WAYS AND MEANS.

HC Deb 29 May 1916 vol 82 cc2426-76

Considered in Committee.

[Mr. WHITLEY in the Chair.]

Mr. McKENNA

I beg to move, "That there shall be charged for the year beginning the sixth day of April, nineteen hundred and sixteen, and for any subsequent year for which Income Tax is charged on the income derived from any stocks, shares, or other securities which, the Treasury have declared that they are willing to purchase in connection with any arrangements for the regulation and maintenance of the foreign exchanges an additional duty of Income Tax at the rate of two shillings in the £, and that no per-son shall be entitled to any exemption abatement, or relief under the Income Tax Acts in respect of such additional Income Tax, and it is declared that it is expedient in the public interests that this Resolution, shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913."

This is a Resolution which is, I think, entirely novel in the financial history of our country. Unfortunately, however, there are other circumstances of the time which are equally novel. One of those circumstances is that we have to finance a great war in the course of which we have found it necessary to make enormous purchases abroad, not only on our own behalf, but on behalf of our Allies. The Committee will readily understand that when this country enters into those huge liabilities, which, in the main, are undertaken in the United States, the difficulty of meeting the liabilities at the time they fall due is exceedingly great. Our means of payment are, it is quite obvious, limited to three or four sources. We pay for our huge expenditure, both for our own and Allies' account, in the United States primarily by the goods which we send to that country. Unfortunately, however, the balance of trade between us and the United States at the present time is considerably against us. Therefore, we have to find a large margin over and above the value of the goods which we export to the United States in order to meet our payments in that country. Our most obvious next resource is to pay for what we buy in gold. We have to a very large extent resorted to that power, but obviously there is a limit to the amount of gold we can export to the United States, or, indeed, in the long run, to the amount of gold which the United States would be willing to receive. Thirdly, we have endeavoured to meet our liabilities by obtaining credit or raising loans in the United States. As the Committee knows, we have raised, in conjunction with our Allies, the French, one loan to the nominal amount of one hundred millions sterling. Those three methods of payment we have used, but those three methods of payment combined are insufficient to enable us to meet the whole of our liability.

We have, therefore, for many months organised a scheme whereby we should make good the balance of our liabilities by means of the sale of American securities owned over here which we ship back to the United States and sold upon their market. This is a scheme which has been carried out with a great deal of care, otherwise we might have influenced to our detriment the United States market in securities. Hitherto we have been able to carry on our transactions without serious or, indeed, any injury to the American market. Our system includes also the power to receive American securities on deposit, the owner retaining his property in the security, lending them to the Treasury, who in their turn ship them to America, where they are used by the representatives of the Government on that side of the water as collateral security in raising credits. For many months past this system has operated with complete success. We have been able to pay our way during the whole period and to preserve a substantial balance in New York to enable us to meet any liabilities or any charges which might become due. I would like to say that the British public, the owners of the American securities, have in the main come forward with great patriotism, and have been willing to allow their resources to be used in this way in the best interests of the country. For some weeks, however, the supply of American securities has dwindled until what at one time was a steady flow reaching at moments almost the character of a torrent has of late become little more than a trickle.

Mr. BRYCE

That is quite natural.

Mr. McKENNA

Various suggestions are made by hon. Gentlemen—that the stream is running dry, and that it is quite natural. The underlying assumption is, I suppose, that we have in the main exhausted the American securities held in this country. I do not think that that is the case. While a very large number of holders have been active in their desire to help the State, a great many others have been, I will not say negligent, but inert, shy, and, while conscious of what their duty may be, have allowed that consciousness to remain inactive, and possibly now require a spur to remind them of their true duty to their country. I cannot overestimate the value to the State of organising our financial resources to the full of our power. Every holder of American securities ought to realise that by the fortune of holding those securities we have an instrument which enables us to carry on the War, and enables us to pay our way in the American market. Without that instrument we should be in the same position as our Allies, who would find, but for our help, the greatest difficulty in meeting their recurring liabilities in the United States. With this power in our hands, with this capacity to pay, ought we to allow ourselves to be crippled because the individual holders of this power are negligent or inert, or require a stimulus in order to bring home to their minds the real needs of the State? It is for this reason that, while we ought to, and do, express our great gratitude to those who have come forward hitherto, we ought at the same time to bring home to the minds of those holders of American stocks who have not come forward that it is their direct and immediate duty to do so. If any hon. Gentleman tells me that it is natural that the stream should become a trickle, and suggests that there is no more to be had, I can only say that during this last week we have had six times the amount of American securities which we received a fortnight ago. I have no doubt that during the current week we shall maintain the strong flow which has been our happy experience for the last couple of days. I hope that we shall be able to secure all that we need without going any further than this proposal to subject the owners of these securities who do not come forward to an additional tax of 2s. in the £. But I am bound to tell the Committee that if this tax proves inoperative it will be my duty to come and ask the House to give me further powers. I shall have to ask the Committee to make this 2s. in the £ 5s., 10s., or 20s. in the £.

Sir E. CARSON

Why not enact it at once?

Mr. McKENNA

There are great difficulties about that. I believe it will be entirely operative. We have found during now some six months that the purely voluntary method has been completely satisfactory. However, I do not wish to argue the question now, but I could give the Committee very good reasons—very good practical reasons—why the compulsion proposal of the right hon. Gentleman would be inadvisable.

Sir E. CARSON

Yours is a compulsion proposal.

Mr. McKENNA

Of a different kind. Sir E. CARSON: Of a worse kind.

Mr. McKENNA

Of a worse kind, the right hon. Gentleman says. It is not of a worse kind from the practical point of view. It was pressed on me very strongly six months ago that we should have compulsion. What would have been the effect? I should have been flooded with hundreds of millions of dollars in securities which I should have had to pay for, and which I should have been utterly unable to sell. By the method we have adopted, we have had a steady stream which has been quite sufficient for our purposes, which has enabled us to accumulate a reservoir quite adequate to meet all our liabilities, and I have never had to pay in advance for those securities before I could realise them in America With a compulsion proposal which would have placed at my disposal perhaps a thousand million dollars in one block, first of all, think of having to handle those securities in the mass at one time. Secondly, think of the liability to the State. I should have had to pay for all those securities at the price of the day, and all the time should have had to run the risk of a fall in the securities.

Mr. PRINGLE

You could have taken them on the group system.

Mr. McKENNA

My hon. Friend is, as usual, humourous, but I am endeavouring to treat the subject seriously. When we have done well, when we have been able to handle our securities without risk and without loss as and when we required them, when this proposal will still produce the same stream which will enable us to obtain securities without risk and without loss, is it in the name of some fantastical logic a desirable thing to say, "Let us go the whole hog at once and take them all by compulsion?" That is one practical objection to compulsion. There are a great many others, but I do not wish to enlarge on the question now. This scheme, I believe, is going to prove effective. It is sufficient, I believe, for the purpose. If it does not prove sufficient it will be time enough to come back to the extreme proposal of the right hon. Gentleman, when, at any rate, I shall not have such a vast bulk of securities to deal with as I should have had in the first instance or even as I should have now. I hope the Committee will allow me this Resolution, which will enable us to levy a charge of 2s. in the £ in respect of the interest on securities which the Treasury offer to buy We propose that the tax shall run from 1st July. It will be for the year, but it will not become operative until 1st July. There will be in the Bill various safeguards and exceptions, but any person who disposes of or lends his securities before 1st July will not become liable to the tax.

Colonel YATE

Will the tax be inflicted on trustees who hold the securities, but are not able to dispose of them?

Mr. McKENNA

Undoubtedly.

Mr. BROUGHTON

How will you deal with the case of securities trusted in America, under the domination of American trustees, who, however willing the owner of them might be, have no power to hand them over, and therefore, although not in a position to do what the Government want them to do, are penalised to the extent of 2s. in the £?

Mr. McKENNA

I understand the case to be of American trustees for British beneficiaries over here. When we get to the Bill, which alone will be operative— the Resolution is not operative—we shall have to take into account all the various exceptions of that kind. As regards a British trustee of a British beneficiary, of course it is the duty of the British trustee to sell, and he is entitled to do so.

Colonel YATE

Is he entitled if he has no power?

Mr. McKENNA

We have passed a Bill that authorises him to do so. I am a trustee myself of some American securities, and I have done it, authorised to do so under the Act. Any trustee may use American securities, and it is not only his duty to use them for the beneficiary, whom he will be mulcting 2s. in the £ if he does not, but it is his duty to the State, and he is entitled to do so under the Act. I am bound to say that in the case of American securities held in America, either by Americans domiciled here or by American trustees for British beneficiaries, that is a case which will have to be made the subject of exceptional treatment in the Bill.

Sir F. BANBURY

Unfortunately the Resolution has not been placed on the Paper. Therefore it is rather difficult to know exactly what its powers are. I remember that the right hon. Gentleman, when in opposition, was in the habit of attacking the Unionist Government for not putting these Resolutions on the Paper. Therefore when he comes down and introduces what he himself says is a very novel. procedure, I think he might have put it on the Paper. Am I correct in thinking that the Resolution goes much beyond American securities? As I understand it, it is for the purpose of regulating any exchange. There might be an exchange with another country besides America and the power might be used for other securities. I am not sure whether I am right, as I have not seen the Resolution, but it seems to be drawn so widely that it might include any securities which the Government thought it necessary to obtain to regulate the exchange with any country in the world.

Mr. McKENNA

The Resolution is in the widest form possible. The limitation is that the Treasury must offer to buy.

