrawn.
    Mr. LOUGH Mr. LOUGH: I beg to move, in Subsection (2), to leave out the words "five shillings," and to insert instead thereof the words "thirty-three and one-third per cent, ad valorem." The Clause does not indicate what a tinder box or lighter is. The right hon. Gentleman just now expressed himself as being in very deep waters in explaining these matters, and I should have liked to have asked him to have an exhibition of these tinder boxes in the Tea Boom, so that we might see what we arc actually going to tax, as I think we hardly do understand what we are taxing. The House will notice that there is a uniform tax of 5s. I am told many of these things cost—

  CLAUSE 11.—(Increased Duly for Licences on Motor Cars.)
  The rates specified in the Second Schedule to this Act shall, as from the first day of January, nineteen hundred and sixteen, be substituted in Section eighty-six of the Finance (1909–10) Act, 1910 (which relates to the duties for licences
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  on motor cars) for the rates specified in Part II of the Fifth Schedule to that Act as the rates of Excise Duty for carriages payable in respect of any motor which is a carriage:
  Provided that where duty has been paid under that Section in respect of a licence for any motor ear as therein defined for the year beginning the first day of January, nineteen hundred and sixteen—

  (a) no further duty shall be payable under this Section in respect of that motor car if the car is not used after the thirtieth day of June, nineteen hundred and sixteen, or, in the case of cars not exceeding sixteen horse-power, after the fifteenth day of August, nineteen hundred and sixteen; and

  (b) a further licence shall be granted for the year nineteen hundred and sixteen for any such motor car which is so used on payment of three-quarters of the difference between the duty payable in respect of that car before the passing of this Act and the duty payable under this Section.

  Mr. JOYNSON-HICKS: In the absence of my hon. Friend in whose name this Amendment stands (Mr. Boland), I beg to move, after the word "shall" ["the rates specified in the Second Schedule to this Act shall"], to insert the words "save as regards motor cars used by clergymen of all denominations in the ordinary discharge of their duties." This will enable the right hon. Gentleman to make a statement.
  Mr. MONTAGU: I want to ask the Committee to give me leave to withdraw this Clause. We are anxious to raise revenue, but we are anxious to raise it in accordance with the amount of use got out of the motor cars. We desired that there should be a reduction in the unnecessary use of motor cars, and a reduction in the use of petrol. We sought to attain this by the imposition of a very heavy Licence Duty. We hoped that that would succeed in reducing the number of licences taken out. It must have been obvious from the correspondence in the Press, from the communications which we have received, and from questions asked in this House, that it is very difficult to devise a scale which shall be equitable. A large number of people, many, many years ago, purchased small cars which they use in the pursuit of

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  their ordinary avocation, and on which they would have suddenly to pay quite a prohibitive Licence Duty.
  The CHAIRMAN: Perhaps the right hon. Gentleman will allow me: I think the best way in this matter, if the Committee will permit me, would be to proceed at once to pass over the Amendment, and for the right hon. Gentleman to make his statement as to the intention to withdraw the Clause on the Question, that the Clause stand part of the Bill.
  Amendment, by leave, withdrawn.
  Question proposed, "That the Clause stand part of the Bill."
  Mr. MONTAGU: Then there was another objection which was felt in many quarters. It was that when a man had taken out a licence to use his car for a year, and you subsequently altered the arrangement and made him pay beyond what he thought he had contracted for, you were guilty of a breach of faith. That has been put to us very forcibly, and not always politely! Our only answer was that it had been done before in the Budget of 1909. Since the present Budget was introduced, however, a new departure has been made by the Government, which, I think, will enable us to achieve our object in a fairer way. The Board of Trade has appointed a Petrol Control Committee, and that Committee, as I understand it, intends to institute a central control over the petrol stocks of this country which are to be distributed, under their auspices, to consumers, and only on the permits issued by the central authority. The Committee is now busy obtaining from various consumers the average of their past consumption, and their estimate of their future consumption. On those estimates the Committee will issue a permit to each consumer entitling him to purchase a specified number of gallons of petrol, for a specified purpose, and within a specified period. We propose that in order to get that permit from the Petrol Control Committee the consumer should pay a Licence Duty of 6d. for every gallon which the permit enables him to obtain. If he does not take out the quantity of petrol during the time specified he will be entitled to a refund. When I say 6d. per gallon, of course, it follows that commercial cars, doctors' cars, and, now we propose an innovation, the cars of veteri-
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  nary surgeons, should get their permit at half rates. As I understand the procedure, when you purchase the petrol the vendor will endorse upon your permit the amount of petrol which he sells you. When your permit has expired, if the endorsement does not come up to the amount of duty paid, there will be a refund. This will need a new Resolution, which my right hon. Friend proposes to submit to-morrow, before proceeding to the Committee stage of the Budget, and there are a few other Resolutions which have to be proceeded with.
  Mr. RUTHERFORD: Is this to be in the place of the old tax?
  Mr. MONTAGU: Oh, no, no! The old tax will go on. This is a new duty on the licence to buy petrol.
  Mr. RUTHERFORD: I have made a calculation, and I find on my very modest consumption of petrol—as I have worked the matter out—instead of paying twelve guineas extra for taxation I shall have to pay £15 for petrol.
  Mr. MONTAGU: That will depend upon the amount of petrol the Committee allows my hon. Friend. He may be an extravagant consumer.
  Mr. RUTHERFORD: I only use twenty-five gallons per month.
  Mr. MONTAGU: The estimate we have formed of the yield will be £962,000 for a full year, as against the Budget estimate of an extra £500,000 in a normal year, and £800.000 in the current year, as the net produce of the additional motor-car taxation.
  Mr. RUTHERFORD: You are getting more money, then, in that way?
  Mr. MONTAGU: We do not really. That is for a full year. This year we get £379,000 less than the old tax, because while we estimate that we shall receive £721,000 from the new duty in the current financial year, we lose this year the £800,000 from the additional Motor-car Duty and also £300,000 on the existing Motorcar Duties owing to the reduction in the number of cars. If hon. Members remember the Budget statement of my right hon. Friend, he was going to get in this financial year £800,000 new duty. In the next financial year he would get only £500,000. This year he was collecting for a year and three-quarters. Next year he would really only be collecting for the

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  year. Therefore in this year we shall lose and next year gain—for this year we lose £800,000, which has to be set against £721,000, and for next we lose £500,000 against £962,000. We also lose in both cases £300,000 in the reduction of the number of motor licences taken out, because it obviously follows that if petrol costs more there will be the same inducement not to use a car or to take out a licence as there was it we had insisted on the higher licence—i.e., this year we lose £1,100,000 in all and gain £721,000, and in a full year we lose £800,000 in all and gain £962,000.
  Mr. JOYNSON-HICKS:I do not, for the moment, want to express any decided opinion on the suggested new arrangement put forward by the right hon. Gentleman, but I say at once that I think we shall all appreciate that it is a -very much better form of taxation than the other. The proposals in the Budget were, if one may say so, almost iniquitious with regard to some of the older cars, and particularly in the case of cars of small horse-power. I think it is fair to pay taxation according to amount upon the cost of the motor car. I should like, however, with the permission of the Committee, to say one or two words in regard to the attacks which have been made upon motorists as to the use of their cars durng the War, particularly with regard to the suggestions that we have seen upon the walls to the effect: "Do not use a motor car for pleasure," and so on. So far as I am able to speak for the motoring community—and I think I have some right to do so—I am quite convinced that I am quite justified in saying that 99 per cent, of pleasure motoring is now at an end. Both the Royal Automobile Club and the Motor Union have made most careful inquiries up and down the country, from their members, from county surveyors, recruiting officers, directors of Red Cross Voluntary Aid Societies, etc., and they all, with one accord, testify to the work that motorists have done during the War. It is on account of that work that I submit that this Clause, certainly as introduced into this Bill, was a very great hardship. Remarks have been made, very largely outside the House, with regard to the selfish action of motorists in using their cars at the present time. I want the Committee itself, and the public, to realise what the despised motoring community has really been doing for the public, for the State, and particularly for our wounded soldiers and sailors during the
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  course of the War. I have here certain figures which I may say are definitely reliable figures, and they show that at least 100,000 cars have been used during the War for war purposes.
  During the last twelve months—that is for the year ended 17th May—these cars have run on public work, on various kinds of war work, Red Cross work, and so forth, over 12,500,000 miles. The petrol, tyre and maintenance cost has been given to the State by the motoring community without any charge whatever. In addition to that —I am not going to weary the House with figures, but I have got all the details—I should like to mention that the motorists of the country have carried over 1,020,000 wounded soldiers and sailors from ships and trains to hospitals and from hospital to hospital. The House, of course, understands that when I speak of 1,000,000 men being carried I include the fact that some of these men have been carried several times. I can speak frankly as to the members of the Royal Automobile Club because I am not a member of it, but that great association and the Motor Union have records which they have supplied to me, with many of these details, to the effect that over 1,020,000 men have been moved at the expense of the motorists themselves. We have gladly done all this work in order that we might take our share in the War. This work has saved the country enormous expense. If these men had not been moved about by the voluntary agencies they would have had to be moved by the War Office or the Red Cross at the public expense.
  I should like the House to hear one or two instances, of which I have here the whole details, to show what is being done in one or two different places. Take the county of Worcestershire. Between 14th August, 1914, and the end of April, 1916, there have been 33,711 wounded soldiers carried. There have been 2,000 car journeys made, and over a quarter of a million miles travelled by the voluntary motor agencies in that county. Take any county you like. Take Hertfordshire. In the twelve months there were carried to hospital 6,000 cases, between hospitals 18,000 cases, and those concerned have carried passengers, not wounded soldiers, numbering 110,000. So I might go on giving figures. I have here for every county throughout our land tabulated statements, and there is no county which has not done its share in this work. I mention these facts briefly, and will not

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  take up the time of the Committee with details. I do not think it is necessary when the tax, in its present iniquitous form, is being withdrawn and a very much fairer tax is being substituted. Even then, when the tax comes to be considered I think we ought to have some abatement in regard to these motors which are used for public purposes. It is rather hard when you realise that the price of petrol is 2s. 10d. per gallon. I speak of the ordinary motor car, capable of carrying three or four wounded soldiers. The motor car cannot be run for less than 9d. or 1s. per mile. All that is being given freely. We glory in being able to give it. At the same time, it is a little bit hard that you should put another tax of 6d. a gallon on to that work. I do not want to see any of these cars which are now being used so largely for public purposes shut down. I do not want to see the kindly acts which are done to our soldiers diminished in any degree whatever. I merely mention those facts for the moment, and I ask my right hon. Friend whether he cannot make some concession, such as he has agreed to with regard to doctors, and even to veterinary surgeons, to those people who lend their cars for recruiting purposes, Red Cross purposes, and for wounded soldiers and sailors. I will not labour it further to-day, but I do suggest that those voluntary workers are entitled to exactly the same kind of consideration as doctors and veterinary surgeons.
  Sir C. CORY: I understand from my right hon. Friend that the duties on cars remain as they are, and I also understand that doctors now get a rebate, which veterinary surgeons do not get, on duties on their cars, and I would like to know whether my right hon. Friend is going to take into consideration reducing the tax for veterinary surgeons the same as doctors, because I think they have quite as strong a case as doctors. I have representations from my Constituency that veterinary surgeons have to travel as much as sixty or seventy miles a day. Their work is much harder since the War, as so many veterinary surgeons have joined the Army, The veterinary surgeon generally has a very much greater distance to do than the doctor. Many doctors practise in town, and their rounds are within the radius of a few miles. I
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  know veterinary surgeons in my own district travel enormous distances in normal times, and now in war time they travel very much further, so that I do trust my right hon. Friend will see his way to put veterinary surgeons on the same basis as doctors.
  Sir A. WILLIAMSON: In view of the change in the proposals of the Government with regard to the taxation of motors, would the right hon. Gentleman not consider that the cost of petrol to the community is greatly enhanced by the present policy of the Government in bringing the petrol? If the Government would use a couple of their steamers to bring petrol for their own use, and leave other steamers to bring petrol for the general consumers, the latter would get petrol at a much lower price.
  Sir W. ESSEX: Leave is being asked to withdraw the Clause. We are, therefore, asked to make a bargain as to the terms upon which that condition should be granted, and I do not think I should be out of order in pointing out one or two things. First, why does not the right hon. Gentleman and the Treasury generally take the whole of the tax in this form of a tax on petrol? The present scale for taxing motor cars is grossly unjust in its incidence. Cars are classed by an arbitrary measurement which every year's progress is altering and making ineffectual and unjust. If the Treasury, or whoever the authority may be who collects this, will, on the basis of this change of method, do away with the tax on motor cars altogether and put the tax on petrol, it seems it would more closely approximate to fairness. In filling up one's petrol form the other day this injustice, or supposed injustice, struck me, and probably it has not escaped the eyes of other hon. Members. You are asked to make your returns as for last April. Now a great many of us are virtuous people who, when an appeal was made for economy, looked round to see in what way we could answer that appeal by cutting down expenses. Some of us got rid of horses and carriages and put away motors. We who responded instantly to the stimulus of the Government and cut down at once have to make our declaration upon an attenuated expenditure of petrol. The person who had selfishly gone about to race meetings, or heaven knows what, on pleasure bent, gets an advantage over those who have already cut down. Such a man makes his declaration

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  on what, if he had done rightly and patriotically, would have been a very much smaller consumption. I ask my right hon. Friend to consider that point. There is one other point. The right hon. Gentleman says that there shall be a rebate made at the end of a given term for any number of gallons for which a tax has been paid, but which gallons have not been used. Would it not be better to allow that amount to go forward to the next year? It would save an immense amount of unnecessary trouble, and the method of carrying over from one period to another any unadjusted balances would be perfectly easy in practice.
  Sir R. FINLAY: I understand the proposal of the Government is that if this Clause is withdrawn the tax should be imposed upon licences to buy petrol, and it is intended that certain benefits should be conferred not only on medical men, who at present enjoy certain exemption with regard to existing licences, but also with regard to surgeons and veterinary surgeons. I desire to express my great satisfaction at that announcement, but what I rise to say is this: It seems to me that it ought to involve this conclusion, that, as regards the existing duty on motor cars, which I understand is to be maintained, the same abatement should be extended to surgeons and to veterinary surgeons that is extended under the existing law to doctors. The doctor who keeps his car for professional purposes gets a rebate of one-half of the duties on the car which at present exist under the Act of 1910. It seems inevitably to follow, from the announcement which I understand has been made by the right hon. Gentleman, that the exemption with regard to this substituted duty should also be applied to the case of the existing duties for motor-car licences. Every reason given for the exemption in the case of doctors also applies with very great force to clergymen. One case brought to my notice is that of a clergyman of a parish of sixty miles with very great difficulties, and who could not work his parish efficiently without a motor. Surely that is a very strong case for exemption! I really rise to express the hope that the Government will announce the intention of extending the exemption to the existing duties.
  Sir W. BEALE: With regard to the apprehension of the hon. Member for Stafford (Sir W. Essex), I think he is under a mistake as to the census, and, at all events, he has not grasped fully the way in
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  which it should be applied. I do not understand that in the case of a man who has laid his car by for a period the basis of future use will be necessarily measured by that. I understand people are asked for some description of the purpose for which the petrol is used and an estimate of the requirements, and I should hope, if this goes on, there will be some regard paid to the uses which are made of the car. With regard to the point which the right hon. and learned Member for Edinburgh and St. Andrews Universities (Sir R. Finlay) put forward, I certainly reinforce what he said about the case of the minister, particularly during the War, who has taken the duty of other ministers long distances away and cannot possibly carry on the work without some convenience such as a motor car. The case of the doctor and the case of the veterinary surgeon have been dwelt upon over and over again. There is another case, that of the farmer whose horses have been commandeered, and who has bought a motor car, as he requires some kind of locomotion to carry on his business. I should hope the whole thing might be put on a sensible footing by utilising the returns asked for, and by a careful examination of what the legitimate requirements of every man are. An abatement should be allowed for doctors, veterinary surgeons, ministers and farmers in all reasonable oases where the tax would otherwise impose a hardship; in other words, the rebate which now exists for the licence of the car itself should be applied, and more equitably and fully applied, to the case of the proposed substituted duty on the licence to purchase petrol.
  Mr. PATRICK MEEHAN: I think the proposed tax on petrol is a far more equitable method of extracting taxation which should be paid, and especially with regard to Ireland. There are a number of very old cars for which, under the Clause as introduced into the Bill, the owners would have to pay a tax in some cases more than the value of their cars. On the last Finance Bill the hon. Member for North Kildare had an Amendment granting certain concessions to veterinary surgeons and to clergymen, and the Chancellor of the Exchequer at that time accepted the Amendment so far as it applied to veterinary surgeons. I have an Amendment to the present Clause granting the concession to clergymen and to another class of individual, namely, engineers, "in the exclusive employment of a local authority"

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  —county surveyors and district surveyors who are employed on the roads. So far as Ireland is concerned—and the various county councils in Ireland have inaugurated a system of steam rollers and general improvement of the roads—those men are employed on salary. It is not a question of their using a motor as a trade requisite, and to my mind they have a far stronger ease than the veterinary surgeons. With the latter it is a matter of choice what means of locomotion he chooses, but the officials of a local body get their salary, and out of that they have to pay the expenses of their motors. I would suggest to the right hon. Gentleman that he should consider this matter, or that we should have an opportunity, when the Resolution is introduced to-morrow, of debating this point, and suggesting that the case of engineers in the exclusive employment of local bodies should be considered, and that they should have the same concession as that which has been made to veterinary surgeons, and the same concession should be allowed to clergymen. In Ireland these men, in the course of their duty, have to go on very long journeys, and they are entitled to the same advantages as the veterinary surgeons. With them it is not a trade expense at all, because they must perform the duties of their office. I think, at least, there is a case for consideration, and I hope the right hon. Gentleman will consider it either to-morrow or before the Report stage.
  Sir F. BANBURY: There is something to be said both for veterinary surgeons and doctors, because they alleviate suffering, but I do not see why, because these two classes are being exempted, the officials of local bodies and the other classes who have been mentioned should also receive exemption. If you go on like that nobody will pay the tax, and, as a matter of fact, those for whom exemption is now being asked do not alleviate suffering at all, but very often cause it.
  Sir JOHN SPEAR: I very much appreciate the action of the right hon. Gentleman in withdrawing this Clause, because it will do away with a grievance which has been very freely expressed, that the Government by taking a Licence Duty at the beginning of the year and doubling or trebling it in the middle of the year were committing a breach of faith. From that point of view I think the proposal of the Government to raise revenue by an in-
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  creased tax on petrol is better than the form proposed in Clause 11. The right hon. Gentleman said that the Government had proposed these taxes not so much for the purpose of raising revenue as to prevent the undue use of motor cars, and consequently a larger demand for petrol. I note that the right hon. Gentleman proposes to put an increased duty of 3d. on cars used by doctors and veterinary surgeons, and 6d. on cars used for pleasure. In my opinion that is an insufficient discrimination, because the cars used for pleasure can be given up, or used much less frequently, in order to avoid an undue contribution by the tax on petrol. It is not so with doctors or veterinary surgeons, farmers, or traders of any kind, who have to use their cars very largely for the purposes of their business and only occasionally for pleasure. I ask the right hon. Gentleman to consider whether a charge of 3d. on traders, on doctors, farmers, and veterinary surgeons is not a heavier tax proportionately than 6d. on the cars used for pleasure. The professional men and traders are compelled to use their cars no matter what they have to pay, but those who use cars for pleasure can avoid the tax altogether by abstaining from using their cars. I strongly emphasise what has been advocated, that the licences of veterinary surgeons should be put on the same basis as those of the medical men. I have an Amendment down on the Paper to that effect, and I hope the right hon. Gentleman will be able to extend this advantage not only to doctors, veterinary surgeons, and farmers, but to traders generally who use their cars chiefly, but not exclusively, for the purpose of carrying on their trade. I believe that would be equitable and just. These persons are obliged to use their cars, and therefore it will prove a heavier charge upon them than those who use their cars simply for pleasure. Although a tax of 6d. may look fair, in practical operation I believe it will be an unduly heavy burden upon the trader and the professional man.
  Mr. PETO: I hope we shall not have another category of exemptions introduced into this Bill. I think the right hon. Gentleman ought to tackle the whole subject. There are a certain class who can reclaim part of the Petrol Duty, and there is another class who can claim to be taxed by only half the Licence Duty. I think it will be quite simple for the right hon. Gentleman to put into the Schedule