Sir F. BANBURY

The right hon. Gentleman says that the Treasury must offer to buy the securities. Who fixes the price? The Treasury. If the holder does not sell, then the Treasury penalises him. Whoever heard of the Government purchasing property under these conditions before? In the purchase of property by any Government, even by the present Government, it has always been held that the price must not be fixed by the Government itself. The purchaser must not fix his own price; the price must be fixed by an impartial arbitrator. We are going back to the days of Isaac of York, when the King went to that gentleman—it was the King then, but the Government is equally tyrannical now—and said, "If you do not advance me a certain sum of money, I shall take out so many of your teeth." The right hon. Gentleman does not go quite so far as that, but he uses a tax which has nothing to do with penal clauses or penalties, and says, "If you do not sell your securities at the price I name I shall put this tax upon you." The Income Tax is a very bad tax. The only justification for it, ever since it was first imposed, as far as I know, has been that it is an easy method of raising revenue. The right hon. Gentleman does not say, "I want more revenue, therefore I am putting on more Income Tax." He does not justify the putting on of this penalty at all—for it is a penalty. He merely says that the Government have been obliged to buy certain articles in America, and that as the imports exceeds the exports, the purchases in America cost rather more than they would have done if the exchange had kept up. That is quite true. Personally, I am very glad to see that at the last moment the Government are noting the fact They did not think so when they entered into contracts, and paid contractors a percentage on the cost—the most extravagant way possible of executing the work. They did not think of the taxpayers' money then; now they do. It may be true that the fall in the exchange will cost a larger sum to the taxpayer. Why should these in particular be picked out in order to save the taxpayers' money? The burden should fall upon everyone. If it is necessary to do something to preserve the American exchange everybody in the country ought to be penalised to assist in this work. Why should the Government take certain men who happened in the years gone by to have invested money in this particular way, and say to those persons, "You are to be penalised for the people; they are receiving the benefit, and themselves pay nothing." That seems to me to be an argument which is perfectly unanswerable First of all, there is the reason which has been advanced by the right hon. Gentleman. He also advanced the argument—at least, I think he did— though he did not say very much about it—as to the gold. We all know that there are two reasons for this. I think, by the way, that the cost of the fall in the exchange has been very much exaggerated.

Mr McKENNA

I never mentioned it.

Sir F. BANBURY

Then I am right, and there is a still greater reason for not instituting this very novel procedure.

Mr. McKENNA

I do not on that ground.

Sir F. BANBURY

Then on what ground is it? I only know two grounds— but I dare say I am wrong. The one is the cost, and the other is the fear that if we have to pay in gold for these articles that we buy in America we may deplete the country of gold, and that is no doubt a very serious thing. This country, as everyone knows, is the only country in the world that has free trade in gold. That is one of the penalties we pay for our Free Trade. Anyone can go to the Bank of England and get what gold they like by presenting certain documents. That is one reason why this proposal is necessary. It is supposed that, unless the exchange is kept up, that if it goes to the gold point, that gold will leave the Bank of England and go abroad. That, I quite agree, is a very serious thing. But again I say, why should these particular people be singled out in order to save the situation? We ought all to bear our share of the burden. Why should not all take what steps are necessary to preserve the situation? Then there comes the question of purchase or borrowing. The right hon. Gentleman did not defend this proposal except oil the grounds of expediency. It would not be expedient, the right hon. Gentleman said, to indicate at once that you wished to take these securities, because we should have had too large an amount all at once. Does the right hon. Gentleman think that this particular Bill, and the further threat of these additional penalties, is going to be a corrective? If he is correct in saying that there is a large stream which has not yet commenced to run, then he will have a larger amount than he anticipates, and he will be in a position which, as he said just now, he does not want to be in. The amount may not be quite so much as he anticipates, but it would certainly be large, and there, again, I think his argument falls to the ground. What I should have liked to hear from the right hon. Gentleman would have been an argument justifying his proposal upon the grounds of justice and procedure, and not upon expediency. The right hon. Gentleman did not for a moment advance any argument showing that his proposal was just. We have never been told the result of the last effort; we do not know how many millions the right hon. Gentleman holds of American securities. We do mot know how many he has sold, or what is his chance to sell. I am not quite sure that if all the American securities in this country are suddenly thrown into the hands of the Government that there would not be a considerable loss that way. That point appears never to have occurred to the right hon. Gentleman.

We come to the question of borrowing, which, after all, would, at any rate, be a fair way of dealing with the question. I think it would have been quite fair for the right hon. Gentleman to say to the holders of American securities, "Gentlemen, you have these securities; they are useful to the State; we will borrow these securities from you, and give you a small sum for doing so, and we will return to you these securities when we have done with them." That, it seems to me, would have been a fair and reasonable proposal. It would never have involved all these threats of using the Income Tax for a purpose for which it was never intended. The right hon. Gentleman did not do that. He put in his borrowing proposals a stipulation which I ventured to say at the time, and which I still think, was quite unnecessary. The right hon. Gentleman has to some extent modified it now. The proposal to which I allude was that the right hon. Gentleman should have the power of sale. The only argument advanced in favour of that power of sale was that the person to whom the right hon. Gentleman applied for his securities might say, "I am going to realise them." He could only do that if the Government could not pay their debt. I did not contemplate that then, and I do not contemplate that now. Supposing, however, that for the moment the Government could not pay their debts. No one can contemplate that within a short period of that time they would not be able to do it, and there would have been nothing whatever to have prevented the right hon. Gentleman, if the borrower had sold the securities, from buying other securities in the market. If the right hon. Gentleman now at the last moment were to say, "I will either borrow these securities of you and pay whatever it is proposed to pay, say, a ½ per cent. per annum, and I will give you a Treasury note or whatever it might be, as security to show that you have some security for your securities, and I will return these securities within a given time, one, two, or three years," he would get all the securities he wanted, and he need not bring in what I venture to say is a very bad precedent, quite irrespective of this particular object. Neither Income Tax nor any other tax should be used as a penalty or as a punishment. No tax ought to be used except for its correct purpose. What is the Free Trade doctrine? What did the right hon. Gentleman say when he proposed to impose duties? He said duties ought not to be imposed except for what? For the purposes of revenue. The right hon. Gentleman is not proposing to devote this to the purposes of revenue, but for something quite different, and it is a burden which ought to be borne by the people as a whole, and not by any individual portion.

I should like to address two questions to the right hon. Gentleman. What is to happen to Americans domiciled in this country? It is not quite the same case, I think, as the hon. Gentleman behind me asked, as to what is to happen to Americans living in England whose securities were in trust for them. No doubt a certain number of Americans are domiciled here; these hold American securities. Are these to be taken, or not? That is an important point which, I think, ought to be met. It must be remembered that at the present time we are desirous of attracting foreign money. The right hon. Gentleman sooner or later will have to bring up a permanent loan, and if we then can get foreigners to invest in our securities and the right hon. Gentleman's loan, all the better. But the right hon. Gentleman has already been to America. I ventured to say at the time that he paid too much for the money. We want to attract the foreigner to invest his money here. It may be said, "Oh, but this does not apply to foreigners, and therefore it does not matter." There is nothing, however, more sensitive than capital, and people are very shy of investing their money in the securities of any State where they think Income Tax and a variety of other taxes are to be put upon them. The right hon. Gentleman, in doing this, is penalising or injuring his prospect of obtaining money from abroad. The second question has been handed to me by someone whom I do not know, to this effect: Will Mr. McKenna, supposing I lend my securities to the Treasury, and the Treasury decide to sell, the borrower having exercised his right of sale, having gone to the Treasury and bought my securities back, which I have the power to do under the altered provisions, will I still be subjected to the 2s.? That is a riddle I cannot myself answer, but I would put it to the right hon. Gentleman, and I think that there ought to be something in the Bill to prevent this. I sincerely trust that the right hon. Gentleman will reconsider the whole matter. I suppose it is too much to ask him not to proceed with his Resolution to-day, but I hope, before he brings in a Bill founded on the Resolution, he will really seriously consider whether it is not possible to amend his borrowing powers in the way I have suggested, or, at any rate, to give a trial to the thing, say, for a month, and to see whether during the next month sufficient securities will not come in in regard to this particular scheme, which I think is particularly bad. It will be a shocking precedent. It is flying in the face of all the precedents which have hitherto actuated the British Government when, they have imposed taxation.

Sir T. WHITTAKER

I had the honour of sitting on a Committee which was in consultation with the right hon. Gentleman when this scheme was originally formed. I realised, as all who were there must have done, that it was extremely possible that the necessity would arise for some such step as this. It is perfectly clear that there was a large block of American securities in this country that would not readily come to the Government. There had to be pressure of some kind to bring them, but I need not go into detail or the reason for that. It was obvious. The right hon. Baronet who has just spoken says that this is a shocking precedent. Really, we are at war! We are commandeering works, taking over whole establishments and the people, and it is to be a shocking precedent to ask people to sell their securities at the market price! What harm is there done, if they are not prepared to sell them or lend them to the Government? The right hon. Baronet says the Treasury fixes the price. Yes, but you are not bound to sell to the Treasury. If there is a better price to be had in the market you can sell anywhere else you like, either on the Stock Exchange or in New York.

Sir F. BANBURY

Supposing you do not want to sell?

Sir T. WHITTAKER

I will deal with that point directly. This is a question of fixing the price. It means, if it means anything, that the Treasury is going to fix a price less than the market price. If it does, you sell in the market, so there is nothing in that allegation. The right hon. Baronet says, "Supposing you do not want to sell," well, then, they will borrow them of you; you can lend them. Then the next point is the extraordinary suggestion which was made that, if the Government borrows, it must undertake to replace the same securities. If the right hon. Baronet, say, lends American securities to the Government, and then those securities go down in value, and the Government have to sell them at that reduced value, they are to buy in again, or to pay the right hon. Baronet the price of those securities when they were lent. The Government might be placed in this difficulty. They are bound to have the power to sell. Nobody in America will lend on the securities unless they can be sold. Now there is this possibility, that the lenders might think they had this Government in a tight place, and might say, "When we lent you six or twelve months ago, we lent at such a rate, and we must have so much." Now the Government must have power to sell such securities to pay off such loan. If they do that, how are they going to buy them back again? They have got to raise the additional money in order to buy those securities back again. That might come at a very awkward time indeed. The lender can buy back again. The Government gives 2½ per cent. more than the market price. The lender can go into the market and buy back again, and he has 2½ per cent. margin to play with.

Sir F. BANBURY

That only applies in the case of there being a free market. If my right hon. Friend has had to do with these things, as I have, he must know perfectly well that in many of these American bonds there is no market at all.