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  certain people like those the hon. Member for Devonshire (Sir J. Spear) has been speaking about, such as farmers, if the Government and the Committee consider that they have a good case. I think they have a good case because so many of them have gone away, and in many cases one farmer is running two or three farms, and consequently he must use a motor car to look after his business. Certainly ministers of religion in the North of Ireland, whose income is not over £100 a year, and who have to get about on motor cycles, are entitled to the full remission if anybody else gets it, but do not let us have so many different categories. I ask the right hon. Gentleman to consider whether he cannot put a certain number of these people who use cars and petrol really for trade purposes, or for ministering religion, which is a closely analogous case to the doctors, in the same category and say they should all have half Licence Duties and half Petrol Duty as well. I think that is the proper way to deal with the thing, and not by allowing special remissions.
  7.0 p.m.
  Mr. AINSWORTH: After the discussion which has taken place, I think my right hon. Friend will fully realise what the use of petrol means in many important industries. We all appear to be agreed that it is advisable to shift the burden of taxation from the licence to the user of petrol, but I also ask the right hon. Gentleman to consider whether it is not advisable, and whether it would not also increase the revenue of the country, if he were to grant a licence to a motor-car owner for six months instead of twelve months? In Scotland there are a great many cases where people are employed in occupations in the towns in the winter and they move out into the country in the summer. In those cases there is nothing of so much importance as a motor car to those people when they are in the country, and if they could take out a motor licence for six months I am sure they would not hesitate to do so, whereas if they were obliged to take out a licence for twelve months for that purpose they would hesitate, and would probably not take one out at all. If my right hon. Friend could see his way to grant six months' licences I feel sure he would add to the revenue. I would remind the Committee that the Inland Revenue grant licences now for game shooting either for a short or a long period, and I hope the right hon. Gentleman will consider how far he might have an arrangement of that
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  kind in granting licences for motors. If that were allowed it would not only be a great convenience to the public, but it would add enormously, to the amount of revenue received from those licences. I should not object if the matter were allowed to stand over until the Report stage before arriving at a final settlement, and I hope the right hon. Gentleman will fully realise the extent to which the employment of motors enters into the whole business of the country. Nobody wants anyone to spend money on pleasure unless you can do it on behalf of some of the soldiers who are home from the trenches. With regard to the industries and occupations of the country, the motor is becoming a more important asset every day, and the small motor which can easily be driven by a lady is becoming one of the essentials of human life. May I remind the House that Dr. Johnson once said that the greatest pleasure in life was driving fast in a post-chaise with a pretty woman?
  Mr. LOUGH: I would like to recall the Committee to the general question, because, in my opinion, our discussion would have been better directed to the general proposal than to these exemptions which have been mentioned, and with which I thoroughly disapprove. Although it is not nice to look a gift-horse in the mouth, the price for the withdrawal of this Clause appears to me to be a very high price. Already, while we have been discussing this Budget, the price of petrol has been raised 7d. per gallon. The price is quite prohibitive now, and users of motor cars, instead of being further oppressed by the House, should be considered and relieved. I do not believe figures such as have been given to-day are disputable. To hear some people talk about motor cars, you would really think that this was an old-fashioned, antequated Assembly which could be easily deceived. The motor car is something which has come to stay. It is becoming more and more a necessity to the farmer, the small dealer, and everybody in Ireland, Scotland, and the remoter parts of the country. Under this arrangement you are going to set up a second taxing machine in the country, and I view the proposal with the greatest suspicion. The Government already have one duty, a very heavy duty of 6d. per gallon. If necessary, raise it; but it is really a most questionable proceeding to allow one duty to be raised by the Revenue authori-

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  ties and another to be charged by somebody whom the Board of Trade will appoint in accordance with the use to be made of the car. For my part, while thanking the Government for withdrawing this Clause, I desire to protest against the proposal they wish to substitute for it.
  My right hon. Friend told us how much revenue he was going to get out of Clause 11, if it had passed. All such calculations are quite premature, because there is no certainty of getting any revenue at all. There might be a diminished revenue. This House ought to try and take a broad view of this most important question. Then the right hon. Gentleman comes and says that he will withdraw the Clause altogether because there are objections to it. It might not, however, have brought in a penny, and we ought therefore to look with great care at the principle of any tax which is brought forward in substitution for it. Do not let us have any more of those exemptions. They are totally unworkable; they lend themselves to favouritism and to all sorts of fraud. We must have some sensible and reasonable proposal. When this business of motor traction was developing this House made a great mistake, and we lost the motor-car industry for a long time by the absurd law that a motor car must have a man with a red flag in front of it, and must not go more than three miles per hour. That shows the extreme folly of which we may be guilty by acting hurriedly. The Government have brought in a thoroughly bad Clause, which they have had to abandon, and I would advise them not to be in a hurry, but to think out some basis which will be fair to all the great industries concerned before they make any alternative proposal.
  Colonel ALAN SYKES: Is this extra 6d. to be paid by those who ask for a permit for spirit to be used in motor cars only, or will it also have to be paid if a permit is required for spirit for a farm engine or for an engine which is used for electric light? It seems to me that unless it applies to everybody there will be a difficulty in deciding whether a man actually uses the spirit which does not pay the tax in an engine used for electric light or in a motor car.
  Mr. MONTAGU: My right hon. Friend the Member for Islington (Mr. Lough), so far as this Budget is concerned, began wth Clause 1, and he pressed the House
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  to reduce the duty on cocoa by 25 per cent. He was good enough to leave coffee and chicory alone, but he suggested that we should abandon the tax on sugar, which produces £7,000,000. He objects, I think, to the Licence Duty for the manufacture of soda water. He does not like the duty on cider, and now, when we come to Clause 11, he suggests that there should be no further tax on petrol. He is in a voracious mood this afternoon, and there would not be any Budget left if we listened to him. That might be very desirable from his point of view, but I would venture to suggest that we are engaged this afternoon in elaborating machinery for getting revenue. The hon. Member for Stafford (Sir W. Essex) suggested a consolidation of all duties on petrol and motor cars. The difficulty is this. There is certain taxation on motor cars which is part of our ordinary revenue, and which it is intended should exist from year to year. This tax both as originally drawn and as now proposed is, if I may so express it, a Super-tax on motor cars for the War and for the War only, and in order to show that is so we propose to levy it through a body which is going to issue permits under the Defence of the Realm Act. If you substituted for the present proposal a tax such as that suggested, you would make the whole fabric, war tax and tax alike, dependent upon a temporary body, and you would levy, particularly as regards petrol, a duty upon everyone, whether the petrol was used for commercial purposes or not, whereas our intention is to have" this only as a substitute for the Licence Duty.
  Mr. JOYNSON-HICKS: Do I understand that commercial motor cars will not be touched at all?
  Mr. MONTAGU: Commercial motor cars will be taxed part of the Licence Duty. They will pay half.
  Mr. JOYNSON-HICKS: They will not pay half under this scheme?
  Mr. MONTAGU: Certainly.
  Question, "That the Clause stand part of the Bill," put, and negatived.
  CLAUSES 12 (Provision as to Alteration of Bates of Drawback where Bates of Duty are Altered), 13 (Allowance of Drawback on the Exportation of Goods Manufactured with Dried Fruits), and 14 (Power by Order in Council to modify Section One of the Immature Spirits Restrictions Act, 1915, as regards Rum) ordered to stand part of the Bill.

INCOME TAX.

  CLAUSE 15.—(Income Tax for 1916–17.)
  (1) Income Tax for the year beginning on the sixth day of April, nineteen hundred and sixteen, shall he charged at the rate of five shillings, and Super-tax shall be charged, levied, and paid for that year at the same rates as those charged for the year beginning on the sixth day of April, nineteen hundred and fifteen.
  (2) All such enactments relating to Income Tax, including Super-tax, as were in force with respect to the duties of Income Tax granted for the year beginning on the sixth day of April, nineteen hundred and fifteen, shall (with the exception of Section twenty of the Finance (No. 2) Act, 1915) have full force and effect with respect to any duties of Income Tax hereby granted.
  (3) The annual value of any property which has been adopted for the purpose cither of Income Tax under Schedules A and B in the Income Tax Act, 1853, or of Inhabited House Duty, for the year ending on the fifth day of April, nineteen hundred and sixteen, shall be taken as the annual value of such property for the same purpose for the next subsequent year; provided that this Sub-section—

  (a)so far as respects the duty on inhabited houses in Scotland, shall be construed with the substitution of the twenty-fourth day of May for the fifth day of April; and

  (b) shall not apply to the Metropolis as defined by the Valuation (Metropolis) Act, 1869.

  Mr. FELL: I beg to move, in Subsection (1), to leave out the word "five," and to insert instead thereof the word "four."
  We now come to the Income Tax. It is a subject in which I take a very great interest, and is one of enormous importance in the country. It is one to which this House should devote considerable attention. Chancellors of the Exchequer have on many occasions said that it is not only a difficult matter, but that the present Income Tax Statutes are very unsatisfactory, and will have to be put on a better basis more fair to all classes in the country. My Amendment will mean a reduction of about £30,000,000 in the Budget. It is an enormous sum compared with any of the other questions which we have been discussing to-day, but
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  when you remember that it forms part of something like £l,800,0d0,000, or £2,000,000,000, the amount of borrowing and taxation this year, it is a question of the most vital importance whether this is the best way, and the way most likely to be helpful to the country, of raising this £30,000,000, or whether it would be better to leave the money in the pockets of the people, so that they might apply for loans, and the Government receive it in that manner. The question is divided into two parts. There is, first, the question whether this 5s. is necessary, and whether this is the best way of raising the money for the country, and there is next the question whether some better method cannot be devised than taxing the income at the source, and leaving persons who ought not to pay in any form to recover it hereafter from the Government if they can.
  It is perfectly clear that we cannot meet all the expenditure of the year by taxation. Three-quarters of our expenses this year must be met by borrowing, so it is a question whether it is better to borrow a little more rather than raise this excessive sum from a certain particular class. Of course, where we used to put on pennies, we now increase the Income Tax in the lightest manner by 1s. or 1s. 6d., or even 2s. The question is whether the trade of the country can be carried on in the same way as it used to be when we put a 1d. or 2d. on the income Tax. I am myself convinced that if Income Tax is levied at the rate of 5s. in the £, the trade of this country cannot be carried on in the City of London. It cannot be done. There are certain things which will happen if the tax is continued at the present rate. It is perfectly clear that many companies in the City of London will transfer their offices to the Colonies—some of them have already done so—and others will either carry on as private individuals, or else it will not be worth their while carrying on at all, and they will gradually wind up. Five shillings in the £ on a company, of course, is a great deal more than 5s. in the £ on the individual shareholder. I am not going to say that the rate could not be levied on private individuals and private fortunes at 5s. in the £. It could. These people would lose one-quarter of their income, it is true, but classes which are above want, above the level of mere subsistence, would be unable to save to such an extent that they could live on

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  three-quarters of their income. But the case of companies is very different. I think it would be utterly impossible for them to continue to exist if a quarter of their income were taken away from them.
  The company pays Income Tax on a much larger sum than a private individual. It pays it on an entirely imaginary sum which is supposed to be income and is based on figures contained in the balance sheet of the company. The Income Tax authorities do not allow the company the ordinary deductions which are allowed to a business firm or private individual. The system on which the taxing authorities go is that immediately the Income Tax payer asks for an allowance in respect of a particular item they quote some decision of the Courts and declare on the strength of that decision that the item is not allowable. They quote decisions of the Court of Appeal and of the House of Lords, and almost invariably, of course, the decisions on these questions are in favour of the Government. Manifestly a private individual in appealing against Income Tax is at an enormous disadvantage in fighting on his own behalf against a Government which has unlimited resources at its command and can, if the decision goes against it in the first instance, carry the case to the Court of Appeal and thence to the House of Lords. That being so, I do not think the cases on record represent the law as it would be fairly construed by any body of commercial or other people if the point in dispute were placed before them. Again, very few people when faced with these decisions have an opportunity of looking them up, and they therefore generally give in when told by the surveyor he cannot allow this or that deduction. Therefore, I say the company has to pay Income Tax on a great deal more than the income actually earned by it during the year.
  There is another point I would like the Committee to bear in mind. The law allows no capital deduction out of Income Tax. If a company raises a large amount of fresh capital it necessarily incurs expenditure by so doing, but the Courts of Chancery says, "You must never encroach upon your capital." Consequently, when such expenditure has been incurred in raising the additional capital, no allowance is made in respect of it. The Income Tax surveyor tells the Income Tax payer he can do nothing for him although, as a
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  matter of fact, the Inland Revenue authorities do collect the Income Tax later on upon the additional profit which that further capital has produced. I say that is totally unfair, and it is a process which would bring any ordinary commercial business to the ground if it attempted to distribute its profits in such a method. But, of course, such a business does not so distribute its profits. I will not enlarge upon that any further. I am sure the Secretary to the Treasury is well acquainted with the facts, and I only mentioned it as one of the instances in which Income Tax is collected on a larger sum than it should be. It is, of course, a material factor in the conduct of business in the City of London, and the question is whether that business in the City of London will bear an Income Tax of 5s. in the £. The point was not of great importance in the days when the tax stood at the low rate of 8d., as it did for many years. It was at that figure when the Unionist Government went out of power. During the great wars it has never gone above 1s. 3d. That point was reached during the Boer War, but after that the tax went back to 8d. As I have said, in those times this question did not appear of great importance, but now the tax has reached 5s. in the £ it does become important, and I put it to the Treasury whether they do not think they have overstepped the mark, and whether it is wise to put this tax on the saving classes of this country.
  These classes are the very backbone of the country. By their savings they provide the capital for our great undertakings; they provided, in fact, the capital out of which was purchased the American stocks and shares which are now being sent back to America to pay for munitions. It is the saving classes who have in the past provided the capital which is now to be taxed at this heavy rate, and, if their income is to be so reduced, will not the effect be that they will be unable to invest any further money in Government Loans? Would it not be a wiser course, instead of taking this heavy taxation from them, to allow them to keep the money and invest it in Exchequer Bonds or any loans that may be brought out? Is it wise to take it from them in this form of excessive Income Tax? I hope the right hon. Gentleman the Chancellor of the Exchequer and the Financial Secretary to the Treasury will consider these points very carefully. On my second point, as to the levying of the tax at its source, I do not think there can be two opinions. This

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  levy of taxation at its source is one of the most skilful, most profitable, and at the same time most unfair engines of taxation that has ever been created by man.
  The CHAIRMAN: Although that argument would be quite admissible in its proper place, I must point out to the hon. Gentleman that the Clause under discussion simply fixes the amount of the tax. The methods of assessing and collection are a separate matter, and are not dealt with in a Taxing Clause.
  Mr. FELL: But may I not refer to the fact that a 5s. Income Tax levied at the source will inflict serious hardship on the Income Tax payer? Take the case of a man who is in receipt of £100 a year as a result of his saving. The Government propose to take £25 of that from him. It is true they say he may get the money back at some future time. It is, however, a matter which, I should hope, we can discuss, seeing that it affects so many people.
  Sir R. FINLAY: May I ask whether the hardship created by the tax is not one of the elements which can be discussed on this Clause?
  The CHAIRMAN: Yes, that is a matter for discussion, but there is an Amendment on the Paper to this Clause a little further on, in the name of the hon. Member for Coventry, asking the Committee to actually deal with that point. I shall have to rule that that is out of place on this Clause, as the matter is to be the subject of a new Clause. I do not, however, object to any reference to the point. I hope I was not so premature. When we come to the actual proposals, then the hon. Member will be entitled to discuss these points.
  Mr. FELL: Taxation at the source to such an extent as this, in the case I was referring to, must inflict serious hardship. Next door to the man to whom I have referred there may be another man with an income of £100 a year, which he is earning and upon which he pays no taxation. The position of the one man compared with that of the other is therefore most unfair, and I think the Committee might very well devote a little time to discussing this point. If the man whose income is derived from dividends draws it quarterly he may find that from each quarterly payment £6 5s. is deducted for the purpose of this tax. Even if he were untaxed he would have to be very careful in these times how he spent his money. Naturally
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  he arranges his expenditure so that his income may cover it, but if the £25 quarterly is to be reduced to £18 15s. it must be a serious matter for him, and he will have to pinch himself still further or get into debt. As to the suggestion that in time he may get his money back, I may point out that in many cases these people are very poor and may not be able to fill up the necessary forms. Expert assistance would be necessary, and for that expert assistance payment would have to be made. I hope the Chancellor of the Exchequer will arrange to modify this provision and, at any rate, to make the money more easily recoverable. I think it is quite possible for him to find some way out of the difficulty. It is a matter of great urgency, because the tax will be collected from a great number of people who ought not to pay it on the 1st July next, and they may never be able to get the money back.
  I want to ask the Chancellor of the Exchequer one or two questions. Does he think it wise to impose a tax such as this, which must materially curtail the powers of the people to invest in further loans, and which at the same time must seriously depreciate the capital value of investments in the country? Does he think he will get as much money from this tax in view of the inevitable fall in the capital value of securities, as he would be able to get in other forms if such a heavy tax were not imposed? I say it will materially hamper the Government in their borrowing powers in days to come. If it were thought for one moment that this was to be a permanent tax of 5s. in the £, I imagine securities throughout the country of every class would depreciate at least 10 per cent. The loss in hundreds of millions which would follow from that would far more than counterbalance any small amount of revenue the Government would get from an Income Tax such as this. There must be a great deal of concern as to whether such a tax is wise or necessary at the present time. I would urge very strongly that at the present time a tax of 4s. would be the more reasonable amount. We are issuing £30,000,000 a week in Treasury and other bills; why should we not issue £30,000,000 more and save the vast amount of hardship and trouble which will be occasioned by this heavy tax?
  Mr. MONTAGU: We are now really getting to business. My right hon. Friend the Member for Islington (Mr. Lough) only aspired to take away an amount of

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  £7,000,000. My hon. Friend who has just spoken is at last doing something substantial and suggests that we should get rid of £30,000,000. I dissent from the view he and other speakers have expressed today, that the fact that you are borrowing large sums of money makes a large amount of revenue relatively unimportant. The fact is, that the more you borrow the more important is your revenue. The whole credit of this country at the time of borrowing and the sole reason that we are enabled still, in the middle of this great War, to take in vast sums of foreign money on deposit is due to the fact that we have the courage to tax. If my right hon. Friend had given way and had started borrowing £30,000,000 instead of taxing £30,000,000, he would find it necessary to impose taxes in order to pay interest and sinking fund on the new securities we should have to issue. There is no need to say that this sum represents six days' or one and a half day's expenditure on the War. It is part of the fabric by which we demonstrate to the world our ability to pay the charges on the sums we borrow. [An HON. MEMBER: "IS it to be permanent?"] We are not borrowing permanently; we are now imposing only war taxation. We cannot escape from the necessity of imposing this taxation for revenue purposes. If we look at the hon. Gentleman's proposal as it appears on the Paper, namely, to substitute 4s. for 5s., we must remember the powerful argument addressed to the Committee by the right hon. Gentleman the Member for Islington. The Committee by a large majority insisted upon imposing the additional Sugar Duty. It was then represented that as we were putting an increase on the Income Tax we ought at the same time to put an increase on the Sugar Tax; that we must balance direct with indirect taxation, and regard the Budget scheme as a whole when we were considering any individual tax. I should be ashamed of the part I took in the imposition of that Sugar Duty if the Committee were now to decide they would let off one-fifth of the Income Tax.
  I imagine that my hon. Friend's real intention in moving the Amendment is only partly to obtain a reduction of the Income Tax, and primarily to draw attention to the difficulties inherent in a graduated scale of Income Tax and the necessity for repaying the people who have paid excess tax the part of the tax that has been overpaid. He, however, cures none of that by
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  his Amendment. The unfortunate individual with £100 of savings who is liable to no Income Tax at all is just as badly off and nearly as much to be pitied if the Amendment is accepted. I would infinitely rather have the scale of Income Tax which is in the Bill, and infinitely rather still have the Income Tax which the Chancellor of the Exchequer proposes to substitute for the one in the Bill according to the terms of the Amendment on the Paper. [An HON. MEMBER: "Which Amendment is that?"] The Amendment to Clause 17, dealing with the new scale. I agree that a 5s. Income Tax as a general rate is admittedly too high. In order to cope with that difficulty the Chancellor of the Exchequer suggests certain modifications in the scale. When the time comes for new Clauses to be taken he proposes to ask the Committee to assent to increase the amount of income that a man may have in order to claim the children's allowance from £500 to £700. In addition to that, he proposes to graduate the scale, maintaining taxation at the source, in the way that is set out upon the Paper. It is a peculiar irony of the situation that if my right hon. Friend had persisted in a uniform 5s. none of the grievances about over-taxation would have appeared. It is the very concession that he has made that has landed him in the position that a man would rather be taxed at a high uniform rate than at a lower rate if it had to be got by taxation. I can see no way of differentiating unearned income between the poor man and the rich man in rate except by administrative alterations.
  My hon. Friend the Member for Yarmouth (Mr. Fell) used some very stinging phrases about the system of taxation at the source. I would point out to him that it is part of the fabric as it exists. I do not think I shall be contradicted if I say that if we did not have taxation at the source we should be compelled to have a much higher rate of taxation to produce the same yield. I do not think the House would willingly part with that very valuable instrument of taxation in the middle of a war. We must now take the Income Tax system as it stands. We cannot destroy the whole fabric and devise a new-system without attempting that long promised survey of the Income Tax law which is going to be made as soon as we get to the end of the War. I hear a right hon. Gentleman say that he has heard that promise before. He has heard it before, but the date has not arisen. The names of the

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  Committee and the terms of reference had been selected at the date of the outbreak of the War, and its work was only postponed in consequence of that event. It has been promised that it shall begin as soon as the War is over. We have taken the absolutely essential preliminary step in order that the Committee may do its work. We have taken the step of consolidating the existing law, in order that they may find out quickly what it is, and we shall pass it through the House as a Consolidation Bill within the next few months. Something can be done to mitigate the difficulty of collection at the source, and something will be done. It is something which can be done without setting up new machinery, without altering the whole constitution of our Income Tax law, and something which can be done with our existing or with our obtainable staff, because the difficulty of any fundamental alteration of the law is that you cannot find a staff with which to do it now. With these administrative alterations we have two legislative alterations, namely, the reduction of scale and the increase of the children's allowance limit. The three administrative alterations which will be made in order to meet this point are, first, in the case of a man who has some income upon which to pay tax which is assessed directly and some income which is taxed at the source, the amount paid at the source would be taken into consideration in assessing him for Income Tax on his direct assessment, so that the matter would be adjusted without any repayment at all. Supposing a man has a small income and is in receipt of dividends on which there is the 5s. deduction and he ought only to pay 3s. deduction, when he comes to pay his direct Income Tax on his earned income he will then be told that he ought to pay 3s. in the £, or whatever the rate is, but that as he has overpaid on his unearned income therefore he will only be charged a certain amount. That obviates repayment. Secondly, you come to the rarer case where the whole income of a man does not exceed £500 a year and consists entirely of dividends upon which the tax is deducted at the source. In that case the only way I see of arranging the matter is by repayment. In order to avoid any avoidable hardship an interim repayment will be allowed half-yearly instead of yearly as at present. The Committee will recollect that the Income Tax is paid when the dividends are paid, which is usually quarterly, therefore to keep him out of his
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  refund for half a year only keeps him out of the refund of part of his Income Tax and is not nearly so serious a matter as to keep him: out of it for the whole year. The third case is the case of income derived from property in which the rent is received with a deduction for Income Tax by the tenant. If the taxpayer lodges his claim with full particulars early in the year, showing that he is not legally bound to pay at the full rate, the adjustment will be made on the assessment under Property Tax Schedule A. That can be done locally and quite conveniently with regulations, and will prevent the necessity for a refund. I. submit that my hon. Friend has no case as regards the general taxpayer, that as regards the poorer taxpayer we are doing everything that it is possible to do short of revising the whole system of Income Tax, and that we have made a great concession in that we have for the first time graduated the unearned Income Tax so that it will work without any great hardship to anyone.
  Mr. HOBHOUSE: What we have heard from the right hon. Gentleman seems to be a very satisfactory way out of the difficulty which has arisen in connection with the cases mentioned by the hon. Member for Yarmouth (Mr. Fell). I should like to mention to the right hon. Gentleman and the Chancellor of the Exchequer a further difficulty which has occurred to me and which has been brought to my notice from-more than one quarter. The amount which-is taken in tax from income derivable from personalty is payable when the income is received, or in the case of dividends or profits, but in the case of income under Schedule A upon rents receivable for the use of land or from house rents it is payable before half of that income has been received. Let me make the point as clear as I can. The rent is generally payable, in respect of a house held upon a lease or in respect of land, no matter what the extent of the land, twice a year, usually at Michaelmas and at Lady Day. The tax is charged in respect of a year, which lasts from 5th April to 5th April. In Scotland the demand for tax is made, I think, in the early part of November and is claimable some time before Christmas. In. England the demand for the payment of tax is made on 1st January and it is expected to be paid, I think, not later than the end of February. What happens? So long as the tax is one of 6d. or 1s. in the £—one-fortieth or one-twentieth of the income—it was a matter of no hardship

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  and little inconvenience for a person who had nothing to live on but the rent from the property whether the tax was paid before or after he received the rent, but when it comes to a question of paying a fourth of his income, receivable in advance of the payment of the sum upon which that tax is paid, a very distinct hardship arises. Let me give a concrete ease. The agent of a property wrote me the other day and put this case to me. He said, "My employer tells me to expend upon the estate which I manage the whole of the income which I receive from it, but I am not to exceed the actual income received from the property." He goes on to give me figures which I will not quote, but I take an imaginary sum. He received £1,000 a year from the property. The net assessment on that will work out, after deductions, probably at something like £800. The tax upon that amounts to £200, and that is payable on 1st January or shortly afterwards. The source from which the tax is to be paid amounts to two payments of £500 a year each, one in advance and one after the tax has been collected. On 1st January the Income Tax payer would have at his bank a sum which cannot exceed £500, upon which the following demands will be made: A sum for tithe, which you can put at, say, 10 per cent., £50; a sum for repairs, which at 25 per cent., the sum which used to be allowed by the Exchequer in respect of which abatement is made, will come to £125. That is £175 altogether. On 1st January you present a demand for £200. That is £375, and the man is supposed to live on the remainder of that until he gets the next payment of £500, which will not be till six months hence, and meanwhile he has to meet a fresh demand for tithe.
  Mr. McKENNA: Two months hence.
  Mr. HOBHOUSE: No, because he does not get paid the second instalment of rent, as a matter of practice—
  Mr. McKENNA: In March.
  Mr. HOBHOUSE: No, it is not paid, as a matter of fact, until sometime in June, and hardly ever earlier than the early part of May. It is always paid a month or two in arrear. Any hon. Member who is an owner of land will bear out what I say. You have imposed an almost intolerable, I will not say hardship, because I will not grumble at the extent of the 5s. tax. I
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  think it is right. The tax ought to be 5s. and not 4s. But you impose an almost intolerable hardship upon the banking account, because he will have nothing to pay it out of. He does not get the second instalment of rent until long after he has paid the whole of the tax upon the whole income. Under Schedule D you are allowed to pay Income Tax in two parts. In the case of Schedule A the whole of the demand is presented at once, and the whole tax has to be paid at once. I suggest that my right hon. Friend should bring up, if necessary, a new Clause on Report stage enabling the person to pay under Schedule A in respect of land or houses, if he is unable to pay in one lump sum, in two lump sums. The practice has been found to work well in respect of Schedule D, and I see no reason why it should not work equally well, and it will really relieve the taxpayer of a hardship which he cannot meet financially. I am afraid it will entail some increased labour on the overworked and admirable staff of the Inland Revenue office, but the cases of hardship which will arise if this concession is not made will be so numerous that it will in the end give him more trouble than if he adopts the suggestion I now offer him. I trust, therefore, he will see his way to accept it.
  Mr. RUTHERFORD: The right hon. Gentleman (Mr. Hobhouse) has made a most interesting contribution to the Debate, but it seems to me he has overlooked the fact that the man who really has to pay the tax and the person through whom it is paid are two different people. Income Tax under Schedule A is paid in the first instance by someone who has not ultimately to suffer it. It is paid by the tenant.
  Mr. HOBHOUSE: I assure the hon. Member it is a matter which can be and is arranged in practice. In many cases the tenant pays it, and in a great many cases the landowner or the householder pays it direct. It is merely a matter of arrangement between the Inland Revenue and the ultimate payer.
  Mr. RUTHERFORD: I was only referring to the common and ordinary practice of the law, because the person who is liable at law to pay the tax is the person who occupies the property, and he is entitled to deduct, so far as it consists of Income Tax, and he does deduct it as a rule from his next payment of rent.
  Sir F. BANBURY: My hon. Friend is absolutely right in the ordinary practice, but in the case of landed property, where the tenant is a farmer, in nine cases out of ten, in my own case undoubtedly, and I believe it is so in the case of every landlord in the county of Wiltshire, the landlord pays the Income Tax and the tenant has nothing whatever to do with it, never sees it, or knows anything about it.
  Mr. RUTHERFORD: I am obliged to my right hon. Friend for pointing out the comparatively few exceptional cases which apply to large landowners, but the ordinary case, where there would be a hardship all over the country, is the case of a man who occupies a house and has to pay rent every quarter and has to pay his landlord's Income Tax once a year and deducts it from the next quarterly payment of rent. I do not know whether arrangements could be made for that tenant to pay the tax either half-yearly or quarterly. I should think it would be very difficult to do anything of the sort. If it could be done he could deduct an equal amount from each of his payments of rent.
  The general discussion that we have been having upon this Amendment has touched one or two important points. I do not think any of us who support the Amendment would say that there is any desire not to pay the taxes which are required for the purposes of the War. That is not the object of the Amendment. But I should like to point out one or two important matters connected with an Income Tax of 5s. The first is that other countries engaged in this War have done nothing of the sort. I was very much struck, when I was in Paris with the deputation from the Commercial Committee of this House and met Members of Parliament from Russia, France, Italy, Portugal, Serbia, and Belgium, with the fact that in talking to them it appeared that they have put no taxation at all comparable to our increased taxation upon their subjects. We have seen in the Press that some of these countries have slightly increased various duties during the last two or three weeks. For instance, Russia has slightly increased the taxes on the transfer of land and one or two small items of that description, but none of the countries engaged in the War, on our side at all events, have done anything at all comparable in its magnitude with the increase of taxation that we have made on this one head of Income Tax.
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  8.0 P.M.
  One part of my hon. Friend's speech in moving the Amendment was entirely ignored—I do not say purposely—by the right hon. Gentleman (Mr. Montagu). It was that part that related to an Income Tax of 5s. as imposed on a company carrying on business or having an office in England. Many of us have heard of considerable numbers of important concerns whose activities are not actually in this country, but whose money is, to a large extent, found from this country and in which people in England are interested. We have heard projects of them being removed, as far as regards their actual administration and their ostensible office, to the place where their business activities are carried on—the Colonies in some cases, foreign countries in others. An effort has been made, and is going to be made, to prevent any evasion of the Income Tax imposition by making it very difficult for any company to really move its office in that manner, and in such a course I agree, but I see a very important and difficult thing coming in the future. It is not the moving away of such a large proportion of these companies that I fear, although it is there, and although arrangements are being made to-day in a number of cases for it to be done. I do not think that is anything like comparable in importance with the fact that a 5s. Income Tax imposed on concerns run and managed from London all over the world will inevitably act as a very great deterrent to further concerns being started and run from London. Up to now, for a good many years past, if there was a promising project for the satisfactory employment of capital and for the development of enterprise in any part of the globe, and when it had a chance of finding people who would take it up, carry it out, and make it useful in the interest of the whole community, it was brought to London. There were certain drawbacks to it, and actually for some time Belgium succeeded in getting a large proportion of that business. In fact, for three years Brussels rivalled the City of London in regard to the new concerns which were registered there. I mean concerns of a cosmopolitan character which might be, registered anywhere. Why? Because the Chancellor of the Exchequer at the time put an extra duty upon the registration of companies in London amounting to £2 10s. per thousand of nominal capital. The mere fact of the imposition of that duty, when at the time there was no duty charged in

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  Brussels on the registration of a company in Belgium, and when there was no duty charged upon the registration of a company in Guernsey, in the Channel Islands, was that a whole heap of companies went and got registered in Guernsey, but the really respectable and substantial undertakings, with many millions of capital, became housed in and administered through Brussels. It is almost as easy for a board to meet in Brussels, when there is no war, as it is to meet in London. This extra duty charged upon the registration of companies in London had the effect of centring the administration of companies and the distribution of the profits of those undertakings, together with the connection that was bound up with them, in Belgium.
  I am one of those who maintain that anything that is calculated to handicap our country in being the home and the head of the enterprises of the world, from the point of view of administration and distribution of earnings, is a mistake. When one sees a 5s. Income Tax imposed, which every company having its head office in London will be bound to pay upon the whole of its profits, although they are made in South Africa, in Roumania, or anywhere else—and, indeed, will have to pay on a great deal more than its profits—it is a very great hardship and is likely to have the effect of housing these companies and distributing the profits, together with everything that goes with them, in foreign countries, and taking them away from England. That is what I am afraid of with this very high taxation upon the income of all kinds of undertakings. How does that principle affect us, and how does it arise? We arc the only people to make a tax of anything of this sort at the source. It is exceedingly convenient to do that. I suppose it would be almost impracticable to collect Income Tax if we did not collect the bulk of it at the source, but in doing so we tax everybody in the company, whether they are liable to Income Tax or not. We tax all the foreigners in that way. We tax the foreign shareholders, and that has the effect of preventing people from transferring their concerns to English administration and to English companies, because the shares which they continue to hold in those companies become subject to the English Income Tax taxation. Consequently they will not do it. Then it has another very great draw-
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  back. If you are taking a 5s. tax, which is one-fourth of the whole income, and only leaving the people, such as foreign shareholders and other persons who are entitled to an abatement, the right to recover it afterwards, that in itself is quite sufficient, but you are doing something a great deal worse.
  I suppose the majority of individuals paying individual Income Tax only really pay on the amount of profit they actually make, but that is not the case with a company. A company is obliged by law to keep its books in a certain manner. Nine companies out of ten who have got enterprises abroad are obliged to hold leasehold land for the purpose of carrying on their business. If they are a mining company their rights are for a certain number of years. In all these cases they are obliged, as a matter of common sense in accountancy, as against their profits to take off every year an integral part of the capital value at which that capital as a capital asset stands. When you come to pay Income Tax there is no allowance for that. If you have only got a twelve years' lease for a mining right and one year has gone, as a matter of common sense and a sense of right between the company and the shareholders you have to take off one-twelfth of the amount at which that capital stands in the books and charge it against profits, but you are not allowed to do that for the purpose of Income Tax. The Income Tax surveyor says, "That is a diminution of loss on your capital. I have nothing to do with that. You are not entitled to debit that for the purpose of Income Tax against your profit." But we all know that in practice we are obliged to do that. I have a case in point. I was at a board meeting this afternoon, and that particular company has paid during the last two years £25,000 in Income Tax without being able to distribute one penny to its shareholders. That Income Tax was paid in London, although the company has not gained one penny of that money in London. All the money has been made abroad. The company has been obliged, however, because it happens to have an office in London, to pay £25,000 in Income Tax during the last two years, although its shareholders have not had one penny of dividend. Why? Because of the unfair manner in which that company and its business is assessed as between itself and other taxpayers.