Sir T. WHITTAKER

He can buy other similar bonds. [An HON. MEMBER: "No!"] Oh, yes he can. He has got his money. He has got 2½ per cent. margin, and he can go in and buy again. Some such arrangement as this is necessary if you are to draw a very considerable amount of those securities that, for various reasons, are being withheld. The only alternative suggestion is the compulsory taking of them all. That does not seem to me a very desirable arrangement. It is suggested that under this arrangement the Treasury will be flooded with these bonds now, but I do not understand that they intend taking them all at once if a great mass is offered. I imagine they will take them as they require them. The holder of those securities. I imagine, will not be taxed if he has offered them to the Government, but the Government will take them as they require them, and therefore they will not be flooded. What I do suggest as very essential to be done is that the Treasury should make widely known what are the securities that they will take. Now, in the City it is known, although some uncertainty is existing there; but in the country private investors holding those securities know very little about this kind of thing. Therefore, at once full and complete lists, as far as possible, of the securities that they are willing to take should be issued, and I do not think you ought to tax any person the additional tax for not giving in their securities if their securities are not in the list of those which it has been announced you will take, or else you may be taxing people for securities which would have been taken had it been known, and those people do not precisely know what they had to do. It is very important that lists should be published, and also that it should be advertised in the papers where the lists can be got, and the attention of the private investor throughout the country should be very distinctly called to this arrangement, or else private holders will be penalised when they know nothing whatever about the matter. It is also very essential that, where offers have been made, that should, as I imagine it will, relieve the person of tax, because, as a matter of fact —I am not making any complaint whatever; it is not a ground of complaint— offers have been sent to the department in the City months ago, and they did not know whether they would take the securities or not. Consequently, anybody who made that offer months ago should not now be penalised if the Treasury has not taken their securities, although there are in those lists securities they will take, which were offered months ago and were not taken. As to the method, I do not see any better method, and none better has been suggested. There will have to be some pressure put to get those securities, which exist in considerable quantities here, and I think this method will bring them in.

Mr. RUTHERFORD

I think of all the financial proposals that I have had the privilege of hearing during the fourteen years I have been in the House of Commons this itself, as a matter of principle, is the most objectionable. I confess that I am scarcely surprised at the present Government bringing forward such a proposition, but I am grieved to say that I am greatly surprised that it has come from the present Chancellor of the Exchequer. It is frankly and openly admitted to-day by the Chancellor of the Exchequer that he seeks to put on a special extra 2s. Income Tax for the purpose of mere coercion and not to get the money. It is admitted that there is no object involved from a financial point point of view. There is no necessity on the part of the Exchequer to collect so much taxes; in fact, the Chancellor of the Exchequer tells us, in so many words, "I do not want the taxes; that is not my object; but my object is to coerce a certain number of people resident in this country who happened, quite innocently, and not having committed any crime, to have invested a portion of their savings in American securities." And the right hon. Baronet who has just addressed the Committee said, in reply to my right hon. Friend: "Oh, there is one answer: We are at war." Now, the War has been an excuse for a variety of things, and I have no doubt at all that it is going to be an excuse for a lot more things before it is over, but that it should he taken, not merely as an excuse, but a reason, why the British Government should single out a class of people and seek to inflict upon them a hardship by means of a tax which they do not want to collect, and which it is not intended to collect, in order to coerce them to do something, is, I think, an exceedingly bad precedent, and it is nothing else in itself but sheer robbery.

My objection to this proposition that is now before the Committee is that a tax is being put on as a mere penalty and not for the purpose of collecting revenue. The ulterior purpose of course is admitted. People who have got those American securities are to be forced to sell them, whether they like it or not, or they are to be forced to lend them to the Government. And we do not quite know—it has not been explained—what they are to have to show in the meantime in respect of their loans. I can understand—in fact, I know—cases of elderly people who have securities of this kind to whom it would be difficult to explain the matter. I know cases of securities of this sort which are deposited as definite cover for certain arrangements being carried out in the future and certain things done. There are thousands of cases of that kind in the City where undertakings and guarantees have been given, and securities deposited against their being carried out, and in thousands of those cases some of the securities are within this particular category. The idea of picking out people who happen to own a certain class of securities and saying, "You are to pay an extra Income Tax; we do not want the tax, but you are to have this imposed upon you for the purpose of making you do something else," is, to my mind, outrageous. If in the national interests—and I think you may take it it is so— it is very desirable to get hold of these securities, then let the Government be asked, and let us have a Bill saying that people who hold these securities are to bring them in. They will receive a Government acknowledgment with the responsibility of the British Government for the full value and a certain percentage beyond. They can please themselves whether they sell them or whether they loan them, and if required they will be replaced some day, and if they do not bring them in there is a penalty. Although it would be very coercive and very discriminating, it would at all events be honest, and it would not be mean. But I think this proposition is both dishonest and mean.

5.0 P.M.

I will also, before I sit down, call attention to a very serious danger. I think the evil is done by this proposition being brought in. But it is a terribly bad example. There are Governments and States all over the world who have not hesitated to adopt all kinds of discriminating disabilities when they got the chance against English people who happen to have invested their money in some of those countries and colonies, I am sorry to say, in some cases. Now here is a bad example. Supposing one of these —I hesitate to mention the name of a State in any part of the world—but supposing such a State said, "Oh, we are a bit hard up," or, "We want to do this, that, or the other, and we will double the Income Tax upon every Englishman's securities in our dominions." Look what a fearfully bad example that would be, and they would be able to go to our proceedings to-day and quote them as their authority for adopting such an unfair course.

I remember the case only five years ago of the Companies Act when we were told that that was a mere consolidation, and there was a Clause in that Act which escaped attention dealing with foreign securities. What was the consequence? Our companies which were doing an immense amount of trade in several countries were immediately penalised by those countries who had not got a company at all doing any business in England, and the mere fact that we discriminate against a given country or a given set of security holders or people holding securities of that country is simply inviting the whole world to discriminate some day in their taxation against British holders, and the excuse they will have will be that it is very desirable that their own citizens should own their securities, and that they should not be held abroad, and any excuse of that kind would be good enough. Look at the millions of money we have lost in this country already by imposing the light dues —a thing which no other country imposes but Turkey. I oppose this Resolution on two grounds. Firstly, that it is not intended to tax people 2s. in the £ at all; and secondly, because the Resolution is dishonest. Therefore I oppose this Resolution as a matter of principle, and also on the ground that it will invite reprisals by foreign countries which would be greatly to the detriment of British investors in all parts of the world.

Mr. BRYCE

The two previous speakers have indicated so many strong points that I do not consider it necessary to discuss the main aspect of the question any further. I agree with what has been said as to the effect of this Resolution on the action of other countries. I think the Chancellor of the Exchequer would get over the difficulty under which he labours if he would withdraw the limit for the deposit of securities. There are vast numbers of the smaller amounts of these foreign securities, and the flow has largely ceased because the right hon. Gentleman has not yet tapped to any large extent the small holder. There are vast numbers of small holders of American securities, and they have been unwilling to deposit them because they think it would disturb the whole constitution of their property. They have been unable to help the Chancellor of the Exchequer by depositing their securities, because they were not large enough. If the right hon. Gentleman would carry out my proposal he would not suffer and would not be overwhelmed. At the same time he would attain his object if he would offer to take any security in his list down to the smallest amount. He will find that there are vast amounts of securities in small sums rang- ing from £200 to £1,800 which would at once come in under his deposit scheme, if he adopted the smaller amount. I recommend to the Chancellor of the Exchequer, if he does not see fit to adopt my suggestion to withdraw his Resolution and provide some other means of meeting this difficulty. I would recommend him, and my recommendation is based upon the opinion of some very powerful and competent people in the City, to consider very seriously whether he could not at any rate withdraw the limit on the amount of the deposit. If he does I do not think he will find that he would be overwhelmed, and he will be able to get through the work. I would point out in addition that the time allowed "for the deposit of securities is extremely short for the Chancellor of the Exchequer to get in the amount he proposes if injustice is to be avoided. The right hon. Gentleman the Member for Spen Valley (Sir T. Whittaker) suggested that so long as the Chancellor of the Exchequer received an offer he should not deduct the tax. Supposing an offer is made before the 30th June, and the Chancellor of the Exchequer does not take the stock until after the 30th of June, in that case will there be a repayment of the tax?

Mr. McKENNA

I think that is a very reasonable suggestion, and it is a fair proposal. If the stock is offered to the Treasury, and the Treasury is unable to take it within the limits of the time the actual taking should date back to the making of the offer, and there should be a repayment of the tax accordingly.

Mr. BRYCE

I do not see how the machinery at the disposal of the unfortunate buyer or the Treasury will meet that difficulty, and if it is not met it will clearly be impossible in the course of a month to get through the amount of business which is likely to be offered. The right hon. Gentleman would have exactly the same overwhelming rush of securities which he deprecates under a compulsory Bill. If he were to adopt the idea of taking any stock that was offered on deposit down to the smallest amount, I think he would largely get over the difficulty which at present faces him.

Colonel CHURCHILL

I venture to think that the proposal which has been made by the Chancellor of the Exchequer is a very modest request, and I have listened with some surprise to the strong language about it by some of my right hon. and hon. Friends on both sides of the House who have spoken in this Debate. The one reason which justifies these measures was interjected by an hon. Member during the speech of my right hon. Friend, and it is the War. The general financial position of this country is in every respect sound, and the idea that we should have to bring the War to a close because we could not carry on through finance is a delusion. The financial situation is governed in the main by the economic situation, and the economic situation has been less seriously affected than the financial situation. The one vital part of the financial situation is the foreign exchange, and particularly the American Exchange, and the holders of American securities are in the fortunate position of being able to render a special service to the State at the present time. I understand the force of the arguments put forward, and if addressed to us in time of peace they would justly deserve the attention and concern of the House. Why should a man who holds American securities suffer when if he bought any other he would escape unscathed in this special manner?

These are times when it is not possible or salutary to draw too nice distinctions about equality of sacrifice, particularly in money matters. After all, there are many trades in this country which have suffered acutely by the War. There are many businesses whose whole business has been overturned by the War, and there are others which are going to be overturned. Conversely there are many trades and businesses which have profited extraordinarily by the War. You are not dealing at all with a situation where there is an even flow of supply and demand under recognised laws and customs governing the accretion or diminution of the fortunes of individuals, but you are proceeding on a basis constantly interrupted by external artificial events. Take the licensed holders- Throughout the country in these cases they have been most seriously affected, although I know that in some cases great profits have come to particular localities. Take the case of the East Coast towns, all of which are suffering extraordinarily through purely military conditions, from the fear of naval or aerial raids, and there is no equality of sacrifice there, although we know that the South Coast towns are benefiting by the very conditions which are inflicting such hardships on the East Coast towns. Then again, in regard to compulsory service, some are benefiting by compulsion on the basis of the age limit and other conditions. Some men go continuously to the trenches and are wounded repeatedly and very often killed, while the overwhelming number remain away from the trenches on good rations and better pay. There is no equality of sacrifice. Everything is invidious, and unless we take every measure necessary to secure the vigorous prosecution of the War, the only equality will be the equality of ruin for all.