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  If this Amendment has done nothing else it has done one good thing, because it has elicited from the Financial Secretary to the Treasury information on a subject that some of us on every Budget for many years past have been urging, namely, a more common sense and more equitable principle should be introduced into the method of levying Income Tax. I think if we are going to have that, together with a codification of Income Tax law, our time in some of these Debates will not have been thrown away. I do not object to a 5s. Income Tax myself. I Relieve there is no taxpayer in the country who, from the point of view of his own pocket, would get up either in the House of Commons or anywhere else and say, "I object to paying my fair share of the costs of this War." There are, however, other considerations of great importance and of future import mixed up with the success and continued prosperity of this country, which, when we try to bring them to the notice of the -Chancellor of the Exchequer, receive the consideration they deserve from the right hon. Gentleman. I hope, therefore, that the Chancellor of the Exchequer, in fixing this amount of 5s. Income Tax to be deducted at the source, and charged upon everybody whether they are liable to the tax or not, charged upon incomes whether they are really earned or not, in the way I have suggested, will give some consideration to the important case of the numberless great enterprises all over the world which are only housed in London, and upon which this very unfair impost is at present being levied, and w7hich will be made very much worse, in fact, oppressive almost to breaking point, when it is raised to 5s. in the £
  Mr. J. MASON: The figure to which the Income Tax has now come brings into prominence a considerable number of questions which, in previous days, were not considered of very great importance. I am not one of those who think that the Chancellor of the Exchequer is raising too much by taxation. I entirely agreed with the Financial Secretary to the Treasury when he said that the amount of revenue raised by taxation must advance and keep in proportion to the amount of loan that is raised. I am one of those who have always held that of all the forms of direct taxation the Income Tax is the best, but when that Income Tax arrives
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  at 5s. in the £, I think it is very desirable that this House should keep clearly before its mind the effect that this must necessarily have on the industry of the country. A remark which fell from the hon. Gentleman who leads the Labour party, on the Second Reading of this Bill, to the effect that he regretted that the Income Tax was not 7s. 6d. or 10s. in the £, makes me think that there are a large number of people who look upon the Income Tax solely as a way of extracting a certain amount of Income Tax from individuals, and forget that owing very largely to the mode of assessment, which has just been described by my hon. Friend, the Income Tax in itself is a burden on industry as such. Moreover, it is an addition to the cost of production, and in many cases falls entirely upon the cost of production and upon nothing else. If a trade is entirely confined to this country—that is to say, if it does not have to meet foreign competition, such as the building trade, I think one might say that the Income Tax is not only an addition to the cost of production, but it is capable of being converted immediately into a indirect tax—that is to say, that the burden falls upon the consumer. An hon. Gentleman opposite differs from me on that point. I think it surely cannot be denied that if, owing to Income Tax on the profits of the building industry, the cost of building is increased, as it is by 33 per cent. with a tax of 5s., it is perfectly obvious that that cost will be thrown on the consumer of buildings—that is to say, either on the purchaser of the building or the person who rents it, otherwise the builder will not go on with his trade and pay a tax which he can quite easily throw upon the consumer granted that there is no competition from outside. In these cases, therefore, a very heavy Income Tax which becomes an addition to the cost of production really is in the form of an Excise Duty without a Customs Duty. It certainly must be added to the cost of production, otherwise on whom does it fall? In the case of a company, as my hon. Friend (Mr. Rutherford) described, you are not taxing the individual shareholder, you are not even taxing the indivisible profits, but you are taxing the profits of the company, including the reserve from which their new capital must be built up, and from which the replacing of capital must be effected. It seems to me, therefore,

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  that in the case of those industries which are not suffering from foreign competition the tax is capable, at any rate to a very large extent, of being transformed into an indirect tax. But a more serious point, and a much more common one, arises where a trade has to meet foreign competition. It is here really that there is the danger of high Income Tax, which is unavoidable, I agree, in the present instance. I am not arguing for a moment that we can reduce the Income Tax. Taxation must be raised somewhere, and direct taxation must find its share. But this is a serious point with which we have got to deal, because it is quite obvious that if an industry in this country is subject to a high Income Tax, and has to meet competition coming from countries such as the United States, in which there is no Income Tax, of course the addition of 5s. in the pound to the cost of production will be one which will throw manufacturers in this country into a very serious position in the time to come. I do not know how far we may say that this difficulty is due to the mode of assessment, but I think it is due very largely to the fact that we assess the Income Tax on the gross profits of a company, quite irrespective of the divisible profits. That is to say, we assess the tax on that fund from which alone in most cases the replacement of capital or the addition of new capital can come.
  Mr. D. MASON: Mr. Maclean, I understand from Mr. Whitley that the Amendment which comes next but one is not quite in its proper place with reference to this discussion, and I hope to bring it up in the form of a new Clause. I hope to offer a few remarks, as your predecessor allowed was in order in this Debate, with reference to this particular point. It was touched on by the hon. Member for Yarmouth in moving this Amendment to reduce the tax from 5s. to 4s. I need hardly say that I agree entirely with the hon. Gentleman the Secretary to the Treasury in opposing the Amendment to reduce the tax from 5s. to 4s. I congratulate the Chancellor of the Exchequer on his courage in meeting this enormous war charge by a very considerable amount of taxation. I have not always been able to agree with the right hon. Gentleman's taxes, but I congratulate him on his courage and his general principles. In reference to the speech to which we have just listened we all agree that this taxa-
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  tion is a high charge, and must, of course, penalise industry more or less. At the same time it is preferable to raise as much of the expense of the War as we can by taxation rather than by loan. In the first place it improves our credit. In the second place it is much fairer that the present generation should bear as much of the charge an possible, as we are bound in any event to leave an enormous charge on posterity. But I would like to make a few observations with regard to what the hon. Member for Yarmouth, in moving this Amendment, said with reference to this charge of 5s. falling on the receivers of small incomes, the widows and others who of course, should not be penalised to this extent, where the charge will be deducted from the source on an unearned income.
  We all agree that a deduction of 25 per cent, is a very serious drop in an income. The proposal of the right hon. Gentleman does not meet the very grave injustice of losing one-fourth of your income for something like nine months, which, of course, falls very heavily on persons with small incomes. The Amendment, which I had hoped to move and which I still hope to have the opportunity of moving as a Clause, would, I think, meet that by reducing the actual amount which is to be deducted at the source. I put in an amount of 3s. 6d. Of course, if the Chancellor of the Exchequer accepts the principle, it is quite open to him to make it even 1s., so that you would catch then all incomes from which deductions are made at the source, and then get the balance by the ordinary assessment, and thus a great number of widows and others with small incomes—
  The DEPUTY-CHAIRMAN (Mr. Maclean): Is the hon. Member now discussing the Amendment before the Committee?
  Mr. MASON: I am availing of the opportunity of your predecessor's ruling to allow a certain amount of elasticity.
  The DEPUTY-CHAIRMAN: My predecessor having ruled that this Amendment comes somewhere else, the hon. Member cannot discuss it now.
  Mr. MASON: Excuse me, your predecessor allowed it to be discussed on this Amendment, but I shall say nothing further on that.
  The DEPUTY-CHAIRMAN: Surely he did not say that. He said that it could be discussed as a new Clause.
  Mr. MASON: No, he allowed the hon. Member for Yarmouth to refer to this particular point. But I shall not say anything further on that point at the moment. With regard to the general argument which was raised by the hon. Member for Yarmouth the main point is that while we all object to heavy taxation, still, as the right hon. Gentleman has suggested, the fact that in putting so much upon the Income Tax it should fall heaviest on those who are best able to bear it constitutes what is just and right.
  Mr. J. SAMUEL: There is one point with regard to the deduction of this very large tax at the source which I raised on the Second Reading Debate, and the reform which the Secretary to the Treasury suggested was rather complicated, and certain members of the Committee who are present do not quite understand the full purport of what he suggested. I would like to make one suggestion to the Chancellor of the Exchequer which I think will mitigate the hardship which was dwelt on so strongly by the hon. Member for Yarmouth, with which I agree. This is really a Super-tax now of 5s., and to people with small incomes it is going to be a very serious matter, people who have now a great struggle to live, people who have had stationary incomes and who are not able to pay this large tax. I have worked a case out with regard to an income, say, of £500. That case is a very striking example of how this tax will work. Take it at £500, there is £120 allowed to be deducted, which brings the net income down to £380. If that income is paid in the form of dividends, say, from one company or from two companies, the amount that would be deducted would be £95, though that person is only entitled to pay 3s. in the £. The result is that on that income the State is taking no less than £38 excess. That is a very serious matter. It is all right for men who have very large incomes, but for men or women with large families, who have this very large amount deducted from them, it is a very serious matter.
  Mr. WALSH: Is it unearned income?
  Mr. SAMUEL: Yes, unearned income; but if the hon. Member knew the great struggle of a very large number of these people in receipt of an income of this nature who have to pay very large rents and so on, he would see the force of the argument. I am working it out for £500, but the same principle applies to £200, or
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  £300, as the case may be. What I suggest is this: I understand from the Secretary to the Treasury that the reform proposed to be made is that the man or woman can claim a rebate at the end of six months. A very large number of these people really do not know how to proceed in these matters, and that is really a very serious circumstance. What I suggest is that the proper method is that the man or woman should have the right in every locality to approach the Inland Revenue officer to obtain a rebate of 2s. They may not make a return of their income to him, but he knows exactly what their income is, and if he ascertains that they are paying 5s., the amount of Income Tax deducted in the £, and that they are only entitled to pay 3s. in the £, and, if that be made clear to this local officer, I cannot see why the Government could not allow the money to be repaid at once instead of retaining that large sum of £38 for a period of six months. It applies to every income whether unearned or whether it is deducted from the source. These people will have to pay this large Income Tax, and I think it will be a very cruel hardship upon them. I have very great sympathy with them, and I trust that the Chancellor of the Exchequer will make this reform. If he cannot see his way to doing it now, perhaps he will promise to have the whole matter thought out, and allow these people to make their claim to the local Revenue officers and thereby mitigate this very great hardship.
  Mr. McKENNA: I appreciate very much indeed the force of the case put by my hon. Friend who has just spoken, but I am bound to say that I do not think he has the facts quite clearly in his mind. Let us take the figure he has given and assume that the £500 a year is derived purely from dividends, which are paid twice a year, once in January and once in July. The first dividend in January is only on £250, less Income Tax According to my hon. Friend, in the whole year £38 is taken from the £500. On £250, £19 is taken from him in January, and he is lying-out of the £19 from January onwards until he gets repayment. Consider the position of this matter. It is quite true that he is £19 short in January. I am very sorry that it has to be so; I wish it could be paid in full, and that our machinery admitted of it. I am only considering the actual hardship. He is kept out of £19 of money due to him in January, but at the close of the financial year in April he will be

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  entitled to receive the full amount that was due to him on last year's dividends, which would be more than £19. He has got the whole of the year's arrears made up to him, and although the Income Tax was lower last year than this, he will still get more than £19 repaid to him in April; so that between January and April he will not be anything out of pocket, On the £250 in July another £19 will be held back. We are now at the middle of the year, and we propose to make repayment twice a year, and in September he would be able to get payment of the £19, so that, in the second half year, he will have his full £250. I am extremely sorry that he should be kept out of his money at all, but is it a case of the overwhelming hardship of the kind which my hon. Friend represented to us. I really do not think it is. I am sorry it should happen at all, and we are doing, our utmost to relieve it. But it is not a case of such immense hardship that I think we need be very greatly concerned about it. My hon. Friend asks why they could not make application to the local Inland Revenue officer, to whom, he pointed out, the Income Tax payer has already to make a return. If in a case of this kind the Income Tax payer has to make a return it must mean that he has some other income besides the income on which he pays the tax by deduction. He must be earning some income for which to make a return or an assessment, and on an assessment of that kind of income we propose, on that very assessment, that he shall be allowed the full deduction to which he is entitled.
  Mr. SAMUEL: Has he not to make a return if he has no direct income. Supposing he has an income solely derived from dividends, is he still compelled to make a return?
  Mr. McKENNA: He has to make an assessment every year, and then we do have an opportunity for the local Inland Revenue officer to go into the question of the man's total income, and then repayments could be made at once.
  Mr. SAMUEL: Am I to understand that you will give the right to make application in these circumstances?
  Mr. McKENNA: Where he makes a return in respect of earned income, not where he makes a return marked "nil." Where he makes only one assessment, on that assessment relief will be given him.
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  The other question raised, one of great importance, is as to the amount of the tax. I hope the Committee will accept it from me when I say that I appreciate as strongly as any critics of this tax the harm that is done to the general trade of the country by long continuance of Income Tax at an excessively high rate. So long as personal pecuniary gain is the main incentive to industry, we cannot afford, in ordinary circumstances, to deprive the man who earns income of the benefit of it. I am quite sure, I will not say quite sure, but in my judgment there is very good ground for believing that in the long run the effect of an excessively high Income Tax would be to injure the energy and industry of the most progressive part of the people. We have got to realise, we have got to remember, that in ordinary circumstances—I am speaking now of ordinary circumstances as distinguished from the special circumstances of a time of war —much of the income of one year becomes the capital of industry in the next year, and it is exactly that income which is earned by the most progressive and energetic brains in the country. It is the man who is developing his business, who has the power to develop it, because he is a good business man, who is making the most money and is most rapidly putting his money back into his business. That is the ordinary experience of every trade in the country. Trade is developed by men who put their money back into their business, because they are the men who know best how to make use of it. If you take a large proportion of the excess earnings each year from the men who earn the money, you will, in the long run, seriously impair the energy and efficiency of our capital industries. I believe that is a general proposition which will be readily accepted by those who are familiar with the ordinary tendency of the development of our trade.
  Mr. WALSH: Captains of industry will accept it.
  Mr. McKENNA: I think those who are developing our industries and those who are dependent upon them will accept it. If you could imagine that human nature would give the same amount of energy and industry and ability to business without the incentive of personal gain, merely with the incentive of the benefit of the State, then I admit that the whole of this argument falls to the ground at once. In a higher state of society I am sure one day

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  humanity will reach the position that men will work as readily for the State as they will for themselves. At this moment it is my firm conviction that the great majority of our countrymen are willing to work as hard for the State as in their own business. Therefore I am convinced that the great majority of our countrymen, not only can afford to pay the 5s., but that the payment of the 5s. will not withdraw one iota from their energy or determination to carry on their business as successfully as possible. I am sure, moreover, that in the case of the great majority of our countrymen not one will be tempted to remove his business from this country where it is taxed to another country where it may be free of tax. That is true under the impulse of this War, but I would not be sure that it is equally true at all times. Therefore, when you look to the future, I am bound to say that in my judgment it would be a great mistake to contemplate anything like a tax of 5s. in the £ as possibly permanent if we are to maintain our full degree of energy and development in our trade. While I hope that my hon. Friend will not press his Amendment in war to reduce this tax, I hope also that he will accept the doctrine that to-day the whole of our countrymen are prepared to pay this tax and that they will not remove their business abroad, and that they will not seek to evade the tax, but that they will carry on their business with as much energy and industry as if they were earning 20s. in the £ for themselves instead of 15s. If he will accept that, as I am sure he will, I for my part am perfectly ready to agree with critics of the tax on the general principle, that no country could afford to continue indefinitely such a high rate of Income Tax as we are willing to bear in the course of the War.
  Mr. WALSH: I think every Member of the House must have listened with considerable interest and a great deal of appreciation to the very forceful statement which the Chancellor has just made. Nearly all our tears are being wasted upon a 5s. tax. I have never known two men to run better in harness than the present Chancellor of the Exchequer and the Financial Secretary. Indeed, I think it is doubtful whether two men have ever better performed their functions than those two men. I say that in perfect sincerity. I remember a few months ago, some time last year, I think, the cheers of the House being given to the Financial Secretary when he suggested that so keen and deep-
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  seated is our enthusiasm, and so solid our determination to win the War, that we must be prepared for a 10s. in the £ Income Tax. I am wondering a little new what has come over us that to-day we should be deprecating a 5s. tax, a very great deal, and suggesting that it should be made 4s., and talking about the woes of the dividend receiver who has an income of £500 per year on dividends alone, and who, by implication, has also a certain amount of earned income upon which he is to receive credit for all over-payments. I wonder, after all, whether the statement just made by the Chancellor of the Exchequer was not because of the very strong appeal being made by the working classes of the country and by a great many more than the working classes for the conscription of wealth. When we see the millions that are being made in profits on shipping and on coal and everything else, I cannot imagine that the incentive which has been spoken of could be lessened, when after paying all the excess Income Tax and the Excess Profits Duty, there are in shipping and in coal, and in all branches of trade, millions upon millions being made, more than ever was made before.
  Everybody must admit with the Chancellor that you ought not to stifle incentive to industry, but is there to be no incentive unless you can amass your profits by millions? Personally, I think, after a decent figure had been reached to preserve the incentive and keep it alive, both for captains of industry and for the workers, that the State has the right, in circumstances such as exist at present, to take the whole lot after that, not merely 5s. in the £, but 20s. in the £. If ever confiscation was justifiable the case has arisen now, when the State in its great need has the right to say, "After allowing you a reasonable profit, we will fix a figure beyond which the whole of the residue becomes the property of the State." I think that is the really proper line to go upon. I say no more upon it now, but it is a matter for wonder that the possibility of a 10s. tax should have been cheered to the echo last year when promulgated by the right hon. Gentleman's own colleague—
  Mr. McKENNA: What my right hon. Friend said was 10s. in the £, half tax and half loan.
  Mr. WALSH: I suppose we should have to pay the interest on the loan, or do loans grow upon trees? Anyway, I am glad to

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  know that neither the right hon. Gentleman nor his colleague has shrunk in courage, and that they are not likely to give way to the tears of the people who are pressing for a reduction in the tax. Our clear duty is to maintain the credit of the nation at the very highest point. After all, if there is any responsibility for the War, it is our responsibility; and if there is any responsibility for the prosecution of the War to success, that is ours also, and we ought to see to it that we do not burden succeeding generations with any debt that we ought honourably to discharge. I am quite sure that the working classes of the nation and the middle classes, and every lover of his country, are prepared to bear a great deal more taxation than has yet been reached.
  Mr. NIELD: The hon. Member for the Ince Division (Mr. Walsh), who is always listened to with great attention and respect, has, I think, made a peculiarly ungenerous speech. He has forgotten entirely that there are a great many persons who derive their income from dividends, but whose income cannot be held to justify the observations he has made. Those observations can only apply to those persons who are building up huge fortunes out of the necessities of the present moment. Reference has been made to coal and shipping. I agree. But you have the Excess Profits Tax, and if the matter can be properly investigated and the true profit ascertained by the various officials of the revenue, I think you will get the profits which those persons are making reduced to such an extent as will render totally unnecessary the observations to which we have just listened. But it is not right to talk about persons with fixed incomes in that way. Take the case of dependants of a man who might possibly be regarded as fairly well off at the time of his death. The income, which is derived from shares, may have been fixed for years, and it is divided amongst the various dependants. Various families have been in the enjoyment of a definite income and living up to a definite standard. Suddenly the Income Tax, instead of being 1s. 4d. becomes 3s., and ultimately 5s., any yet the hon. Member for the Ince Division advocates 10s. Where is the justice of it? Because these people happen to be perhaps the daughters of someone who before his death carefully invested the products of his labour, the hon. Member for Stockton would have them taxed.
  Mr. SAMUEL: I did not suggest that, I wanted to have the rebate paid as soon as possible.
  Mr. NIELD: I agree, but the rebate in the cases I have mentioned would probably not be a rebate at all, because they would be in excess of the limit. I judged the hon. Member from general utterances which he and I have exchanged across the floor of the House, and I apologise if I have misrepresented him. But take the case which I have suggested—that of an income divisible amongst a series of families, coming from the estate of a man who honestly and fairly earned it. He has put it aside and accumulated a fairly large sum of money. Each of these families is dependent upon this income, and possibly has no other means at all. There may be members of a family who have married, knowing perfectly well that there was so much and no more to spend. Are these incomes to be denuded not merely by the War Tax of 5s., but, in order to benefit posterity, by a tax of 7s. 6d. or 10s. 1 Oh, no ! I think the hon. Member for the Ince Division, in his enthusiasm for an Income Tax so easy to collect, has rather overstepped the mark. By all means and by any means levy your Excess Profits Tax upon enormous profits, whether they are made upon the price of food—which I hope will be inquired into very vigorously before long—or whether from some monopoly or from coal, and take care that it is paid to the utmost farthing, but do no go further with the Income Tax in such cases as those to which I have referred. The hon. Member for the Ince Division thinks that this tax is the best way of raising revenue. He forgets that it percolates to every grade of society. It adds to the cost of living. Every person seeks to evade it and passes it on, until it ultimately has to be paid by the person with the fixed income and the working classes who consume the products of the country. No wonder the prices of food are increased. I should like to know from experts to what extent heavy direct taxation is responsible for the increase. Do not let us dream about persecuting a large section of the community in the belief that they are getting profits to which they are not entitled, when as a matter of fact a short, impartial, judicial inquiry will show that they are suffering very large reductions. Nothing but an overhauling of the whole system of our taxation will ever bring this question properly before the minds

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  of the people of this country, and let them all see that they are not being exploited by one class, but that everybody is paying his fair share.
  Mr. FELL: The Financial Secretary has told us that the Treasury are doing their best to meet the difficulties which we have pointed out in connection with taxing incomes at the source. The Chancellor of the Exchequer has expressed the most satisfactory views that I have heard for a long time. He has shown us that he entirely appreciates the difficulties which such high taxation has caused, and I am sure that his remarks will be received with infinite satisfaction in many business quarters. There is a further point to which I would call his attention, and that is the way in which surveyors refuse to allow deductions. That is a matter to which he might well devote his attention. I had not the slightest idea of suggesting that anyone wanted to shirk taxation. In fact, I have heard people who are entitled to deductions say, "I shall not claim anything now." I have pleasure in asking leave to withdraw the Amendment.
  Amendment, by leave, withdrawn.
  Motion made, and Question proposed, "That the Clause stand part of the Bill."
  Mr. POLLOCK: This Clause includes the time-honoured Sub-section that,
  "All such enactments relating to Income Tax, including Super-tax, as were in force with respect to the duties of Income Tax granted for the year beginning on the sixth day of April, nineteen hundred and fifteen, shall (with the exception of Section twenty of the Finance (No. 2) Act, 1915), have full force and effect with respect to any duties of Income Tax hereby granted."
  The speeches of the Chancellor of the Exchequer and of the Financial Secretary have indicated a desire and a determination on their part to deal as fairly as possible with all sections of the community. The Chancellor of the Exchequer took pains to make it clear that he was not unmindful of the importance of leaving an incentive to the working part of the community, and of not withdrawing that incentive from those whom he called the captains of industry, or, we may add, from persons who are dependent upon industry. There is one question which has begun to assume very considerable proportions, and in the minds of many people it has undoubtedly reached a point at which they
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  feel they are being unfairly discriminated against. I am referring to the question of immunity from Income Tax, which is enjoyed under Section 24 of the Industrial and Provident Societies Act, and the other Acts are incorporated with it. The reason why I select this opportunity of bringing the matter to the attention of the Chancellor of the Exchequer is that it is impossible to raise the point by any Clause which could ever be framed by a private Member. Under the ruling which has been given from the Chair, and which is acted upon in this House, any Clause which has the ultimate result of imposing further taxation upon any members or classes of the community is out of order. Although I think that ruling is sometimes pressed to an unfortunate extent—because, I think, it rather prevents debates on very important subjects— still, one has to accept it. It is one of our rules. Therefore, the Clause which, in association with the hon. Member for Devizes, I have put down to deal with this question is, I believe, out of order, and I shall have no opportunity of bringing the matter forward. More than that, I have ascertained by going to the direct authority that no private Member under any circumstances will ever be able to frame a Clause which shall deal with the question of which I am speaking, because it can only be dealt with by the Government themselves, after having procured the authority of this House to do so, and by a proper Resolution for that purpose which has been moved in Committee of Ways and Means. Under these circumstances I make no apology to the Chancellor of the Exchequer for raising this point at the present time, because what I want to call attention to is this: We have at the present time a very large and very important movement which has the good wishes, I think, of Members of this House, but it has got to a point at which new questions arise, and which must be dealt with if you are going to look at the rights of the community as a whole.
  9.0 P.M.
  The industrial and provident societies have done, and are doing, extraordinary good work. They are a valuable system in our cosmos. They are entrusted with important powers, and they fill a very considerable need in many spheres of life. You can find them in all parts of the country; whether you are dealing with the urban population or whether you are dealing with the agricultural population, there they are, doing their good work. I should

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  be quite false to myself if I did not say at once that I agree in the good work they are doing and in the good work they have done. One remembers that, as constituted, large powers were given as far back as 1852, and one could not therefore pretend, or desire, to put back the hands of the clock or to try to arrest a movement which has been found so useful, so beneficial, and so progressive in its results. In the year 1893, however, another Act was passed, and I have taken the trouble to see how that Act came to be passed. It is rather a curious story, and may have some relation to the system of those days. The Act was never discussed at all in this House. The immunity thus given under Section 24 never received even a passing observation from any Member in this House. The whole matter was dealt with by a small Select Committee. A tribute was paid to one hon. Member who had taken an interest in the matter. It was a case of sic volo, sic jubeo,and the matter passed through without any scrutiny. The effect of the Act was this, that where a society was dealing with its members it should be immune from Income Tax, for this very sensible reason, that where persons came together and dealt amongst themselves, distributed no real profit, and took steps to see that there was no profit, then from the point of view of the Chancellor of the Exchequer there was nothing to tax, because there were no profits or gains. Therefore the Chancellor accepted the position that he should not have the burden laid upon him to endeavour to get from a person that to which he was not entitled. To put the matter in its simplest form, "there was no money in it "The immunity was given on two conditions. The first was that the trading should be amongst the members of the society itself, and the other was that the number of shares should be unlimited. It has been held in the Courts, as I understand, that both of those conditions must be broken or the exemption remains. The effect of that is that inasmuch as one condition is very easy to fulfil, namely, by passing a rule that the number of shares should be unlimited, it is quite impossible to lose the exemption at all, because every society is able to fortify itself by its rules and entrench itself within the exemption. So far as the actual trading amongst the members themselves is concerned, perhaps we may leave it there. At
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  any rate I desire to make as little of the thing as possible. I certainly desire to say nothing which should in any way, I will not say tend, but in any way criticise the strongest co-operator in this House who may desire to see the movement as successful as possible. I share his views, and I therefore do not want to trench upon any ground which might be distasteful either to him or to me. Still, one must look at the facts as they stand at the present time. One must remember that if you hand over to these co-operative societies a number of industries, by just so much as you hand them over by just so much do you remove from the possible area of taxation a large number of persons. I am quite sure that in these days particularly the Chancellor of the Exchequer is anxious to extend the area within which he may collect his taxes. I may point out what is almost a platitude, or certainly a truism, that in regard to various industries, whether they be distributive or whether they be productive, that so far as you place them in the hands of persons who are not liable to pay Income Tax so you remove from the area from which taxes can be taken by the Chancellor of the Exchequer an important area, and you prevent taxation which might go to relieve the other members of the community.
  What are the facts? I think I can show in a very short time, by quoting a very few figures, that a sort of imperium in imperio has been created. Let me take the figures of 1893. In that year the number of members of co-operative societies was very little over 1,000,000. To be quite precise, I think it was 1,057,000. The share capital was £12,500,000. The loan capital was then £2,110,000. How do the figures stand to-day? Let me take first of all the figures of 1914. I take the test of sales, profits, and reserve fund. In 1914 the sales amounted to £138,473,000. The net profit was £15,200,000—I leave out some odd figures—and the reserve fund then held was £6,498,000. I dwell for a moment on the 1914 figures for this reason: When one is making a comment or criticising a movement of this sort, one wants to be sure that one is perfectly fair. The figures of 1915 are more remarkable. The sales were over £165,000,000, the net profit over £17,000,000, and the reserve fund held was over £7,000,000. The reason why I give the 1914 figures as well as the 1915 figures is that it would be unfair to take the figures of 1915 without some observation

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  being made as to the rising prices which are due to the War, and without giving a sort of correction, which ought to be made in respect of the circumstances of the War, which in one sense have tended to increase those figures, and yet it would not be a proper thing to treat them as a perfect guide. Therefore I think one ought to take the figures somewhere between those of 1914 and 1915, if one is to draw a real and valid inference from them. Those figures must also have one more comment made upon them. I am giving the sales which belong not only to the distributing, and what I may call the retail societies, but they include also the figures of the wholesale societies, and that must be properly borne in mind.
  What is the outstanding fact that emerges from those huge figures? It means this, that so far as these sales take place—and let me take a mean figure, therefore, of £138,000,000 for 1914, and £165,000,000 for 1915 and call it £150,000,000 —you find sales to the extent of £150,000,000 which are withdrawn from the area of taxation by Income Tax. I speak on behalf of smaller people in the community, persons who ought not to have their incentive taken away, persons who, with a small capital, are endeavouring very honestly, very helpfully, and very usefully to the community at large, to earn a livelihood for themselves and for their families by retail trade. I am going to trouble the Committee, if I may, with just one figure which was given me with regard to a populous Midland town. Fifteen years ago there were in that town 121 grocers. Owing to the co-operative movement, that has been reduced in the fifteen years to twenty-three. What does that mea? From the point of view of the Chancellor of the Exchequer, whereas fifteen years ago he had 121 persons who would have to make their return for Income Tax, and be more or less liable for some portion of Income Tax, he has now got only twenty-three. You cannot regard those figures without some misgiving as to whether or not we have allowed this movement to grow up to such an extent that it is becoming something of a danger to the Chancellor of the Exchequer himself. Let me contrast those figures with the position in 1893. When this immunity was given under Section 24 in 1893, the trade that was done was £52,000,000. I have given the figure now at £150,000,000, which is an inside figure. It has, therefore, trebled.
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  I could develop that by giving some other figures, but let me only call attention to the fact that the membership now stands at over 3,300,000 persons. The effect of all this is that you have got, as I have already said, an imperium in imperio, a number of persons who are immune from taxation, and who have happily demonstrated by their vigorous progress, and by what I may call their fertile increase, that they are by no means dependent upon any artificial assistance from the State itself.
  Let me deal next with the position in which they stand from the point of view of other traders. I think every Member of the House will have had his attention called to the fact that of late years cooperative societies have undertaken more and more outside trade. Many of us could give from our own experience and knowledge the fact that they have been enabled to compete, and successfully obtain, as against other, what I may call, retail traders, very large contracts, and in particular in the course of this War they have succeeded in getting large contracts with public bodies. One winders how they get them. Do they get any advantage, such as the retail traders say they do, which puts them in a better position to tender on more easy terms to a public body? One cannot overlook a speech that was made by a chairman of a company, and which was reported in the "Times" of 7th June last. He was dealing in particular with the case of the wholesale co-operative societies, which, as we all know, engage in very large operations, and the figures which I am going to mention are by no means irrelevant to their position nor excessive. He put the point which, I think, we shall all realise at once. He said:
  "Take a privileged trading firm making a profit of £100,000 per annum, which pays, say, £10,000 in dividends and carries £60,000 to reserve. On this £60,000 no tax is levied, which, at the new rate of Income Tax would amount to £15,000, and which in 10 years would amount to £150.000. On the other hand, a private or public trading company, earning the same profit, paying the same amount of dividend, and carrying the same sum to reserve, will have to pay on the £00,000 carried to reserve Income Tax amounting to £15,000. I consider this is one of the points of the greatest importance in connection with this controversy. Any business man can easily understand the benefit to be derived by having £15,000 added to the working capital of his business, as against £15,000 taken out of it. In 10 years he pays away £150,000, and the privileged trader nothing."
  I have given this extract from the speech as printed in the "Times" The point of it is this: When I am dealing with those enormous figures, you might at once say to me that those can have no relevance to

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  something that was started in a small "way, and which was given a special privilege by the State in order that it might be encouraged and fostered. The answer is, that that was a perfectly true observation to make years ago, but when we find the enormous power and the great resources of the wholesale co-operative societies, then the figures that are quoted are by no means under the mark, and, by giving those figures I am comparing them with other companies or trading bodies which ought to be their match, but which find themselves left behind in consequence of the privilege enjoyed. I think I am right when I say that in one of the papers a day or two ago there appeared an account of a still further operation which is made possible by reason of the very large reserves and funds which are placed at the disposal of a particular buyer in the matter of a concern in Mincing Lane, and if I am right in that it is only by reason of these enormous reserves that such operations are possible, and those reserves are helped to be created by reason of immunity from the attentions of the Chancellor of the Exchequer. I put down a Clause which was stillborn because of the ruling which would not allow it to be brought to the attention of the House, and I endeavoured to cut the knot in this way: It seemed to me that while one wanted to preserve all the powers and give every facility to the cooperative movement to continue—that is to say, in a matter of its sales amongst its members—it was obvious from the terms of Section 24, and was supposed by those who drafted and passed that Clause, that trading outside its members would not be a common incident because they would lose that immunity if they traded outside their own body. I suggested that we might put upon them the burden of suffering an assessment in respect of the profits they made in trading with persons who were not members. I am aware that there are a good many difficulties about that matter. With reference to the ordinary capital issued by co-operative societies, attention has been called to the fact that a case was decided in the House of Lords, and it has been decided that in the case of an insurance society immunity was given in respect of profits which are made entirely by the members themselves and which are not distributed as profits, but which are given back in the form of a bonus, or whatever you please to call
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  it, to the members. I know that has been referred to more than once, and the only observation I desire to make upon it is that those who quote that case never quote it fully enough. The first portion of the decision is:
  "It being admitted that the income derived from the company from investments and from all transactions with persons not members was assessable, then it was held that the profits of mutual insurance between members were not liable."
  Although this is freely quoted for the last proposition, it is never quoted for the first, although the first is very germane to my argument to-night, because if you admit that all profits derived from transactions with persons not members was assessable, it justifies the efforts that I made in the proposal that I put down in the new Clause, and it carries me a long way in justifications of that. This question of mutual trading and profits which are made with persons not members is not a new one to the Income Tax authorities, and they have had to deal with it on many occasions. They have had to deal with it in cases of insurance, and there are a number of cases in which this question has been brought up for decision before the Courts. Without troubling the Committee with legal cases, let me say that the result is that where you have a body of members trading with persons who are not members, and insuring persons who are not members, and making profits partly by the insurance of their own members and partly by the insurance of persons who are not members, in those cases it has been held that all the profits which are made must first pay Income Tax before there can be a return made by way of profit or bonus, or whatever you like to call it, to those persons who are members. That stands as a factor in Income Tax law, and inasmuch as this difficulty has had to be considered and dealt with in the case of insurance societies, I conceive that there would be no difficulty from the Income Tax point of view in making those societies assessable and allowing the Income Tax authorities, who understand their business very well, to assess them in the same way and on the same principles on which they assess mutual insurance companies at the present time.
  This question is one that needs the attention of the Government, for they alone can deal with and satisfy the community at large. It certainly would be an unfortunate thing if the misgivings that have been raised, and to my mind justly raised, in

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  the mind of the retail trading community, were allowed to pass without any effort being made by the Government to consider the matter anew in the light of subsequent events, and the very large figures which show the proportion to which this movement has grown and which obviously merit the attention of the Government. The question is not a new one. In 1905 there was a Departmental Committee on the Income Tax, and they discussed a great number of questions, amongst them the question of the co-operative society, and they came to the conclusion that it was fair to allow this immunity, because cooperative societies were composed of persons who would be entitled to recover back the tax if it had been deducted at the source. That is the usual ground upon which this continued immunity is allowed to prevail. I see hon. Friends opposite, who on one or two occasions when this matter has been mentioned, have always thrown that argument at me, and have put great force into it. May I point out, however, that that argument becomes gradually of less and less importance when you find that the number of persons who are within range of the Income Tax is happily growing larger and larger. I do not mean by that that I have any particular desire that persons should be brought within the Income Tax law simply to suffer its pains and penalties. I am glad to find men earning larger wages, and when I find a man the fortunate possessor of a larger income I congratulate him, even though it should bring him within the range of the Income Tax law. The Financial Secretary to the Treasury can tell us how many have now been brought above the limit of £130 to which exemption from Income Tax has now been lowered. The argument that used to be made that co-operators would be entitled to receive back the Income Tax if it were collected from them has been very much weakened by the fact that the limit of exemption has been lowered and also by reason of the very high wages which are prevailing at the present day. I referred to this Report of the Committee on the Income Tax. They devote almost a couple of pages to this question, and carry it no further than pursuing the argument which I have presented to the House. But their final clause is as follows:
  "The question whether societies registered under the Provident and Industrial Societies Act ought to be subject to any limitations with regard to their dealing with non-members was not referred to us, and we
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  express no opinion upon it, but it has been brought to our notice that very large and varied enterprises, in the way of manufacture, shipping, insurance, and banking enterprises, which in some cases involve considerable and regular dealings with the outside public, are now carried on under the Industrial Provident Societies Act, and it may be worth consideration, whether further inquiry should be made into the conditions under which the privilege of registration under that Act is conferred."
  That is now eleven years old. The members who formed that Committee, members who are all honoured in this House—the late Lord Ritchie, Sir Henry Primrose, Lord Buxton, Mr. Cosmo Bonsor, Mr. Murray, and Mr. Gayler— had before them arguments and weighty considerations which justified that paragraph that it had already been brought to their attention, and that by reason of the industries now carried on under this Act with non-members it was a matter for consideration whether this privilege should not be reconsidered. I wonder if the-Government have thought of it. All that has happened in the eleven years that have passed since that Clause was drafted has reinforced the arguments on which it is based, and the huge figures of this trading, not merely with the members themselves but with non-members, justifies that paragraph in a still further degree, and I trust now that it has been brought to their attention the Government will endeavour to deal with it in the sense of removing what appears to many to be an injustice, and what appears perhaps to a much larger number of persons to be a matter which deserves inquiry and attention in the interests of equality for all persons among whom we ought to preserve the incentive to industry.
  Mr. BARNES: As a co-operator, I welcome the very temperate and generous treatment in some respects of this question by the hon. and learned Gentleman. I appreciate greatly the generous terms in which he has spoken of the great industrial co-operative movement and of the good work that it has done. I know of that good work because I have been an active member of the co-operative movement almost since I came out of my teens, and I have been associated with them in all parts of the country. I know that they have done a very great deal towards raising the standard of life amongst the poorer members of the community and that they have also done a very great deal towards giving a larger view of the social responsibility of the ordinary man and woman. They have also done a great deal towards shunting industry and