If these much more serious cases where homes are broken up and businesses are overturned are not governed by the principle of equality, surely, in the region of finance, the question of financial loss or gain and other financial circumstances is altogether on a lower level to the more serious demands to which I have referred. The hon. Member for Liverpool (Mr. Watson Rutherford) invoked the sacred principle of taxation for revenue only. This is about the first time I have heard the hon. Gentleman invoke that principle-That is a very good and respectable principle in time of peace, but peace finance has no relation whatever to war finance, and measures are necessary in time of war —and principles may be adopted usefully and soundly in time of war—which would be considered vicious and unsound in time of peace. As to the particular method which the Chancellor of the Exchequer has proposed, it seems to me a very reasonable, economical, and unobjectionable method, and it induces a certain movement of securities towards the Exchequer by means of penal taxation. Of course, he could, if necessary, pay a high price or pay a high premium, but he prefers, and I think rightly, to induce them by penal tax. It is said that the future possibilities of these shares will have to be sacrificed by their holders whether they like it or not. If the future possibilities are so brilliant that they exceed the burden of the Income Tax, then it cannot at any rate make the difference between ruin and prosperity to the holders of these shares. As I understand the market price, there will be nothing to prevent the holder of American securities from selling at the market price. He can sell in the open market at any time that he likes.

Mr. RUTHERFORD

If there is a market.

Colonel CHURCHILL

If the market price is higher than the Government price. Therefore, the Government will not be buying below the market price unless the holder of the security wishes.

Sir F. BANBURY

There may not be a market for the shares.

Colonel CHURCHILL

There will be a market; the Government will be the market; and the Government will obtain the securities if the seller cannot sell them in the open market. It seems to me that the right hon. Gentleman has been extremely considerate to the holders of these particular classes of securities. He is merely operating by means of a penal tax which induces a movement of securities towards the Exchequer. In particularly hard cases, no doubt, that penal tax will not be sufficient to induce the movement. If the right hon. Gentleman had come down to the House and had said, "We must commandeer all the American securities and fix the price at below their market value," and had shown that here were no other means of the State meeting its difficulties, he would have been entitled to the absolute support of the House. After all, these are the days when the Government have a right to ask for everything, and when they are pressed by Parliament to ask for everything they need for the prosecution of the War—our property, our securities (American or otherwise), our lives—and I earnestly hope that the course and current of this Debate will not be such as to give the impression in the country that the House of Commons is in any way reluctant to give the Government everything necessary for carrying on the War.

Colonel NORTON-GRIFFITHS

I have no quarrel with the suggestion that you ought to take all the American securities in the country, but I do quarrel with the method by which you are doing it. You are doing exactly what you did with the men. You refused to adopt the system of compulsion until you were forced to do so, and you are more or less doing the same with this money. In September last year, when this question was being discussed, my hon. and gallant Friend the Member for Colchester (Major Worthington Evans) pointed out the necessity for compulsion in regard to American securities. He stated: If necessity demands compulsion for the defence of the Empire, I suppose it would be applied to men, and, if necessity demands it, it should also he applied to capital. Some forms of capital are already subject to compulsion. Engineering firms are controlled, land and buildings may be taken under the Defence of the Realm Act, war profits are taxed by this Budget, and exports are controlled. now, in my judgment, the necessity does compel it. and the steps should be taken now. The first step is to constitute a National Register. Owners of foreign securities should be called upon to register so that the Government may know exactly what securities there are."— [OFFICIAL REPORT, 23rd September, 1915, col. 623.] The hon. Member for North-West Lanarkshire (Mr. Pringle) just now suggested that we ought to have the group system here. I entirely agree with him. You ought to have your securities organised so that you can call them up more or less on the Derby group system. You want the Derby grouping in finance. I venture to say that, from a business point of view, it would be a sensible policy.

Mr. McKENNA

May I ask the hon. Gentleman, if I adopt the Derby group system, what I am to do?

Colonel NORTON-GRIFFITHS

You would have to call them up.

Mr. McKENNA

It is no advantage to me to call them up under the group system. What am I to do, for instance, when I have called up all the securities of a particular group, say, all the railway securities? The American market would not be able to absorb all the shares in a particular group.

Colonel NORTON-GRIFFITHS

I venture to differ from the right hon. Gentleman. You would be able to negotiate your American securities as and when you pleased without interfering in the slightest degree with your market. Money, as in the case of men, will fail you unless you organise, and I suggest that by adopting the principle of compulsion, instead of the expedient of this 2s. extra tax, you would be doing a good turn to the State. If you had these securities properly tabulated and at your command, you would know exactly where you were, and you could organise your finance certainly to the tune of £1,000,000,000 or £1,500,000,000. On the other hand, I must say that I welcome the first sign I have ever witnessed in my right hon. Friend the Member for Dundee (Colonel Churchill) that he approves of a system of preference, for indeed you are giving the Dominions a preference over and above the holders of American securities. This is more than two bites at a cherry; you are going to have a dozen bites, and then you will come to compulsion at the end. Indeed, your very proposal now is nothing short of compulsion, because you are compelling by taxation the holders of these securities to give them up. If the right hon. Gentleman had directly said, "I am going to take your securities by compulsion," I am sure we should have all followed him as one man. We are all willing to dip our hands into our pockets. Speaking for myself, you can have all I possess for this War; to use a phrase more often heard outside this House than in it: you can have even my shirt. That is the feeling in the country. Do not play at finance. Do not take two bites at a cherry. The country will give you all you want, if you will only call for all American securities and make it compulsory by law.

Mr. J. M. HENDERSON

There is one point to which I would strongly direct the attention of my right hon. Friend and the Committee. What are you going to do in order to pay for your American imports into this country when you have realised all these securities? A large amount of our imports in pre-war times was paid out of the dividends on these very stocks with which we are now parting, and, believe me, the result must be that after the War your exchanges will be infinitely worse than they are at the present moment. That is a point which, I think, is very well worth considering. The right hon. Gentleman the Member for Dundee (Colonel Churchill) is evidently master of a good many things, but I do not think he is a master of finance. He says, "You could sell in the open market. If the Government did not offer you enough you could sell in the open market." And the next moment he said, "The Government is the market," and he was quite right. "Take the Government price or the market price." You are taking the same thing; it is the market price. There is no desire on the part of holders of these stocks to withhold them provided that justice is done to them. Let us see what is the position, I take the case of a man who holds $4,000 worth of Indianapolis 4 per Cent. Gold Bonds. I will make it personal to himself. Supposing the right hon. Gentleman holds these bonds which he has bought at £100, and he has now to sell them to the Chancellor of the Exchequer at £89, is he not entitled to say, "I will keep them until after the War when I have no doubt that they will get back to £95?

Mr. McKENNA

made an observation which was inaudible.

Mr. HENDERSON

Can he deposit and lend them to you, and will you hand them back at the end?

Mr. McKENNA

My hon. Friend knows the terms of the Deposit Scheme. There is nothing new in it.

Mr. HENDERSON

I do not know whether you are going to amend it or not, but at the present time, as I understand it, the shares are endorsed, and therefore it is in the power of the lender to sell if you do not pay. Then the man's shares have gone and you give him the price at which they were sold plus 2½ per cent. Supposing you have got with the American Banks hundreds of thousands of these securities and there comes a panic or something of that sort; bonds which now stand at 89 or 90 would be sold at £70, and you would give him 2½ per cent. addition. The holder says, "I would gladly lend them, but I want to keep them until they recover." You cannot expect having that bulk of securities and knowing that you are a vendor, that the market price in America is going to keep up. The right, hon. Gentleman the Member for Dundee spoke about there being no equality of sacrifice. There cannot be in a great many cases, but you can do justice to a man. Why should not a man who holds Great Northern Debenture Stock or Great Eastern Debenture Stock, or any other stock, contribute towards this loss, if there is any? All we ask is this: "Guarantee that we shall not be personal losers, and you can have all our stocks; we will lend them you willingly." That is what the public are saying. If you will undertake to replace it at the end of the War, or within two or three years, undertaking at the same time if there is a loss it should be shared equally by the whole community, that would be a fair proposal, and it seems to me the right way to go about it. All I ask is that you should deal fairly with these people. They say: "Here are the securities; you can keep them this year, and next year, or as long as is necessary. We want no more than the interest upon them, and an undertaking to give them back to us at the end of the War." If you make a proposal on those lines, you will find more come in probably than you can absorb. Take the case of the shares which hitherto you have not bought— those I have already mentioned.

Mr. McKENNA

May I say we have always sold through a broker, and we pay the commission. There is no loss to the seller. But we do not buy direct. It is always done through a broker.

Mr. HENDERSON

Under the present minimum nominal amount, not one security has been accepted.

Mr. McKENNA

That is for deposit, but my hon. Friend is speaking of sales.

Mr. HENDERSON

Let me ask this. If securities for 4,000 dollars are not accepted, are you going to put the 2s. tax upon them?

Mr. McKENNA

I have already stated that an offer will be reasonable ground for exemption from the tax.

Mr. HENDERSON

I presume that will apply to any amount.

Mr. McKENNA

I do not wish to argue the point now. No doubt the question will come up on the Committee stage. But there will have to be a limitation. Otherwise the holder may split up his holding into any number of small lots, each less than the amount we can accept, and then proceed to offer them one by one, thereby securing exemption from the tax.