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  commerce on to a better system than that on which they found it based when they started. They have done something towards getting the results of industry into the hands of a large and ever-growing community of consumers.
  The DEPUTY-CHAIRMAN: I am sorry to interrupt the right hon. Gentleman, but I hope the discussion on the Question, "That the Clause stand part of the Bill," will not develop into a Second Heading Debate on co-operative societies. It might easily do so. I am not complaining of the way in which the hon. and learned Member (Mr. Pollock) opened the discussion, but it might easily develop into a first-class Debate on the whole subject. I only suggest to the right hon. Gentleman that he might confine himself as strictly as possible to the point raised.
  Mr. BARNES: I willingly accept the suggestion. I was simply making one or two general observations by way of a start. The hon. and learned Member paid a generous tribute to the co-operative movement, and I thought it was only due that it should be acknowledged. The hon. and learned Gentleman made some observations upon the limited powers or rights of the Members of the House of Commons, and, recognising that fact, I gathered that he appealed to the Chancellor of the Exchequer himself to do what the ordinary Member could not even propose in the House. I shall give an argument or two to show why, from my point of view, the Chancellor of the Exchequer would be welt advised to let sleeping dogs lie. I gather that the hon. and learned Gentleman, in spite of his tribute to the good character of the work of co-operators, brings against them two charges: One, that they squeeze out of industry the ordinary small capitalist, and the other, that they enjoy an immunity from payment of Income Tax that they ought not to enjoy. The hon. and learned Gentleman gave only one instance of the first crime, shall I call it. In some particular place which he has in his mind, but which I do not think he mentioned, there had been at one time 126 private traders, and, owing to the growth of the co-operative movement in that district, they had been reduced to twenty-four. The inference is that the co-operative movement had deprived about 100 small capitalists of the means of getting an honest living, and
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  had also closed up so much possible revenue to the Chancellor of the Exchequer. I wondered at the time that the hon. and learned Gentleman did not extend his view a little of the ordinary economic development under which we arc living, and that he did not see in addition to the expansion of the co-operative movement from 1,000,000 to 3,000,000 and from £15,000,000 to £150,000,000, and so on, that there are other co-operations growing in like manner, and in some cases to a greater degree.
  I remember, for instance, a man who, when he started in Glasgow, used to sleep under the counter, opening his second shop in Dundee. That man now has shops in every centre from John o'Groats to the other end of the Kingdom. He has squeezed twenty times more small traders out of getting their living than the co-operative movement. Therefore if the charge against the co-operators is that they have squeezed out the small trader it is one which can equally be laid against the big companies, such as the Home and Colonial, Lipton's, and many others which might be mentioned. All these have done exactly the same thing as the co-operators have been charged with having done. I do not blame them at all. They are doing the best they can in the circumstances in which they find themselves. Is this not the case with ordinary capitalist enterprise all over the world? Are we not living in a period of production and distribution on a large scale, and, therefore even if the co-operative societies did not exist, the small trader would still be squeezed out of existence. I would suggest that my hon. and learned Friend might well drop that particular part of his indictment, as the squeezing out of the small trader is inevitable. He has to go because he is in the way of industry if it is to be carried on in the most efficient and economical manner.
  Then my hon. and learned Friend says that while the capitalist trader pays Income Tax the co-operative society does not. What, however, is the reason for the difference? My hon. and learned Friend says the co-operative societies have certain rights or privileges. They are summed up in the twenty-fourth clause of the Industrial and Co-operative Societies Act which has been mentioned. One of them is that their share lists are to be open to all and sundry, and I suggest to my

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  hon. and learned Friend that that is a fundamental thing which entitles them to the right which they now enjoy. It amounts to this: So long as the share list is open they can never become a monopoly; other companies can do so. The ordinary capitalist trading company can close its share list when it likes, with the result that it gets a much larger return on its capital than does the cooperative society. The market price of its shares goes up rapidly, whereas the co-operative share never goes beyond par. That is the first reason why they arc given this immunity. There is a second reason, and it is that they trade only with their own members, and, therefore, the co-operative society is in an outside category as compared with the ordinary private trading concern. Even if it were proposed to impose an Income Tax on cooperative profits it could easily be avoided, because they might decrease the prices to the vanishing point of profit, and then where will you be? If you are going to tax the profits of co-operative societies and at the same time leave the co-operators in the position of reducing their prices to the vanishing point of profit the failure of your tax is assured, and consequently you might just as well leave them alone. The hon. and learned Gentleman quoted from the Report of a a Commission which sat in the year 1905. He gave the Committee the names of a number of honoured Members of this House. He might have given the name of another, our old friend and colleague, Keir Hardie.
  Mr. POLLOCK: I read out the whole list of members.
  Mr. BARNES: The hon. Member for Merthyr did sit on a Committee dealing with this question.
  Mr. POLLOCK: The Committee on which Mr. Keir Hardie sat did not deal with this subject. I think the right hon. Gentleman must be referring to the Income Tax Committee which sat upon the question whether or not there could be differentiation on graduated incomes.
  Mr. BARNES: That may be so. At all events, the hon. and learned Gentleman read out a paragraph from the Report of the Committee which pointed out why co-operators enjoyed immunity from Income Tax, one of the salient factors being that if you taxed them they would still
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  be liable to immunity because their incomes are below the taxable limit. That condition remains to-day, modified to some extent, of course, by the reduction of the taxable limit from £160 to £130. I had some figures a year or two ago as to the number of members of co-operative societies liable to Income Tax. By the by, I may point out that the majority of members of these societies are women. A year or two ago I went into this matter, and I was told by those in possession of the facts that 1½ per cent, only of the members of the co-operative societies had incomes above the £160 limit. I dare say the number is more now owing to the limit having been reduced to £130, and also owing to the fact that we are living in what is said to be an abnormal period of prosperity—prosperity in a sense that lots of people are making lots of money, although it is not prosperity in the large sense at all. It is prosperity in the sense that there are a large number of people making more money than they ever did before. But the shopkeeper, when he gets money handed to him over the counter, does not ask whether it is borrowed or how it is obtained. I admit there are a larger number of people making higher incomes than ever before, and therefore, instead of l½ per cent., it may be that 5, 6, or even 10 per cent, of the members of these societies are now taxable.
  But is it worth while to disturb a system which has been so long in operation, which may almost be said to be traditional—is it worth while to disturb that system, especially at a time like the present, when we are supposed to be living under a political truce? Is it wise to disturb a principle which has been so long in operation in order to do something which would bring down upon you the opposition of three millions of the most intelligent men and women in this country? It would bring down upon you the opposition of all these people, who feel very keenly upon this matter. Is it wise to disturb the system which has gone on so long when you have in front of you the fact that, even if you taxed these co-operative societies at their source, you would have to return about 90 per cent, in respect of the shareholders who' are below the taxable limit? Is it wise to do this when, in order to get the remaining 10 per cent., you would have to employ great numbers of men and women filling in forms, and doing all sorts of work in connection with book-keeping, when

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  they could be better employed in furthering the course of the great War in which we are engaged? The hon. and learned Gentleman says that if you are not going to tax co-operators generally on what they are doing, at all events tax them on that part of their operations which has to do, not with their own members, but with outsiders. I should like to know if the hon. and learned Gentleman has any figures to give us as to the extent to which that would affect co-operative societies? I quite admit that I have no information on that point worth anything, but I should like to know, before any case is made for any change, to what extent that would affect co-operative societies? If you take distributive societies, I know that the extent to which it would affect them is pracically infinitesimal.
  I am now a member of three co-operative societies, and I know that in respect of those three societies the trade which is done with outsiders is a mere bagatelle. It cannot be otherwise. What sense would there be in it? Take the Woolwich society, of which I am a member. They pay Is. 3d. in the £, or something like that. To illustrate my point much stronger, I would go to the North, and take the St. Cuthbert's Society of Edinburgh, which has 47,000 or 48,000 members, and which returns to them 4s. 4d. for every £1 they spend over the counter. By the way, that is a very silly thing to do, because it enables the Chancellor of the Exchequer to put his hands into their pockets by means of the Excess Profits Duty, and serve them right, too. One of the best functions of a co-operative society is to keep prices down, because in doing so they are not only benefiting a great mass of consumers in the country and affording a check upon the ordinary capitalist trader, who keeps them as high as possible in order to get as much profit as possible, but they are doing something which ought to attract the poorest members of the community into their ranks. Therefore, with regard to the St. Cuthbert's Society, I say they are doing something very foolish from their own point of view, and something which is not tactful at the present time in consequence of the Excess Profits Duty. My point is, how can there be, in any possible circumstances, a large amount of trade done by co-operative societies with outside people? Every person who gets inside the society receives 4s. 4d. for every £1 he or she spends. It is not so very difficult to get
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  inside. You have not to pay anything except 6d. or 1s. for a book of rules. People eat themselves in. Having got a book of rules, they proceed to buy goods at the stores. Being members of the stores, the first £5 they spend there makes them full members, and they go on drawing the 4s. 4d. The ordinary man or woman of the working class has common sense, and naturally desires to get inside. Small blame to them!
  In ordinary circumstances it is impossible for co-operative societies to do much trade with persons outside; therefore the proposal foreshadowed by the hon. and, learned Gentleman, and the new Clause he has put down, which I suppose is out of order, if it is intended to reach the trade done with outside, members, will have only an infinitesimal effect. It would not only involve the setting up of a great deal of machinery by the co-operative societies themselves, but it would also involve a great deal of machines being set up by the Chancellor of the Exchequer on the other side. I suggest that the game is not worth the candle. We had far better leave the thing alone. It may be that at some time or other there will have to be a reconsideration of the whole question of the Income Tax, and, when that time comes, it may be that some of the productive societies will have to submit their cases for examination. To raise the question now in the middle, or shall I say near the end, of the War, when all the energies of the country are necessary to win that War, when we want to keep ourselves together instead of raising these controversial questions, is unwise, and I hope the hon. and learned Gentleman will not pursue that course.
  Mr. MONTAGU: The Committee has been so generous in the support it has given to the Bill that I now feel compelled to make an appeal to hon. Members. Let us consider where we are. We are on the Committee stage of the Finance Bill, and primarily that Committee stage ought, I submit with great respect, to be devoted to improving the Bill and to directing our attention to the suggestions offered which will become part and parcel of the Statute and improve it. The hon. and learned Gentleman (Mr. Pollock) has introduced this matter on a Clause which simply says that the rate of Income Tax shall be 5s in the £. He does it because he is much interested in the subject. He has made speeches about it before, and finds that he

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  is precluded by the Rules of Order from introducing it as a substantive proposal. I would appeal to the Committee to let the matter rest where it now is. Could it be possible to improve upon the statement which my hon. and learned Friend made as one who would like to see these co-operative societies pay Income Tax at the source? Could there be a clearer, a more persuasive, more convincing and a more closely reasoned argument than he has stated? Those of us who take the opposite view might be content to leave it in the hands of our protagonist the right hon. Gentleman who has just sat down. Can any practical effect come out of this discussion on this Budget? We are only starting the Committee stage. We have to deal with a long Bill. We are at the end of June. There is much other work to be done in the House, and I believe that by Statute the Bill has to become law at the commencement of next month.
  May I appeal to the hon. and learned Gentleman on one other ground I think it has been an understood convention between all parties in all quarters of this House that we should leave every controversy that we could undisturbed during the War. This is no new matter. He rests his case on the growth of the co-operative movement since 1893. He points out that conditions are very different now from what they were when these exceptions and immunities were first granted by Parliament. Therefore this is not a war matter and is not the result of anything we have had to deal with during the War. It is an old grievance, like the grievance of wasted assets, or the double Income Tax, or taxation at the source, or like any of the other disputed points with which our Income Tax law bristles. Is it not better to draw attention to it and leave it until happier times? That inquiry into the Income Tax law has got to come. Every time we come to discuss Income Tax it becomes more certain that it has to come. Everyone connected with the administration of the Income Tax law wants it to come. Definite pledges have been given to the House of Commons, and, so far as I am concerned, I will gladly give my hon. and learned Friend one other promise. I hope the Committee when it is appointed will deal with all questions. So far as I have any influence on its appointment I will give him an undertaking that this question is specifically referred to in the terms of reference, and I would suggest that to deal with the grievance now in this year is in-
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  viting unnecessary trouble, and in so far as the discussion is not directly relevant to the Clause we have under discussion it can produce no practical results to-night and we should leave it where it is left by the two hon. and learned Gentlemen who have spoken.
  Mr. DUKE: I dare say the right hon. Gentleman could give us some indication of the time at which it is probable that the inquiry into the Income Tax system is likely to begin—before the War is over?
  Mr. MONTAGU: The promise which the Prime Minister has made and which the Chancellor of the Exchequer has repeated is that it shall be appointed immediately the War ends.
  Mr. DUKE: Taking that to be so, I do not think there is anyone who desires for a moment that there should be a controversy initiated with regard to this very difficult question, but there is, I am sure, among the retail traders of the country a great deal of uneasiness that one class of industry, and a competitive industry, has a premium put upon it, not by reason of matters which arise with regard to divisible profits but in regard to matters which arise with regard to trading profits, because the ordinary trader, either by individual enterprise or the trader in a joint stock company has to deal with the Income Tax collector upon the basis that it is not a divisible profit which is to be made the subject of taxation but an amount of profit which never conies to a division at all. That seems to be a fair matter for inquiry. I cannot conceive that there is anyone in the House who would wish at this time, when we want to avoid matters of Debate, to embark on a general Debate on this subject. On the other hand, we are very much indebted to my hon. and learned Friend, as well as the right hon. Gentleman opposite, for the fair, candid, and pleasant way in which this matter has been raised. I am glad to hear from the right hon. Gentleman that the uneasiness which exists and the apprehensions there are will be brought to an end as soon as this question of the incidence of Income Tax can be fairly raised as a matter of inquiry.
  10.0 P.M.
  Mr. CURRIE: After what the Financial Secretary has said, so far as I am concerned—one of the Clauses seeking to deal with this matter stood in my name—I am prepared to accept the undertaking that

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  immediately the War comes to an end he will see to it that the whole question which we sought to raise to-night will be thoroughly thrashed out. I think the undertaking is thoroughly satisfactory in the circumstances.
  Mr. J. M. HENDERSON: I should like to ask what is the object of Sub-section (2)?:
  "So far as respects the duty on inhabited houses in Scotland, shall be construed with the substitution of the twenty-fourth day of May for the fifth day of April."
  I understand there is an idea that the Scotch Quarter Day, or Half Yearly Term as they call it, being in May and November, they should extend the time, and the tax should run from that time. That is not so in Scotland. It is only in Glasgow, and only in part of Glasgow. It is a great pity there should be two different dates for any tax as between Scotland and England. I should like my right hon. Friend to consider that before the Report stage.
  Mr. PETO: I am anxious to comply with what is evidently the view of the Committee, that it is unnecessary further to go into this question of the immunity from payment of Income Tax on the whole profits of co-operative trading societies, but I must point out when the right hon. Gentleman is dealing with the Income Tax which is by this Clause raised to 5s. in the £, it is very important to secure its acceptance as being a fair and equitable measure as between all sections of the community. As long as he allows £165,000,000 turnover to escape from all taxation and listens for a moment to arguments which are based upon the difficulty of collecting the tax at the source, because it all has to be returned, he is undoubtedly giving very just cause for dissatisfaction in a tax of this kind. Therefore I am bound to register this protest. Although we have been by some system of self-abnegation, and not by any rules of the House, deprived at present of any further Debate on the subject, I wish to say I feel perfectly satisfied that this immunity has nothing whatever to do with the welfare of the cooperative movement in this country. On the other hand, it creates a sense of hostility and injustice on the part of the whole of the rest of the community, which, I
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  believe, is the most ill-advised thing those who are in favour of co-operation, as I am myself, could possibly wish to see perpetuated. Therefore, the sooner this question is gone into the better, and I am only sorry to hear that because we are in a state of war and have taxation at a war level, and therefore every injustice is quadrupled compared with what it was before the War, it is not considered a proper occasion to make the taxes fair to all the different sections of the community and leave a privileged section enjoying an immunity which no other part of the trading community enjoys.
  Mr. A. WILLIAMS: I should not have taken part in the Debate but for the speech we have just heard, in which the hon. Member spoke of co-operators as enjoying a privilege and of its being an injustice to the other part of the trading community. On behalf of the co-operators, I am perfectly sure we shall welcome the fullest inquiry in this matter. No co-operator is in the enjoyment of any privilege in this matter. Every co-operator who has an income above the level which makes a man liable to pay Income Tax has to pay Income Tax upon his co-operative profits, so far as they are real profits, as well as upon any other profits or income that he has. The only question is whether it is the most convenient plan for the State to levy Income Tax upon the societies and have to make repayments to 2,500,000, or even more than that, out of the 3,500,000 co-operators, or whether it is better to leave the small minority of co-operators who are legally obliged to pay Income Tax to pay it direct to the State.
  Mr. SAMUEL SAMUEL: In consequence of the Woolwich Co-operative Society having a very large branch in my Constituency I raised this question on the Budget last year. The right hon. Gentleman (Mr. Barnes) made a statement which I am sure my Constituents will be pleased to hear, and that is that when this society open their premises anybody who pays 6d. can become a member for life and get 4s. in the £ dividend.
  Mr. BARNES: I did not say anything of the sort.

  CLAUSE 16 (Modification of Relief Given with Respect to Earned Income) ordered to stand part of the Bill.

    CLAUSE 17.—(Graduation of Tax on Unearned Income in Case of Incomes not Exceeding £2,000.)
    (1) If any individual who has been assessed or charged to Income Tax or has paid Income Tax either by way of deduction or otherwise claims and proves in manner prescribed by the Income Tax Acts that his total income from all sources does not exceed two thousand pounds he shall be entitled to the repayment of such a part of the Income Tax paid by him as will reduce the amount of Income Tax on his unearned income to the amount which would have been paid if the tax were charged on that income at the rate of—

    3s. 0d. if the total income does not exceed three hundred pounds;

    3s. 6d. if the total income exceeds three hundred pounds and does not exceed five hundred pounds;

    4s. 0d. if the total income exceeds five hundred pounds and does not exceed one thousand pounds;

    4s. 6d. if the total income exceeds one thousand pounds and does not exceed two thousand pounds.

    (2) The relief given under this Section shall be in addition to and not in derogation of any exemption, or other relief or abatement, under the Income Tax Acts, but where any such exemption, relief, or abatement is to be determined by reference to the amount of the Income Tax on any sum, the amount of the tax shall be calculated at the reduced rate.
    (3) All the provisions of the Income Tax Acts which relate to claims for exemption, relief, or abatement, or the proof to be given with respect to those claims, shall apply to claims for relief under this Section and the proof to be given with respect to those claims.
    (4) An individual shall not be entitled to relief under this Section in respect of any income the tax on which he is entitled to charge against any other person, or to deduct, retain, or satisfy out of any payment which he is liable to make to any other person.
    (5) Section six of the Finance Act, 1914, shall cease to have effect.
    The CHAIRMAN: The Amendment standing in the name of the hon. Member for Wigtownshire (Mr. Dalrymple) is not in the proper form to be inserted as it stands on the Paper. It can be put in a new form as a new Sub-section at the end of the Clause.
    Mr. MONTAGU: I beg to move to leave out

    "3s. 0d. if the total income does not exceed three hundred pounds;

    3s. 6d. if the total income exceeds three hundred pounds and does not exceed five hundred pounds;

    4s. 0d. if the total income exceeds five hundred pounds and does not exceed one thousand pounds;

    4s. 6d. if the total income exceeds one thousand pounds and does not exceed two thousand pounds,"

    and to insert instead thereof,

    "3s. 0d. if the total income does not exceed five hundred pounds;

    3s. 6d. if the total income exceeds five hundred pounds and does not exceed one thousand pounds;

    4s. 0d. if the total income exceeds one thousand pounds and does not exceed one thousand five hundred pounds;

    4s. 6d. if the total income exceeds one thousand five hundred pounds and does not exceed two thousand pounds."

    Mr. J. SAMUEL: I beg to move, as an Amendment to the proposed Amendment, to insert at the beginning "2s. 6d. if the total income does not exceed three hundred pounds."
    The Clause as it stands at present makes the charge 3s. if the total income does not exceed £300. The Chancellor of the Exchequer's Amendment proposes to strike out those lines and to make the tax 3s. up to £500. In this tax, which is upon unearned income, I think 2s. 6d. in the £ is a very fair compromise. I believe everybody will agree that people of very small incomes from unearned sources are now suffering very intensely by the War. They suffered very intensely before the War, but since the War, with the large increase in the price of food, they have suffered much more. When we find in the newspapers this morning that a sovereign is only worth in purchasing food 12s. 6d., I think that everyone will agree that in the case of the income of these people who have small investments up to £300, 2s. 6d. in the £ Income Tax is ample for them to pay. Therefore, I think that some concession ought to be made on incomes up to £300. In that case the 3s. tax would apply to incomes above £300 and not exceeding £500. I raised this matter on the Second

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    Reading of the Bill, when it was foreshadowed that we should have some concessions. The Chancellor of the Exchequer has made a concession to some extent above £500, but below that there has been no concession whatever.
    Sir R. ADKINS: I support what has been said by my hon. Friend. Where you are dealing with unearned income below £300 a year you are dealing with an income which is very much nearer the point of subsistence now in war time than it is in time of peace. Therefore, I think it is of great importance, and if the Government could agree to this proposal I believe it would give relief in cases which are much nearer hardship than is caused by the scale to the higher incomes. I am sure if the Government could meet my hon. Friend in this matter the concession would be very widely appreciated by a very deserving class of the community whose anxieties are exceptionally high in times of war like these.
    Mr. MONTAGU: It is very difficult for me to be able to appreciate and explain to the Committee the financial effect of the proposal because it is not on the Paper. I do not think that it is a suggestion which ought to commend itself to the Committee. After the pledge given by my right hon. Friend on the Second Reading this scale has been carefully adjusted as regards unearned income and the taxes have been carefully considered in relation to one another and in relation to existing taxation. I think it would be considered a rather strange proceeding if in this year we reduced the taxation upon anybody to a lower figure than it would have been if we had not introduced this Finance Bill. I have before me the rates which would be paid on an income under £300 a year under the Finance Act, 1915, Section 20. I find that a man with an unearned income under £300 a year would be paying 2s. 9d. and three-fifths of a penny, which is over 3d. more than my hon. Friend suggests. Therefore, his Amendment would actually reduce the existing taxation on these incomes. Surely that would be out of harmony with the proposal that all classes should pay a fair share of the increased taxation. We have only raised the tax by a very small amount, a little over 2d., and at the same time there has been a promise made this afternoon with regard to improvement of machinery. I hope that my
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    hon. Friend will not persist in asking for a reduction of taxation to that particular class of person.
    Amendment to the proposed Amendment negatived.
    Original Amendment agreed to.
    Mr. DALRYMPLE: I beg to move as a new Sub-section:
    "(3) The relief given under Sub-section (1) of this Section shall extend to the income of any corporation or municipal council so far as such income is not derived from rates."
    I desire to call attention to a hardship which exists in the case of small burghs which have to bear the full burden of the new Income Tax, and which are not allowed to claim exemption, as a private individual is whose income is under a certain sum. I will give the case of a burgh in my own Constituency—the borough of Wigtown, which has a population of 1,368. The income of the corporation of that borough in 1914–15 was £311, composed mostly of feu duties and rents of pasture. When the ordinary deductions were made that sum was reduced to £263 15s. Last year they had to pay Income Tax on that amount of £39 3s. 3d. This year, if the full amount is charged, it will amount to £65 18s. 9d. There are a good many small burghs in Scotland in which the rate of 1d. in the £ produces very little. I believe there is one burgh in which it produces only £6. The matter has been brought before the Committee of the Convention of Royal Burghs, in Edinburgh, and they gave it as their opinion that small trading authorities should have the same right to obtain repayment as private individuals. It has been impressed on the local authorities that they should as far as possible in these times study economy, and I think they are endeavouring to do so. But if this full rate is charged in the case of the burgh of Wigtown it would make a difference of 1d. in the burgh assessment. I have put down the Amendment to call attention to this grievance, and I hope the Secretary to the Treasury will give it favourable consideration.
    Mr. MONTAGU: This is an original suggestion. The whole theory of Income Tax relief is to relieve the poorer class of taxpayers, to relieve the individual, and not a body of persons. In so far as the income of a corporation, or of a company,

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    or of a society is distributed among individuals, those individuals are, of course, entitled to the relief from taxation. But it is clearly a great extension of the principle of relief, and is, I submit, unjustifiable, to treat in the same way the poor individual and a corporation or municipality. What is the test of the hon. Member as to whether the corporation, or municipality, or society deserves relief? His test is that they should be relieved on the income which is not provided from the rates, on the income from some property, irrespective of whether the municipality or corporation is a rich corporation with wealthy ratepayers, or a poor corporation with poor ratepayers, and whether it possesses gasworks, or racecourses, or anything of the kind. There is no use in giving Income Tax relief unless you give it to deserving people. The test of the hon. Member is not a fair test. The only fair way of applying relief is to give relief to individuals whose income we can test, and not to a company or a corporation with private means.
    Amendment negatived.

  CLAUSE 18 (Continuation of Relief under 5 Geo. 5, c. 7 s. 13) ordered to stand part of the Bill.

    CLAUSE 19.—(Belief where Income of Year is Less than Assessed Income.)
    If any individual who has been assessed or charged to Income Tax for the current Income Tax year claims and proves in manner provided by the Income Tax Acts that his actual income from all sources for the year of assessment is less by more than ten per cent, than the income on which he has been so assessed and charged, he shall be entitled to repayment of such part of any Income Tax paid by him, either by way of deduction or otherwise, as is equal to the difference between the amount of the tax so paid and the amount which would have been so paid if he had been assessed or charged on his actual income for the year of assessment.
    Mr. PENNEFATHER: I beg to move to leave out the word "individual," and to insert instead thereof the word "person."
    I move this Amendment in order to obtain an answer to a question which the Financial Secretary to the Treasury has already answered to a certain extent. I want to find out whether in, this Clause the word "individual" has been carefully chosen excluding persons and firms. My
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    object in asking this is that the assessment which is referred to is in very many cases made upon the firm and not upon the individuals, and that the total amount so levied is then split up by the Income Tax authorities according to the particulars furnished to them, and the rate is calculated upon the income of each individual partner. But in many cases I would sugget that it might be more convenient both for the taxpayer and the Income Tax official if the assessment were made upon the firm and that the relief of the claim might be granted to the firm. I do not wish to press this point because I realise as a great many others realised that this Clause goes a very long way indeed in the direction of a concession to the Income Tax payer, and is a very fitting adjunct to the Excess Profits Tax, because here relief is granted to those who have suffered by the War and in the other case excess taxation is required from those who have benefited by the War. Therefore, realising that this Clause is really a very just concession I do not wish to press the point, but I would like to get from the Chancellor of the Exchequer a statement as to whether "individual" means "person" and whether "person" means "firms."
    Mr. MONTAGU: The word "individual" means individual, and the relief in regard to firms is to be found in Clause 18.
    Mr. PENNEFATHER: I beg leave to withdraw my Amendment.
    Amendment, by leave, withdrawn.
    Question proposed, "That the Clause stand part of the Bill."
    Mr. AINSWORTH: I wish to ask the right hon. Gentleman how far this Clause will apply to a species of property in Scotland which has been extremely hard hit lately, and from which either no income i3 received or a greatly reduced income? I refer to shooting rights. I should be glad to have the opinion of the Chancellor of the Exchequer or the Secretary to the Treasury. The proprietors of shooting rights point out that where rents for shooting rights amounting to hundreds, and in some cases thousands, had been received, they are now unable to let these properties for any purpose whatever, and this applies to a large portion of the country where they have received no rents. I should like to know if under the interpretation given of this Clause the proprietors will have

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    thorough redress individually, and that no Income Tax will be expected where no income has been received. This is a large question, and certainly embraces a large class of property not only in Scotland, where there are large estates, but no doubt in other parts of the country. I have had the opportunity of calling the attention of the Financial Secretary to the subject, and I should be glad to hear his view on the point as to whether Income Tax can be reasonably claimed where either no income or a greatly reduced income has been received, and whether no Income Tax should be charged except on incomes of the proper value?
    Sir F. BANBURY: I did not understand the answer of the Financial Secretary to the Treasury given to my hon. Friend below the Gangway (Mr. Pennefather), who asked whether "individual" included firms, and the right hon. Gentleman said No; that "individual" meant individual, and that firms received relief under Section 18. I look at Clause 18 and I find it enacts Section 13 of the Finance Act of 1914, which gives relief in respect of diminution of income during the War, etc. Clause 19 does not deal with the War at all. It provides that if the individual finds that his income is less than that on which he was assessed, then he may claim relief. I cannot see myself why a firm should not receive the same relief, if it is just, as an individual. A firm is composed of individuals, and why should a person who happens to be a member of a firm be refused relief which he would receive if in business on his own account and without a partner? I dare say I have misunderstood the answer and I should like a further answer.
    Mr. McKENNA: The answer which my right hon. Friend gave was quite correctly understood by the right hon. Gentleman (Sir F. Banbury). A person includes a firm, but an individual does not include a firm. Individuals are dealt with in Clause 19 and firms in Clause 18. I see the force of the point put by the right hon. Gentleman, but I think he will appreciate that the answer, I am bound to say, really covers the case. So far as regards the firm the profits are, in the main, divided in the form of dividends. If the firm makes less income the dividends are reduced, and the shareholder will receive less income. The shareholder is an individual under Clause 19, and where the firm has suffered the benefit of the Clause
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    will accrue to the individual shareholders of the firm provided their income has not been made up to its former level from, other sources. We think it is necessary to continue the old relief in the old form, to firms, but so far as the individual is concerned, with whose case of hardship we wish specially to deal, because we are dealing now with that case of individual and personal hardship, dealing with that and with that only, we think the remedy of Clause 19, which is larger than the remedy of Clause 18, is properly applied.
    Sir F. BANBURY: I do not quite understand the explanation. It seems to me that the right hon. Gentleman has dealt with companies and not with firms. He says that in the case of firms there is a dividend, and that the shareholder will receive the exemption if his dividend is cut down. That is all right in the case of a company, but not in the ease of a firm. Let me give an instance. Suppose the right hon. Gentleman and myself are in partnership and make a profit of a £1,000, and that that profit is divided equally into £500 each, the right hon. Gentleman and myself have no means, in that case, of obtaining any relief at all, because the assessment is made, not on us individually, but upon the firm. May I ask the right hon. Gentleman to answer that question?
    Mr. McKENNA: I thought I had already answered it.
    Sir F. BANBURY: No!
    Mr. McKENNA: Suppose the £500 of which the right hon. Gentleman speaks is my sole income, and that we make no other return for Income Tax—
    Sir F. BANBURY: The relief under Clause 18 is not as large.
    Mr. McKENNA: I have stated it is not as large. In our view Clause 18 relief is sufficient for the case of the firm or company or person, person including firm or company. We do not believe that it is sufficient in the case of an individual. It is quite possible that we may find exceptional cases in which there is no sound distinction to be drawn why an individual member of a firm should not get the benefit of Clause 19 instead of only the benefit of Clause 18. But in the great mass of cases, in far more than 99 per cent., the case put-forward by the right hon. Gentleman would not apply, and the individual would get the larger benefit. It is only in the special case where there is no individual

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    assessment that that would not be so. If the right hon. Gentleman were assessed apart from the firm—and that is the normal case and the case of all companies—the relief given under Clause 19 would properly apply. This is one of those eases where in practice it is impossible to draw a hard and fast line which would not give too much relief in some cases or be unfairly hard in others. That is true of the incidence of all taxes. But dealing with the cases as a whole, we think the form of relief which we have now given is the proper one; that is to say, it is given in the ordinary case of hardship to the individual.
    Sir F. BANBURY: I cannot agree that these are exceptional cases. Certainly ton years ago the great majority of people in the City were in partnerships in firms, and if they had other sources of income they were investments where the tax was deducted at the source and no separate return was made. I will continue my illustration of a partnership.
    Mr. McKENNA: May I intervene? I have had an opportunity of consulting the authorities under the Gallery, and they say that even in that case the individual partners could put in a fresh assessment of their own—they would not normally do it—and then they would get the relief.
    Mr. J. M. HENDERSON: I have dealt with many of these cases. You can always get a separate individual assessment in a partnership.
    Mr. AINSWORTH: Will Clause 18 apply to proprietors who are unable to let their shooting or can let it only at a reduced rental?
    Mr. McKENNA: I think I know the case to which my hon. Friend refers. It is quite a special case, and I will communicate with him privately before the Report stage.

  CLAUSE 20.—(Right of Soldiers and Sailors to Pay Reduced Rates of Income Tax in Respect of their Pay.)
  (1) Where any person who, during the current Income Tax year, has served or is serving as a member of any of the naval or military forces of the Crown, or in service of a naval or military character in connection with the present war for which payment is made out of money provided
  270
  by Parliament, or in any work abroad of the British Red Cross Society or the St. John Ambulance Association, or any other body with similar objects, proves that he is assessed or charged to Income Tax, or has paid Income Tax either by way of deduction or otherwise on his pay in connection with any such service, he shall be entitled to claim such relief from Income Tax as will reduce the amount of Income Tax on that pay to the amount which would have been payable if the tax were charged on that pay at the rate of—

  9d. if his total income from all sources does not exceed three hundred pounds;

  2s. 1d. if his total income exceeds three hundred pounds and does not exceed one thousand pounds;

  2s. 5d. if his total income exceeds one thousand pounds and does not exceed one thousand five hundred pounds;

  2s. 9d. if his total income exceeds one thousand five hundred pounds and does not exceed two thousand pounds;

  3s. 3d. if his total income exceeds two thousand pounds and does not exceed two thousand five hundred pounds;

  3s. 6d. if his total income exceeds two thousand five hundred pounds.