Mr. HENDERSON

That is the trouble. When one raises a point like this the answer is that it is a Committee point, but when an attempt is made to raise it in a speech in Committee, then it is suggested that it is a Second Reading speech. I am quite sure if the right hon. Gentleman will frame his measure in such a way as that it will be acceptable to those people who would deposit rather than sell—and it is the depositor about whom I am now concerned—if the right hon. Gentleman will arrange that the depositor will get back his stock or its equivalent in price at any time within three years after the War, then there will be no difficulty in the matter. But the point I raised at the beginning is a very serious one for the Government, namely, as to the effect on the rate of exchange in years to come when we shall have very little interest due to us every half-year in America out of which to pay for our imports.

Mr. STEWART

I think the Committee would have been glad if the Chancellor of the Exchequer had given us some of the figures on which he bases this very novel proposal. But we are quite in the dark as to what he has got and what he really wants. I do not wish to repeat what has teen said by other hon. Members, but I must say I do not think the right hon. Gentleman has made out a very good case for selecting these particular securities. I do not know how America will like to see certain of her securities black-listed. They will not like to be told that the Government do not wish the British people to invest their money in the United States.

Mr. McKENNA

How can my hon. Friend say that? We require to sell the securities now in order to meet our liabilities. But ever since America has borrowed abroad, we have been the main country in which she has borrowed, and I hope that after the War we shall resume that position. But this is a time of war.

Mr. STEWART

I do not wish to misrepresent the right hon. Gentleman at all, but, listening to the Resolution he has proposed, one must conclude that the Chancellor of the Exchequer does not wish British money to be invested in America.

Mr. McKENNA

Does the hon. Gentleman mean during the War or permanently? It is very important it should not go forth that the Chancellor of the Exchequer is recommending British subjects for all time not to invest in American securities. But it is notorious our money should not be invested in America now; in fact, it cannot be.

Mr. STEWART

I am only speaking about this particular time. If people hand over their securities now, what guarantee have they that they will be able to get them back again? Listening as I did the other night to the right hon. Gentleman's speech on financial morality, I must say I have not been convinced that this proceeding comes up to the high standard he then laid down. I freely agree people would prefer to have a certain proportion of their capital fairly and squarely taken away from them rather than be subjected to this peculiar and indirect way of collecting revenue from all sources. What the hon. Member for Aberdeenshire (Mr. J. M. Henderson) said was perfectly true. If a loss is made in exchange it should be borne by the whole community, whereas now you are asking individual members to bear it, because they happen to have invested their money in a friendly country. When talking about dollar investments and when beginning to penalise the American investment, you are getting very near the Dominion of Canada. Is the right hon. Gentleman going to call upon English holders in Canadian Pacific Railway stock to dispose of their shares? [An HON. MEMBER: "They are doing it!"] Then I venture to say the right hon. Gentleman is driving money outside the British Empire. These shares must be bought, by Americans; probably they will be purchased by German Americans, and I would like to know how Canada will feel in that event. How will Canada like to see her Six per Cent Preferred Stock, the cream of her investments, going into foreign hands? I want the right hon. "Gentleman to consider seriously this proposal, and see whether he cannot amend it in a way the Committee will view more favourably. If you force people to sell American securities you have no guarantee that they will put the money into Government War Loan, and it seems to me you are doing your best to keep that money outside the British Empire. They will not put it in Australian stock, because you are going to double-tax them on any money they may put there. I hope the right hon. Gentleman will see his way to modify this proposal. If he cannot, let him advertise it more freely than he has done, because the people in the country do not know what securities they are asked for, or what they are expected to send in. I know some who have sent in with the observation—" This is all I have, do what you like with it." And the answer has come back, "Thank you very much; they do not come up to what we require either in quantity or quality." How are you going to treat these people? Let the right hon. Gentleman lay down quite clearly what securities he wants people to send in. I hope, too, he will make it clear that he is not going to deduct the Income Tax of 7s. from these securities at the source and leave it to the holders to claim the 2s. back, as that will mean that they will have to wait a long time to get their money back. I am sorry I cannot give the right hon. Gentleman more support. He has entered upon a very thorny road. He has a very difficult task. I sent him a letter the other day — perhaps he has not yet seen it—embodying some questions asked by a constituent of mine who has had a great deal to do with American investments, and I hope in due course I may get an answer.

Sir J. WALTON

I have, almost invariably, been able to support the taxation proposals of the Chancellor of the Exchequer. I am quite aware that in a great war such as we are now engaged in, one cannot expect altogether to preserve the just principle of the equal incidence of taxation. I have, indeed, supported many proposals recently by the Chancellor of the Exchequer which have made a very serious breach in that principle, but in none has the breach been, so serious and so flagrant as in the particular one now under consideration. I yield to no one in. my willingness to make every sacrifice, financial and otherwise, to enable us to win this War, and I do feel that the response to every request the Chancellor of the Exchequer has made, especially with regard to dollar securities, has been so splendid that it would seem to be too early to seek, by penal legislation, to exercise this coercive power. Still I think the holders of these securities throughout the country have some reason to complain. I hold in my hand a list of American dollar securities which the Treasury are willing to take, and in it I read the words: His Majesty's Treasury are prepared to purchase or accept on loan any of the undermentioned securities except common American railway stock, suitable for deposit, which will not at present be purchased. Many months ago I realised all my American bonds and lent the money to the Government willingly. On the other hand, I had certain common stock in Amercian railways, and I offered it at Old Jewry. I offered to put the stock on deposit, and I was told, in reply, the Treasury were not yet prepared to take such securities on deposit. I have renewed that offer twice, and in the last six months I have made it an open offer without any limitation as to date, but up to the present moment I have had no reply.

Mr. McKENNA

You will get one.

Sir J. WALTON

If this is the way in which hundreds of holders of dollar securities have been treated, it is no wonder that the flow has dropped down to a trickle. They could have had my American railway stock on deposit last month or last week, but I could get no reply. That is not managing the business in that thorough fashion which we have a right to expect. It is perfectly true that practically every holder of these dollar securities would be willing, if they rightly understood the alternatives, to give their securities to the Government, either on deposit or sale, but what about all those American dollar securities which are deposited with bankers in this country as security for overdraws? I should like to know from the Chancellor of the Exchequer whether the holder of American dollar securities who has deposited them with a bank as security for an overdraw, will have to pay 2s. in the £extra on the Income Tax because he is in the unfortunate position that he has not command of his American dollar securities? I believe there are hundreds of people in the country who are in that position. An hon. Friend of mine says that they can sell. Perhaps his banker might take another view of the matter. At any rate, what we require is that everybody should be treated fairly and justly, and that, as far as possible, the true principle of the equal incidence of taxation should be preserved.

My hon. Friend the Member for West Aberdeenshire (Mr. J. M. Henderson) made the suggestion that if eventually there is a loss, the Government should make good that loss to the holder of securities who has deposited them with the Government, if they find it necessary to sell. That is only justice. In that case the whole of the taxpayers would bear a share of that loss. Personally I do not attach so much importance to the question of the Government having to make a forced sale of American dollar securities deposited with them. That is a very remote contingency. I am sure we all appreciate the way in which the Chancellor of the Exchequer has fulfilled the onerous duties of the position he occupies in this great War. We know that he has every wish to act fairly all round, and I am sure that in Committee the various suggestions that, have been made will receive from him careful consideration. I do not for a moment say that he should withdraw the Resolution. I propose to vote for the Resolution, believing that in Committee changes will be made, that will make it more equitable. Looking to the future, I am bound to say I agree with what my hon. Friend the Member for West Aberdeenshire said about the loss of annual income derivable from foreign investments, and what it will mean in the matter of foreign exchanges and the balancing of imports and exports, namely, that it is a very serious question. We cannot help that. We are spending huge amounts of money upon this War. We must raise that money. We cannot lave a Debt of £3,440,000,000 next March without having to deplete our financial resources and utilising our pre-war capital. That has to be faced. So long as it is faced on lines that endeavour to do justice all round and places an equal burden on all shoulders, I am sure the Chancellor of the Exchequer will have the support of the House of Commons and the country in all his endeavours and proposals, however drastic they may be.

Mr. MACMASTER

I intervene in this Debate in order that we might have it clearly stated by the Chancellor of the Exchequer what is the extent of the allocation of the taxation which he proposes. In his deliverance he referred throughout the whole duration of his speech to American securities. If I rightly read the Resolution before us, it applies not merely to American securities, but to other securities as well. I understand from some nod that he gave during the discussion that it applies to Colonial, Canadian, Australian, and other securities.

Mr. McKENNA

All securities.

Mr. MACMASTER

If that is so, it seems to me to be a most unfair and un-justifiable tax. There are many people from our Dominions Overseas in this country at this time who are intimately connected with the War and who have come here in connection with it, who hold these investments and who have taken up their residence here. Is it fair that these people, who make their contributions in the Dominions Overseas, should have this additional impost put upon them in this country?

Mr. McKENNA

They will not.

Mr. MACMASTER

Surely they will. Take my own case and that of many others whom I know. This tax will be applied to every Colonial holding these securities.

Mr. McKENNA

Only if the Treasury offers to buy the securities. The Treasury might offer to buy South American securities as well as North American securities, provided that in their opinion it was necessary in order to deal with the exchange. It will not apply to Canadian, Australian, or South American securities unless the Treasury have offered to buy the securities in order to finance the exchange.

Mr. MACMASTER

I am very glad to hear that, because Canadian Pacifies are largely held in this country by English people as well as Colonials. I understand that the right hon. Gentleman says that it, will only apply to them provided the Treasury require them for the purposes of sale. What can be more desirable than the purchase of Canadian Pacifies? The right hon. Gentleman knows that it is a prime article of financial commerce on the New York Stock Exchange, and nothing could be more desirable than that the shares of that company should be held for the purpose of raising money on the American market. I understand he has already offered to purchase them. Now, in addition to that, there is to be a tax of 2s. in the £ placed upon holders of those securities in the event of his desiring to acquire them. That is most unfair, and may have injurious effects. I am not sure whether the right hon. Gentleman is aware of the fact, but in Canada the fear is that this great railway will pass into the hands of Americans, who will acquire the shares and thereby get control of it. That might have a very injurious effect in Canada as well as from an Imperial point of view.

Mr. McKENNA

It is so unnecessary to enter into this question. I undertook, when this subject was discussed before, not to include any Canadian shares in our purchase scheme except with the approval of the Canadian Government. We are not buying these Canadian ordinary shares because the Canadian Government at the present moment do not wish us to do so. I think it is quite safe to leave the matter in their hands.

Mr. MACMASTER

I thank the right hon. Gentleman for having made that statement. It might be quite safe, but I can tell the right hon. Gentleman that the Canadian Government is not the only guardian of Canadian finance, and that there are people there quite competent to judge of their own affairs and who do not care to leave their affairs in the hands of any Government. I object to this tax because it is unfair and discriminating, and because it is an unequal and unprecedented tax. The right hon. Gentleman the Member for Dundee (Colonel Churchill) said, "Oh, this is a time of inequality. This is a time of war, and we must all suffer inequality." Only two or three days ago I heard a very eloquent speech from the same right hon. Gentleman in which he pointed out and condemned inequality in the service of our troops in France, but now from a financial point of view he sees no inequality in this taxation of a special character. If a discriminating Englishman —I take the larger point of view—chooses to put his money in Canadian, American, or Australian investments, why should he be put under the disability of having to sell his shares unless he is willing to submit to the 2s. extra penalty? It will not do to say that we will give you back your shares at the end of one or two years, or to say we will take your shares now and at the end of the War we will give them, back to you. It might happen that the shares will have become greatly enhanced in value, but by having his hands tied in. the meantime the holder of the shares is deprived of the benefit of selling them. The only thing that can justify the action of the Government is necessity, and that they require to provide money in the principal markets of the world where they are buying supplies for the War. If necessity compels them to provide the money there, it should not be at the expense of penalising any particular holder of securities in this country or elsewhere. It should be done by means of a tax equally borne all round, undiscriminating and equally applied. In my opinion this tax is most unfair.

6.0. P.M.

Sir GEORGE YOUNGER

I regret I did not have the pleasure of hearing the speech of the right hon. Gentleman in proposing this Resolution, because I happened to be engaged in a conference at the Local Government Board. Therefore I do not feel very competent to discuss the matter from the point of view from which he placed it before the Commtitee. I have heard a good many of the speeches made since, and I generally agree in the condemnation of the proposal. I remember distinctly that when the suggestion of lending bonds on conditions was made, and the right hon. Gentleman said that he was going to borrow the bonds, it was brought to the notice of financiers in the City. I went to the Treasury specially and told them that the scheme was bound not to-succeed, because it Was thought then, and I still think it to be not perfectly fair to-holders of these securities. I did not see the right hon. Gentleman, but I saw a very prominent official at the Treasury, and asked him to convey to the right hon. Gentleman the views of this rather important group of financiers The right hon. Gentleman, when he did introduce the scheme, deprecated the idea of in any kind of way using compulsory measures. I felt it was "bound to come to something of the kind in the end, unless he altered the terms upon which he borrowed the securities. That he does not propose to-do. Now he comes forward with a proposal which is certainly unfair. I agree with my hon. Friend (Mr. Rutherford) that it is a mean thing to treat people in this kind of way and to put a kind of tax upon them, instead of taking over the securities, at cost if you like, but on fairer conditions than you offered before. The right hon. Gentleman turns his head away and p apparently does not propose to listen to what I am saying. I am only talking into one ear, but I tell the right hon. Gentleman that the position of people who hold large quantities of bonds "which are redeemable at a certain date at par is a much more serious one than has yet been placed before the Committee. I know a case in which a company holds a very large number of these dollar bonds. They have already sold enormous quantities for the benefit of the Government which have a due date varying from ten to twenty and thirty years ahead, and the difference between the market price of those securities at the present moment and the value which they will have at the given date— and they do not require to sell one before the due date—is £850,000. The right hon. Gentleman said they can pay the 2s. tax and keep them. That is a very nice discrimination.

Mr. McKENNA

What is the amount on which £850,000 is the difference?

Sir G. YOUNGER

I cannot tell the amount, but it is many millions.

Mr. McKENNA

It must be.

Sir G. YOUNGER

How could the difference exist unless it was millions?

Mr. McKENNA

The hon. Gentleman startles me by this figure. Can he tell the Committee what interest, including appreciation of value till the due date, they pay —that is to say, the net interest which they now pay plus the yearly increment of value due to the appreciation till the due date—is the total 5 per cent.?

Sir G. YOUNGER

I am not in a position to say what the interest is. My position is this. The valuation of those securities at present, in a depressed market—the market value takes no consideration of the tax that they are repay able at par in a certain time—

Mr. McKENNA

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

Sir G. YOUNGER

The right hon. Gentleman does not know what he is talking about.

Sir F. CAWLEY

May I interrupt?

The CHAIRMAN

I think there is too much interruption. The hon. Member must be allowed to make his own speech.

Sir G. YOUNGER

I will tell the right hon. Gentleman privately the name of the company. I know that a valuation was made quite recently, and the difference between the valuation to-day and the sum of money due upon those securities when repayable is £850,000, and I pledge myself to that figure. What about equality of sacrifice in a case of that sort? I do not suppose all these securities are on the right hon. Gentleman's list. Why should they suffer by selling them? They are looking forward to receiving that money for a special purpose. They have obligations to meet which the money is intended for.

That is all I want to say on that point. But I should like to ask a question or two. I have a letter from the manager of a very large insurance company asking me this question: Take a case which applies to ourselves. We borrowed from a bank in New York a considerable sum, leaving with the bank dollar bonds as security. We brought home the money, thus producing the same result from the exchange point of view as if we had gold those dollar securities, and thereby benefited the exchange. Does Mr. McKenna mean that the interest on those bonds, which are lodged as security with the bank in New York, is to be taxed 7s. in the £ because the bonds are not deposited with the Treasury here? I do not know whether the right hon. Gentleman is in a position to answer that question. It would be a monstrous injustice if anything of the kind were to happen. I cannot conceive any Finance Minister suggesting anything of the kind, and I should hope the right hon. Gentleman will be able to assure me that in circumstances of that kind the holder will certainly not be penalised by being charged more than the ordinary rate.

Mr. McKENNA

How could the charge be made?

Sir G. YOUNGER

I am glad to hear it. I thought anything could be done nowadays because we are at war. That is usually the answer. I am glad something cannot be done. Take the case of banks which are holding large quantities of securities of this kind, but very much below the figure which the right hon Gentleman accepts. What is to happen in the case of those securities which belong to people abroad, and which belong in some cases to prisoners of war who cannot be got at? What are they to do with these? Are these people to be penalised because they can get no authority to sell or to deposit or to do anything? Again, if you force all the small holders on to the market now to sell or to be penalised, what is to become of the market? These people will be bound to sell upon a very badly depressed market.

Mr. McKENNA

Where?

Sir G. YOUNGER

Here.

Mr. McKENNA

We buy them.

Sir G. YOUNGER

But you buy at the price of the day.

Mr. McKENNA

At the American price.

Sir G. YOUNGER

Surely that all reflects. Surely the American price will be to some extent affected by the quantity of bonds sold here. Anyhow, perhaps the right hon. Gentleman will make some provision in regard to that point. It is very unfair that these people should be penalised if by any chance the banker who holds the securities is not able in time to give notice that they will be lent, or in the other case to get authority to sell. I think the right hon. Gentleman would have been much better advised if he had gone straightforwardly to work in attempting to get these securities and had not attempted to do it by imposing a penal tax of this kind, which seems to me to be a most unfair way of doing it.

Mr. ESSLEMONT

I am not personally the holder of any of these American or Canadian securities, but I should like to say a word on the point raised by my hon. Friend (Mr. J. M. Henderson). The Chancellor of the Exchequer admitted that up to date, at all events, nothing of the face value of less than £1,000 sterling, or 5,000 dollars, is accepted on deposit, and several people who are holders of securities of a less value than 5,000 dollars and who have been quite willing to deposit have asked me whether in the circumstances named they will be penalised by this tax. I think it would be grossly unfair to the holders of these stocks if they were penalised on account of the Chancellor of the Exchequer himself having made a regulation which prevents them having an opportunity of depositing their stock. The Chancellor of the Exchequer said this was a Committee point. It may be a Committee point. I think he went so far as to say that any offer of the kind would be taken as a guarantee of good faith and therefore they would not be taxed. But there must be thousands of people in that position who have not made any offer to the Treasury, but who went to their broker or to their banker and said, "I propose to deposit these," and the answer given by the broker or banker would be, "It is no use-offering them to the Chancellor of the Exchequer because he will not take them." Really before this tax is imposed I think every holder of such securities, of whatever nominal value, ought to have an opportunity to deposit them before he is subjected to this tax. It would ease the situation. I do not think it would be derogatory to the dignity of the Chancellor of the Exchequer if, in a case like this, he says, "It is a fair case that you put before-me, and I will see that it is given effect to," and not put it off by saying, "This; is a matter for Committee stage and not. for Second Reading." If it is a case that ought to be met the Chancellor of the Exchequer or the Financial Secretary should get up and say it will be attended to.

Mr. LOUGH

From the moment my right hon. Friend announced his intention of making this proposal I felt that it was a very strong step to take. He has rightly admitted that it is a precedent. An offence is being created. We are carrying the principle of penal taxation further than we have ever done before, and I think the-Government ought to hesitate before they put this proposal into operation. It looks to me like something that might have been excusable at the commencement of the War, but to-day, in the twentieth month of the War, when the country has responded so splendidly to every financial appeal that has been made to it, it seems to me a. cruel thing to make this invidious distinction and to create a new offence of this kind, and label a large number of people who, it is admitted, may know nothing about it, as unpatriotic and not discharging their duty to the State. It seems tome a great pity that this should be done. I think the arguments we have had from my right hon. Friend do not go the whole length of the case. For instance, he said he has arranged with the Canadian Government not to include the common stock of any railway. I find that Canadian Pacific Railway common stock is included in the list, and here is a list of a considerable number of large Canadian securities which are included as well as American securities. Then my right hon. Friend almost alarmed the House by the extension that he gave to-the principle, in an interruption a few minutes ago. We thought it was confined to American dollar securities, but my right hon. Friend has widened it now.