  (2) The relief given under this Section shall be in addition to and not in derogation of any exemption or other relief or abatement under the Income Tax Acts and in cases where the total income does not exceed three hundred pounds shall not be subject to the reduction of exemption and abatements for which provision is made under the Finance (No. 2) Act, 1915; but relief in respect of earned income shall be given in respect of the pay by reference to the rates under this Section; and in calculating any earned income on which relief is to be given, any deductions from earned income made under Sub-section (2) of Section nineteen of the Finance Act, 1907, shall be made primarily from the pay.
  (3) All the provisions of the Income Tax Acts which relate to claims for exemption or relief, or the proof to be given with respect to those claims, shall apply to claims for relief under this Section and the proof to be given with respect to those claims.
  Mr. PETO: Before moving my first Amendment, I should like to ask the Chancellor of the Exchequer if he will not allow this Clause to stand over until to-morrow. Hon. Members expected that

  271
  the discussion on Clause 15 would last very much longer. The question of Income Tax chargeable to officers has been discussed before, and it is now the subject of a special Clause giving what some of us think is a very inadequate abatement. On Clause 28, too, there is a very important Amendment dealing with Colonial Income Tax. I would ask the Chancellor of the Exchequer whether, in' justice to the adequate discussion of these very important question, he would allow the Committee to adjourn now and take these other important Clauses tomorrow?
  The CHAIRMAN (Mr. Whitley): The Committee must have a Question before it.
  Mr. PETO: Then I move formally, in Sub-section (1), to omit the word "who" ["where any person who"].
  Mr. McKENNA: I have not the slightest desire to press the members of the Committee to go beyond what they desire; but I should like to get up to the end of Clause 27. I agree it would be undesirable to go on to Clause 28. Down to Clause 27 I do not think there is anything really outstanding which has not been fully discussed, except, of course, the Clause with which we are now dealing. That, I quite admit, is a very important Clause.
  Mr. PETO: My hon. Friends who had Amendments down here left the House under the impression that this Clause would not be reached.
  Mr. McKENNA: I am sure that it will be understood that there was no agreement on that point. As to the Amendment, in a material way, of this Clause—
  Mr. PETO: Could not the right hon. Gentleman reconsider his decision to go on, and take this matter to-morrow, when we shall have someone here?
  Mr. McKENNA: I do not really think I ought to ask the Committee to come to a stop just at this moment. Perhaps I may say at once what it is I propose to do. There is no difference of view, I take it, between us as to the first item, where the income does not exceed £300.
  Mr. PETO: Under the new scale?
  Mr. McKENNA: Yes. After the 9d., if the total income from all sources does
  272
  not exceed £300, our scale in the Bill jumps up at once to 2s. 1d. where the total income exceeds £300 and does not exceed £1,000. We propose to substitute for that that between £300 and £500 the tax shall be 1s. 3d.; between £500 and £1,000 it shall be Is. 9d.; between £1,000 and £1,500 it shall be 2s. 3d.; and between £1,500 and £2,000 it shall be 2s. 9d., the same as in the Bill at present. Then we get the 3s. 3d. and the 3s. 6d. for the larger incomes as in the Bill. This is a very material reduction, and it will cost the country £200,000. I noted on the last occasion the very serious reduction which was made. I will not say that when that reduction was made that it was understood to be final. I can say that it was made under circumstances which gave us every hope that it would be final. I think, then, in making this further offer now I am going a very long way. I hope that those who take a great interest in this subject will feel that the Treasury, in asking the Committee to accept this new scale, have really done all that they could be expected to do.
  Mr. PETO: I should like to say, although I thank the Chancellor of the Exchequer for the consideration he has given to the scale, that the scale as it stood quite obviously could never have been accepted in any part of the House. The sudden jump from 9d. to 2s. 1d. is really an impossible scale altogether. I agree that the scale which the right hon. Gentleman proposes is a very important concession, and very important from the point of view of what we might regard as equality of burdens for the payment of the War; but I cannot agree with him that the burden of the pre-war standard of Income Tax of 9d. in the £ on incomes up to £300 was accepted with any understanding that it was final. On the contrary, we were out, at any rate, especially for the remission of war taxation in the form of Income Tax up to incomes of £400. It is with incomes between £300 and £400 that a great many of the hardest cases come, where officers with wives and families to support, with no separation allowance or anything of that kind, find themselves— particularly I may refer to naval officers whose pay comes to between £300 and £400—in the position when the time comes to pay Income Tax of having positively to reduce their allowance to their wives. Therefore, I cannot agree with the right hon. Gentleman that there was any idea that the concession only up

  273
  to £300 had any finality in it whatever. I understand the scale he now proposes puts in a fresh step in the ladder, and that from £300 to £500 it is 1s. 3d., and then from £500 to £1,000 it is 1s. 9d. If I must abandon my proposal—and it is under duress, because, as I have already stated, I am not supported by my Friends who have taken a very great interest in this— I must say that I think the Chancellor of the Exchequer is now in a very illogical position. He gave us the concession last time that in the case of incomes up to £300 the tax should be payable at the pre-war rate. There we had the admission up to a certain scale of pay of a definite principle. It is not fair to ask a man to fight and to ask him to pay for fighting. We maintain that it is for the civil population, who are debarred from taking an active part in defence of their country and for all the principles for which we are fighting, to pay for the War, and that the Income Tax of the men actually fighting should be at the pre-war rates. There we had a definite principle admitted up to a point. Then the Chancellor of the Exchequer proposed in this Bill that it is not quite fair to charge the increase from 3s. 6d. to 5s. on officers' pay, and so he made his maximum under this Clause as it stood 3s. 6d. There is no principle of any sort or kind in that. If it was just to charge 3s. 6d., there is no reason why he should not charge 5s. The tax of 3s. 6d. as a war rate was considered adequate to meet the needs of the Exchequer in the last Finance Bill. Five shillings is now considered adequate. Now the Chancellor of the Exchequer in his concession proposes something which is neither fish, flesh, fowl nor good red herring. It is not a pre-war rate; it is not the last Finance Bill, but it is just a toning off of one thing into the other which we might argue all night about. I rest myself upon the terms of the Amendment which I have put down to omit from the word "objects" preparatory to the main Amendment which no doubt you, Mr. Chairman, have noticed, to the end of the Sub-section, and to insert the words "the rate of duty chargeable, whether by way of deduction or otherwise, in respect of the pay of such person in connection with such service shall be the rates prescribed by Sub-section (1) of Section 4 of the Finance Act, 1914." My proposal means that it is not reasonable, equitable or just to attempt to deduct from the pay
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  of officers in the Army and Navy and the other Services referred to, who are doing their part actively in successfully waging this War, and charge them the special rate or any part of it which is being imposed for the purpose of paying for this War. There we have a definite principle, and for myself I will stand on the terms of the Amendment I have put down which I know has support outside the House, and which I believe would be acceptable to the civilian population generally. I believe it was perfectly clear from the Chancellor of the Exchequer's Second Reading speech that he felt in imposing a 5s. Income Tax and an increase of 10 per cent. in the Excess Profits Duty that he was going to a liberal limit, leaving a little margin in hand. That being so there was no justification for any inequity in the matter of raising the tax.
  When the right hon. Gentleman tells us that this means a concession on the part of the Treasury of £200,000, I say that he has got an ample margin up his sleeve to go the whole length. I ask him to proceed on a definite matter of principle instead of merely toning off an injustice and trying to make something a little less inequitable and less acceptable to the civilian community, who would rather take it upon themselves than see it charged upon the officers who are doing our fighting at the front. I think it is very unfortunate that the right hon. Gentleman did not shorten this Debate more than he has done by accepting the Amendment standing in my name and saving the time of other hon. Members who have also taken an active interest in this matter. I press the right hon. Gentleman even now to reconsider the matter. I believe, even from the figures he has given me as to the exact cost, that for another £300,000 he could do the whole thing and stand upon a definite principle, leaving the civilians to pay what is necessary for the maintenance of our naval and military forces, and not ask the officers to pay more than was settled in peace time from the pay fixed by the Army Council and the War Office, and which was considered adequate when the Income Tax was only 1s. oils. 3d. in the £. I entirely demur from the view put forward from the Treasury Bench that I am really asking for an increase of pay, because I am doing nothing of the kind. I am merely asking that the Treasury shall not take away a large part of the pay which the War Office has

  275
  settled as adequate for each rank in the form of what they call Income Tax. By passing this Bill and this Clause even with the modifications the Chancellor of the Exchequer now proposes you say in effect that now, in time of war, officers and other ranks whose income rises to the level where Income Tax is payable should pay more than what the country agreed was adequate in times of peace.
  Mr. HENDERSON: Before going on with the main discussion, there is a small Amendment of mine.
  The CHAIRMAN: This Amendment leads up to others, and they are all part of one question.
  Mr. PETO: I shall not be precluded from moving the later Amendment standing in my name, to leave out the words "for which payment is made out of money provided by Parliament"?
  The CHAIRMAN: No; I understand that is a separate Question.
  Mr. PETO: It is.
  Mr. HENDERSON: I beg to move, in Sub-section (1), after the word "War" ["or in service of a naval or military character in connection with the present War"], to insert the words "or is a prisoner of war." I am not sure that prisoners of war are included as serving during the current year.
  Mr. MONTAGU: I am informed that they are covered by the Clause as it stands.
  Mr. HENDERSON: The words are, "During the current Income Tax year has served or is serving."
  Mr. MONTAGU: A prisoner of war is serving.
  Question, "That the words proposed be there inserted," put, and negatived.
  Mr. PETO: I beg to move, in Sub-section (1), to leave out the words "for which payment is made out of the moneys provided by Parliament."
  If the concession is limited to the pay of officers, the payment of which is made out of money provided by Parliament, the Clause draws a very arbitrary and impossible line of distinction between officers who are serving in various capacities in
  276
  the merchant service as auxiliaries to the Fleet. Some ships chartered by the Admiralty have their crews paid out of money provided directly by Parliament, and others engaged in service quite as dangerous and absolutely as much a part of the military defence of the country cannot be said to have the pay of their crews provided directly by Parliament. If performing service of a naval character in connection with the present War—such as mine-sweeping or the transport of vessels taken over by the Admiralty—they are performing services of a naval character, and I do not see why it is necessary to put in these words, "for which payment 13 made out of moneys provided by Parliament." In the broader sense I believe all these people would come in, because it is quite clear the Admiralty cannot charter vessels and pay shipowners the charter money unless the cash is provided by Parliament. At the same time the pay would not appear on the Admiralty pay sheet, and therefore in that narrow sense it may not he said to come strictly out of moneys provided by Parliament. What is the particular merit of leaving in these words, which undoubtedly do make possible a very arbitrary distinction? It will be felt to be a great injustice by the people who are left out and who are doing exactly similar and equally dangerous work. Because he happens to be on a vessel where the pay is on the Admiralty pay list one man is called upon to pay an Income Tax of 1s. 3d. in the £, whereas another man doing just the same service pays a tax of 2s. 6d. because he is paid by the shipowner. I hope the right hon. Gentleman will see that these words are not an improvement on the Clause. The omission of them, far from raising difficulties, will save him striking on rocks which will produce a good deal of friction, and it would be far better to make the concession now than to find that the provision is so inequitable in its operation that he will be obliged to amend it in another Finance Bill.
  Mr. McKENNA: What is proposed is that every person in the service of the Crown engaged on service of a naval or military character shall be granted this concession. The term is very wide indeed, and we had, therefore, to put in a limitation that the person must be paid out of moneys provided by Parliament—that is to say, they must be in the direct employment of the State. Service of a naval or military character does not necessarily

  277
  mean a soldier or a sailor, and therefore it was necessary to put in the provision that the person must be in the service of the State. Anything wider in one sense than that or with less limitation than that I cannot conceive Parliament accepting. If you strike out these words, as suggested by the hon. Member, there would be no limitation to the number of persons to whom the Clause might possibly apply— persons whom nobody wishes to benefit On the other hand, every person to whom Parliament intends it to apply is included.
  11.0 p.m.
  Sir COURTENAY WARNER: The Chancellor of the Exchequer has failed to grasp my hon. Friend's (Mr. Peto) point. It is that there are men employed by the State who are not directly paid by the State. The State charters a trawler or a ship of any sort. The owners pay the men, so that the money is not found directly by the State, although it is found indirectly by Parliament. The point is that these men are actually doing service for the State but are paid by the owners. I understood my hon. Friend to say that he was afraid these men would not come under the Clause.
  Mr. McKENNA: They ought not to.
  Sir C. WARNER: But they are in exactly the same position.
  Mr. McKENNA: They are not at all in the same position. The people whom he describes can make their own bargain for their own rates of pay for the service in which they are engaged. If these men make their own bargain they have to take the accepted rates.
  Mr. LOUGH: I do not think it would be possible for me to support an extension of the concession made by this Clause. It is one of those cases in which, if you begin to allow exemptions, a good many other suggestions will be made to widen the Clause. I say that because there is a sentiment that the Clause is drawn too widely as it is. I should like to take the opportunity on this Amendment to ask the right hon. Gentleman whether he has considered the case to which his attention was called by the Comptroller and Auditor-General, in which double salaries are being paid to some of the military officers who do not go at all to the front. They are now here. They are men of over seventy years of age receiving, first, retired pay, and then their salaries. Now they are being re-
  278
  lieved of Income Tax. They ought, I think, to be excluded from the benefits of the Clause rather than that the terms of the Clause should be widened any further. I did not like to put down an Amendment in regard to the matter, but the attention of the right hon. Gentleman has been called to it, and I hope he will consider it.
  Mr. LAURENCE HARDY: The argument of the Chancellor of the Exchequer did not quite appeal to me. He said it was necessary to use limiting words to define the naval and military character of the service, but in the Clause itself, immediately following these words, he goes outside State employment altogether and refers to
  "any work abroad of the British Red Cross Society or the St. John Ambulance Association or any other body with similar objects."
  Those words are extremely wide, and the right hon. Gentleman does not introduce any qualifying words with regard to them. It seems rather hard that any other body with objects similar to that of the St. John Ambulance Associaion should have the relief, while those actually doing naval and military duties should not have it. There is ground for my hon. Friend's contention that these words ought to be taken out in regard to those actually serving or doing work of a naval or military character.
  Mr. PETO: I had intended to point out exactly how the Clause would work. It will mean that men who are serving and1 who have in many cases lost their vessels, if not their lives, in the operations at Gallipoli will be charged with full Income Tax, while other people, doing any kind of work claimed to be with a similar object to that of the Red Cross Society—possibly a conscientious objector who is not prepared to do any kind of work at all—if they receive pay for what they say has a, similar object, namely, the relief of suffering and the saving of life, will be entitled to all the benefits of this Clause. I am perfectly satisfied that the Chancellor of the Exchequer will find that this is not the last occasion upon which this question will come up, and he will save himself a good deal of trouble if he will omit these words which draw a hard and fast but absolutely indefensible distinction between absolutely analogous services to the-auxiliary services of the Navy.
  Amendment made:
  Leave out

  "2s. 1d. if his total income exceeds three hundred pounds and does not exceed one thousand pounds;

  2s. 5d. if his total income exceeds one thousand pounds and does not exceed one thousand five hundred pounds,"

  and insert instead thereof,

  "1s. 3d. if his total income exceeds three hundred pounds and does not exceed five hundred pounds;

  1s. 9d. if his total income exceeds five hundred pounds and does not exceed one thousand pounds;

  2s. 3d. if his total income exceeds one thousand pounds and does not exceed one thousand five hundred pounds."—[Mr. McKenna.]

  Question proposed, "That the Clause, as amended, stand part of the Bill."
  Mr. LOUGH: I think the case of these allowances ought to be dealt with, or we shall have the Comptroller and Auditor-General calling attention to it again if people are taking double salaries in particular cases and are being relieved of Income Tax which everyone else has to pay. The Financial Secretary to the Treasury, at an earlier stage this afternoon, charged me with making inroads on the revenue, and I should like to make that up a little now.
  Mr. McKENNA: It is only on their pay that the allowance is made. If they are serving the State a case has been made out for relief being given. When the case was first raised it was urged that officers of the Red Cross Society and the St. John Ambulance Association ought to be included. We have done our best to meet the views which were then expressed.
  Mr. HENDERSON: How do you propose to deal with those officers who are receiving pay from this House as well? Will they be relieved to the extent of their £400?
  Mr. LOUGH: If they are serving they will.
  Mr. McKENNA: Only their naval or military pay.

  CLAUSE 21.—(Provision as to Service in the Navy or Army.)
  (1) For the purpose of any relief under the Income Tax Acts given, whether before or after the passing of this Act, to persons serving as members of the naval or military forces of the Crown a person shall not be deemed to have served as a member of the naval or miltary forces of the Crown unless he has served—

  (a) on the active list of the Navy; or

  (b)in the Army, either with the Colours, or as an officer on full pay or at a rate of pay which appears to the Income Tax Commissioners concerned, after consultation with the Army Council, to be equivalent to full pay, and either out of the British Islands or for at least one month continuously in the British Islands.

  Mr. HENDERSONhad given notice of Amendment to add, at the end of Subsection (1), the words "is a prisoner of war."
  The CHAIRMAN: Does the hon. Member move?
  Mr. HENDERSON: If the right hon. Gentleman can satisfy himself that the word includes prisoners of war, I am satisfied, but I want to be sure of it for this reason: We are sometimes told by the Under-Secretary that words mean a certain thing, but when the Bill is passed the administrators, the overseers, and surveyors look very strictly at it and do not construe it in the way we do.
  Mr. MONTAGU: I challenge my hon. Friend to give an instance where I have misled the House.
  Mr. HENDERSON: I do not say you have misled them.
  Mr. MONTAGU: I say an officer who is a prisoner of war is still serving. I believe that is an incontestable assertion.

  CLAUSES 22 (Reduction of Income Tax when Margin Above a Certain Limit is Small), 23 (Declaration as to the Effect of s. 20 (1) (b) of 5 and 6 Geo. V. c. 89), 24 (Collection of Tax by Means of Stamps in Certain Cases), 25 (Charging of Income Tax on Dividends, etc., Amounting to Fifty Shillings Exactly), and 26 (Income Tax on Dividends on Exchequer Bonds Issued Through the Post Office) ordered to stand part of the Bill.

    CLAUSE 27.—(Exemption of Interest under War savings Certificates from Income Tax.)
    The accumulated interest payable in respect of any war savings certificate issued by the Treasury through the Post Office under which the purchaser, if he makes a declaration that his total income from all sources does not exceed three hundred pounds a year, by virtue of an immediate payment of fifteen shillings and sixpence, becomes entitled after five years to receive the sum of one pound, shall, subject to the correctness of that declaration, not be liable to Income Tax.
    Mr. MONTAGU: I beg to move, to leave out the words "if he makes a declaration that his total income from all sources does j not exceed three hundred pounds a year."
    Sir F. BANBURY: I should like some: explanation of what this means. As far as I can understand, it means that persons who invest in war savings certificates will be exempted entirely from Income Tax. Why has this particular form of Government security been singled out for this exemption? What amount will be authorised under the Regulations made by the Treasury? This will reduce the amount I that will be received from Income Tax. I do not say that it is not right, but it is a very startling innovation as to which we should have some explanation. We should also have some indication as to what the amount authorised by the Treasury will be, and why this particular form of investment has been selected.
    Mr. MONTAGU: This is a peculiar form of security in that there is no interest payable upon it to the holder except compound interest which accumulates at the end of five years. The security is devised to meet the appetite of the working classes, who want a simple security the yield from which they can understand, who would find it very difficult to realise five years hence that any deductions should be made for Income Tax on the difference between 15s. 6d. and the £. Therefore we devised a plan whereby we
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    should get a declaration from the person buying the security that his income did not exceed £300 a year, and that on that declaration we should exempt the security from taxation. This has not worked well for this reason. We are very anxious to attract these people, but it is difficult to make them understand the reason for filling in forms subjecting them to all sorts of penalties if their income is over £300 a year. This excludes a large number of the very men we are wanting to attract—men who are earning £7, £8, or £9 a week, and who could not sign the declaration. Therefore, as we had to ask Parliament to relieve Income Tax in cases up to £300, we have now made this alteration in the regulations limiting the amount held by any one person up to 500 certificates.
    Amendment agreed to.
    Further Amendments made:
    Leave out the words "subject to the correctness of that declaration."
    At the end of the Clause, insert the words "so long as the amount of the certificates held by the purchaser does not exceed the amount which an individual is for the time being authorised to hold under regulations made by the Treasury." —[Mr. Montagu.]
    Clause, as amended, ordered to stand part of the Bill.
    Committee report Progress; to sit again To-morrow.
    The remaining orders were read, and postponed.
    Whereupon Mr. DEPUTY-SPEAKER, pursuant to the Order of the House of the 22nd February, proposed the Question,
    "That this House do now adjourn."
    Adjourned accordingly at Seventeen minutes after Eleven o'clock.