Sir J. WALTON

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

Mr. LOUGH

That is at the moment. He said, "To-morrow I may claim South American securities, another day any other foreign and Colonial securities," and the principle that we are adopting, rather hurriedly and without any great necessity, may be extended a great deal further than anyone in this Committee at present realises. The Secretary to the Treasury is a man of very great intelligence. The only fault I find with him is that instead of using it in a free and independent way, he abuses—I was going to use a stronger word—his great powers by simply upholding in a slavish way anything the Government bring forward. As Secretary to the Treasury he occupies an independent position to a large extent, and he ought not to do anything which will be injurious to great interests in the State. I want to ask him one or two questions which have not been answered. Would it not be fair, before this proposal is adopted, before this House gives the Government the right of fining, punishing, and branding as unpatriotic, that the terms should be plainly stated in a circular which these wicked people are refusing? I was very glad to get a letter from the Chancellor of the Exchequer this morning on this very subject. There is no attack made against anyone in that letter. The offence which we are going to punish so severely this afternoon is not stated. On the contrary, it is a letter of thanks—I have not done anything to deserve it—addressed to the people of the country. It says: The thanks of the nation are due to the very large number of holders who have already placed their securities, and so on. My right hon. Friend is overflowing with gratitude, and yet he has expressed that gratitude by making the most stinging proposition about branding us as unpatriotic and punishing in a very severe way a large number of the people of the country. The Government ought to make out a better case than they have done before they take that step, and they ought to state the exact terms on which the securities may be bought. For example, this point has been taken. There may be a large number of people in the country holding these securities who know nothing at all about what is going on. The mistake we make in this House is that we come here with difficult problems and then we think everyone understands them. People do not understand them. There are all sorts of curious people with a little money in remote parts of this country and we ought to think once or twice before we take a step which may do a much larger injury than we think to these important interests.

That is the point of the people who may-know nothing about it. But I want to take another point. There may be other people who are thinking about it and find great difficulty in selling. The securities-may have cost them a great deal more than the present market price. We say in a grand way, "They must cut their loss." But people who have got only a little, de not like cutting their loss. I do think that some provision should be made for meeting hard cases, and that they should get the cost price of their securities or the loss should be made up to them. An hon. Member laughs. I would not do such a thing myself, but I do not make the proposal; it is the Government which is responsible. If you make a bad and doubtful proposal you ought to guard it all round and try to fence it round with protection for innocent people. The Chancellor of the Exchequer has put forward the case in this way: He said that the exchange is against us and that we can only deal with the exchange in this way. I maintain that there are several other ways, of dealing with the exchange. The trouble is that the problem is much wider, and you may find, even when you have done this, that you have not put the exchange right. I will tell the Committee one way of dealing with it, and that is by buying less from America and producing more ourselves. If we are putting up all these tremendous factories in this country, and we hear glowing accounts of the progress that is being made, why should we buy more than we can pay for? It is a great mistake. By a little restraint in the way of buying we might avoid dealing with the question in this drastic way.

Mr. WING

By killing our soldiers for want of munitions.

Mr. LOUGH

I said nothing of the kind.

Mr. WING

That is the outcome of your remarks.

Mr. LOUGH

No I do not think the hon. Member can deal with it very well in an interruption of that kind; it is not successful. I am as reluctant to kill a soldier or anybody else as the hon. Member. If he wants to make a charge like that, let him stand up in a few minutes when I have done and put it in an intelligent way to the Committee, instead of making an interruption of that kind. I do not want to kill our soldiers. I say that we ought to increase our own output. Are we not doing it in every part of the country now? If we do increase out output, it would not be necessary to bring in such a proposal as this. The Chancellor of the Exchequer said he can only deal with this matter in the Income Tax, and that if he adopts the suggestions flung across the floor of the House, brings in a Bill to buy these securities, that would force him to take too many, and he would have to buy everything that was offered. There is no necessity to do that. A Bill could be brought in to enable him to buy what securities he likes, to buy a certain number and to make selection. The argument of the alternative course has not been worked out in the careful way that I think we might expect before a principle so great as this is agreed to.

An HON. MEMBER

It broke down.

Mr. LOUGH

Quite so, I think it did break down. We are asked to-day to break with all our traditions. We are asked to act in a way that may be injurious to many people. Before the Committee does that it ought to inquire about. all the alternative policies, and if it can find any other way of dealing with the. situation it ought to do so. I think the Government has a great deal of information which it has not given to the Committee, and which it ought to disclose to make the case good- I suspect the Government because it is keeping so dark; it is saying so little. In introducing a large and novel principle like this the Government ought to treat the Committee with candour. I believe there are statistics of the number of these securities that are held in the country. At first everybody came forward. The Chancellor of the Exchequer said that at first there was a torrent, and then it began to trickle. Torrents do begin to trickle when the water runs out. How do we know that as many of these securities are available now as there were at first? I think the Government ought to give us the whole of the information. I believe they have got in- formation about the quantity of these stocks available in the country, and I think the number is a much larger one than some hon. Members may be inclined to think. I do not think there is any hurry about it. One very curious thing was said by the Chancellor of the Exchequer. He said there was a torrent, then a trickle, and then within the last week the torrent has come again. If that be so, perhaps this Debate, this appeal that we have made, the Government's own violent proposal, and the wise suggestions we have made, may have the desired effect in the country and the Government may get as many of these securities as they want without having resort to this rather doubtful experiment.

Captain SIR OWEN PHILIPPS

I think every hon. Member of this House is agreed that the Government should get, by purchase or by loan, such foreign securities as are necessary to maintain the exchange. What there is difference of opinion about, and what I very much doubt, is whether the proposal that the Government have now brought forward is necessary. The reason I think it is not necessary is that they have not yet put forward what, in my opinion, is a fair proposal to the holders of a great quantity of foreign investments. The original proposal to buy foreign investments was quite fair for those owners who could afford to sell their investments without much loss at the present market price, but many owners of these investments could not face the heavy loss they would sustain, many of them under trust, by selling their investments at the market price of the day, which is very much reduced. Therefore the Chancellor of the Exchequer and the Treasury put forward an alternative proposal to allow them to deposit their securities with the Government and to receive for two years ½ per cent. per annum over and above their present interest. That proposal was a very fair one, had it not been coupled with another condition which, in my opinion, was grossly unfair. The other condition was that in case of a crisis the Government should have power to sell these securities on the American market at the price of the day of that crisis, simply returning the money they obtain for their sale to the wretched holders, who would help the Government by lending them, plus 2½ per cent. on the heavy loss which they may have sustained.

I personally own no securities that come under this proposal, but I am trustee for a very large number, and I would like to tell the Committee how I have dealt with them so far as I am a trustee. In every case where we could sell without a heavy loss to the Trust these securities have been sold to His Majesty's Government. But when there is a loss, as in a trust that I was looking at this morning, of 20 per cent., if they were sold at the present market price to the Government—and the trustees were absolutly certain that if they did not sell them but held them for five years they would have realised no loss upon them—the trustees naturally cannot see their way to sell them at the present heavy 20 per cent. loss. They are quite willing to lend them to the Government. They do not want the Government to pay per cent. to them for lending them. They are only too pleased to lend them to the Government without any charge of any kind, and all they ask is that if the Government for any cause is forced to sell these securities for the good of the British nation, that they should repay to the Trust the sum of money that these investments have cost the Trust. I think that is a fair and reasonable thing to ask. If the Government came forward with some well-thought-out scheme to meet that practical difficulty, I do not think they would have to come down to the House with this revolutionary proposal.

Sir F. CAWLEY

I am in agreement with most of the hon. Members who have spoken. I am in favour of the Government doing anything they think fit for the prosecution of the War. I have been in favour of compulsory service. One of the reasons why I was in favour of compulsory service was because I did not believe that those who had voluntarily enlisted should be placed in a danger that others were shirking. I do not quite see the difference between compulsory service— that is, making a man go and fight—and making people who have these American securities sell them compulsorily. When first the Government asked people to sell their American securities or to lend them, a great many people thought it was their duty to help the Government in every possible way so that the country could get more munitions from America, and more food from America, than would be the case if the exchange went down. But there are a great many people who say: "We will not sell. We will keep them. "We do not want to help the Government in this way. It does not pay us to sell them." I cannot understand why anybody who is in favour of compulsory service for the Army is against compulsion in making people sell their American securities when other people have sold theirs willingly for the benefit of the country. I do not see why they should be opposed to people being compelled to sell their American securities to help the British nation to get more for their money from' America than they would otherwise do if these securities were not commandeered. I think that is a fair way of putting it.

Some people who hold American securities are complaining a good deal without cause. After all, American securities have depreciated less than any other securities. English gilt-edged securities, railway debentures, and all kinds of industrial debentures have gone down, but American bonds have not gone down at all, or scarcely at all. American 4½ per cent. bonds can be sold so that the money can be invested to bring in more income than the investor is making at the present time. Therefore, I do not see very much hardship. When the hon. Baronet (Sir G. Younger) talks about bonds that are going to mature in a few years, I can only say that I have not the share list before me, but I think I am right in saying that a great many of the bonds that mature in a few years are now about par.

Sir G. YOUNGER

I did not say in a few years. I said in about twenty or thirty years.

Sir F. CAWLEY

Even those that mature in twenty or thirty years are at a fairly high price, and I think if the hon. Baronet will go into the question he will find that he can sell these bonds to-day and invest the money in Treasury Bills or Exchequer Bonds to bring in a bigger percentage than he gets to-day.

Sir G. YOUNGER

No.

Sir F. CAWLEY

It is so.

Sir F. BANBURY

In some cases, not in all.

Sir F. CAWLEY

Not in all, but in a great many cases. Amongst all the best bonds it is the case. There are certainly a good many inferior bonds, but I do not think the Government want to buy them. The best bonds I believe can be sold PO that the money can be invested in English Government securities to bring in a greater interest than at present. So where is the hardship? In these times, when we are compelling people to serve their country, the least we can do is to see that those people who have American bonds should sell them to the Government for the benefit of the country, so that the country can get more munitions of war and more food supplies from America. I think it is not unfair to ask these people to sell their bonds, particularly when they can invest their money to bring in quite as much interest as they are getting now.

Mr. CURRIE

When the great novel of David Greig was first criticised its distinguished authoress consoled herself with the reflection that she might neglect most of the criticisms that were cast upon it as they destroyed one another. On the same principle I hope that the Chancellor of the Exchequer will derive some consolation from the fact that most of the criticisms cast upon his scheme really destroy each other. He seems to be assailed impartially for going in for too much coercion on the one hand, and for going in for too little on the other. The Bill has been denounced as tyranny, robbery, and so forth. With charges of that kind I have no sympathy whatever. It is obvious that if we are to win this War we have to pay for it. One obvious source of money to pay for it is the recall of money abroad wherever it may be. It appears to me that if a great corporation holding three, four, or five millions sterling of these 4 per cent. bonds thinks that it is its interest to retain these bonds and not to give them to the Chancellor, the impost which the Chancellor is proposing to place upon them is not really an excessive amount. I do not think it fair to say that a tax of this kind is of such a coercive degree as to amount to confiscation. I hope particularly that the Chancellor will not listen to the suggestion—1 do not think there is much chance that he will—that any sort of guarantee should be given to people that in certain contingencies the Government will relieve them of the capital loss on investments which they make. If the House of Commons advises the Chancellor to do that it will, I think, lose its reputation altogether, and will deserve to lose the confidence of the great mass of the people. We have recently, very rightly I think, been engaged in coercing people into military service. I think that the question as to what the difference consists in between coercion into military service and the present degree of compulsion as applied to money is one that can be fairly easily answered. Where you are dealing with men, you are dealing with a subject matter which is under your own control. In dealing with money you are dealing with a subject matter which is only partly under your control. In the case of American bonds you are dealing with American parties also. That is sufficient explanation of the different treatment which the Government are proposing to extend to men on the one hand, and to money on the other.

Major NEWMAN

The right hon. Gentleman the Member for Islington read a letter telling us what a good result there had been from the appeal made by the Chancellor of the Exchequer to the public, and how many million dollars worth of securities had been offered. I cannot quite understand whether when the Treasury buy those securities they sell them at once or keep them. If they kept those, at any rate, which they acquired six or eight months ago there must be a substantial profit, because the trend of the American market has been steadily up in the course of the last six or eight months. If that is the case, they can afford to be more generous to those who are left, and to offer them rather more tempting terms to deposit their securities with the Government. The general idea of the public at the moment is to deposit and not to sell. I only rose to get a couple of opinions from the Government. It was only on Friday that I went to my bankers about this very question. They are a very leading firm of private bankers. I found them very much perturbed on this very question. The first complaint which they had was that the list of securities which the Treasury would take and would not take as varied from month to month and varies now almost from day to day. The original start, as we all know, was the dollar bond securities and gold bonds. Now there have been a great many other securities included, and I would remind the Secretary to the Treasury that Canadian Pacific 6 per cents. are taken.

I would direct attention to a list of American shares not mobilised. It is from the "Financial News" of last Saturday, and I was surprised to see that whereas the Government will buy Reading American Railway Second Preference Stock which stands at 48, practically a rubbish price, which I would not hold, and I am sure the Secretary to the Treasury would not hold, the Treasury, just because it is ordinary stock, will not touch Northern Pacific, which is a splendid railway now standing at over 120. Or again, though they will buy Reading Second Preference at 48½, they will not buy Erie First Preference at 56, nor will they buy Mercantile Marine Preference, which are in good demand at the present moment at 98⅞. Surely that cannot be common sense. That is the one thing, of course, about which these bankers complained to me. They say, "The list will change in the course of a few days. Then what is going to happen? Some of our customers do not follow things very carefully, and will not come to us to sell, and eventually they will be cast for 2s. extra Income Tax." And they ask me to represent to the Treasury very strongly that there ought to be something in the nature of a complete list, or at any rate a list which will be brought before the notice of the general public in some very emphatic way, which should be some guide to those who have not got a financial guide alongside of them as to what they should do or should not do. I would suggest to the Treasury that they ought to enlarge this list. Surely, Union Pacific is a good collateral. Lima Central is a good collateral. These are all considered to be very good securities. Mobolise all these big American stocks.

I would like the Financial Secretary to imagine a very common case—the man who lives over here, but who holds his securities for the moment—American securities—over in America, the interest on which is sent over to him here from there. The Income Tax is not deducted at the source by the bankers over here, and he makes a declaration of how much he receives from America for these bonds on which he has to pay Income Tax. Suppose that he is a dishonest man, what is he going to do? He has not sold his securities. It is impracticable. Is he going to declare to pay 7s. in the £? If he is honest he will, but if he is dishonest he will not. There is here a direct inducement to transfer holdings from a bank here, and send them across to America and have the interest sent to him personally from America, and not deducted at the source. If a man is of a dishonest turn of mind, all that he has got to do is to declare at 5s. and not at 7s. That may be a means of taking a certain amount of business from bankers in the City of London and transferring it across to America, and also of putting a premium on dishonesty. I would like to have that point dealt with, and I would also like to urge on the Treasury the extension of this list of American securities.

Sir A. WILLIAMSON

I would like to refer to the position of the large insurance companies doing business in America. These insurance companies have, as the Secretary knows, to keep a minimum amount in American investments in America. Perhaps I was not in the House when something was said about it, but I was going to ask that the amount which is allowed free of this tax to be kept in America should be much larger than the statutory limit, which is a comparatively moderate amount. The insurance companies who have already, as the Secretary knows, very largely sold their securities to the Government, and have come forward very patriotically in this matter, feel a great difficulty in being free of this tax only upon the statutory limits which they keep in America. They assure me that the statutory limit is far too small, and if it is the case that they have to give to the Government in deposit all these securities above the statutory limit, they are then faced with the risk that the American insurance canvassers will go round and say: "Give this business to American companies, because the British companies that we used to trust through holding all these securities lodged in America have now only the statutory limit. The rest are all pledged to the British Government." This is a very serious prospect for the English insurance companies in America. I want the Chancellor to understand that the statutory limit will not be sufficient to keep as the available fund in America for these big insurance companies, and that they will be very greatly handicapped in their business if canvassers for rival companies can go about the country saying: "Give your insurance to American companies; British companies are no longer what they used to be."

Mr. RAWLINSON

I hope that the Government will reconsider their position in this matter. I desire to look at it from a broad point of view. It is rather a startling proposition that you are to penalise people who hold shares on this list, mostly American securities, and that you are not going to penalise people who hold shares even in hostile countries, such as Austria - Hungary and Germany. What is the reason for desiring to carry this matter through? So far as I under stand, it is because we want to stop the flow of gold from England to America, and therefore it is necessary to take some step The hon. Member for Prestwich (Sir F. Cawley) has told us that he is in favour of compulsion. If it is necessary that a price should be paid to prevent English gold going to America and to keep up the exchange, why should not all of us have to pay it? Why should the people who have invested their money in American securities—fortunately or un fortunately I am not one of those people—have the loss fall upon them more than it falls upon people who happen to hold securities in other countries? This tax of 2s. in the £—

Sir F. CAWLEY

It is only problematical.

Mr. RAWLINSON

It may be problematical at the present moment, but we are now voting that it shall be 2s. Whatever may be the case for compulsion, certainly it does not come in now. Further, I do not believe that it is the best way to regulate exchange with America, but I do not wish to discuss that subject to-day. Whatever may be. the best way, I have a feeling of the greatest distrust of this system of trying to equalise exchanges by giving the Government so many stocks and shares to play with on the New York Stock Exchange. The other night we had an attack on gambling by the Chancellor of the Exchequer, when my hon. and learned Friend the Member for Bassetlaw (Mr. Hume-Williams) made a most eloquent and literary speech on the blessings of chance. If I could only repeat some of the eloquent language which was used on that occasion by my hon. and learned Friend, I think some of it would come perilously near being true about this transaction which the Chancellor now proposes. We are taking the shares of people who believe that they are on the rise at the present time. We are taking them over, and. we are either buying them right out and reselling them—and I am not so absolutely certain that if the Government had done that before it would not have been better—or we are having a deposit of these shares with the Government, and they are to be carried over. If they should go down in value, or if a panic occurs, the unfortunate holders of the deposited shares will only get 2½ per cent., which will not recoup them for their loss.

I submit that such a proposition as this has never been put before any assembly in the world, and, when we have done this, or exhausted these securities by taxation or in other ways, what is to happen? They will buy in other securities so as to level existing rights. I think the House ought to consider very carefully before they authorise this penalising measure or join in what appears to be a very serious financial transaction which is perilously like a gamble. What are we doing now? The Committee is going into this matter absolutely blindfold. I am second to none in the respect and confidence I have in the Chancellor of the Exchequer and the right hon. Gentleman the Financial Secretary to the Treasury as financial experts in the-House of Commons, and who have done their work so splendidly. But what is the case? We have not a single figure before us. We do not know how much they have sold, and we do not know how much they hold at the present time. Are they speculating for a rise or a fall; are they holding a large number of these shares that we-have heard so much about? If so, I think that, after all, this sort of thing is better done by private individuals than by the Government.

Sir F. CAWLEY

What is your alternative?

Mr. RAWLINSON

The hon. Gentleman is quite right to ask what is the alternative? I have one. But is that any justification for our admittedly going into a deal of which we do not know the particulars? Would any business man do it? If the hon. Gentleman (Sir F. Cawley) were a trustee, would he allow any trust money to be used for this purpose; would he go to the banker and say, "Do what you think fit; I have great confidence in you, do as you like; I ask no particulars, do what you please"? I know the hon. Member would do nothing of the kind. He would want to know exactly what was to be done, and I think that before we do these things we ought to know something about them, even if we are at war.

Sir F. CAWLEY

The hon. Gentleman said he had an alternative. He has not given it yet.

Mr. RAWLINSON

I am afraid I said in the early part of my speech that I was not going into the question of the alternatives raised by the right hon. Member for Islington. If necessary, I could go into the question of alternatives, but there is one I may state—tax luxuries that come from America. I need not elaborate that point, but it would be a very useful way of stopping people from buying things from America at the present time, and it ought to have been done long ago. I am sorry I have been drawn away into that question; it was dragged out of me.

Sir F. CAWLEY

Munitions and food.

Mr. RAWLINSON

I do not wish to go into that point. I wish, before the Committee do this, to at all events enter my protest. I cannot submit to it in silence, however much we are at war, without any substantial facts on which a business man could form a real opinion. Supposing the Government do go on with this—I hope they will not—they are not bound to take these things upon loan at all. They could buy them, but they are not bound to take them upon loan. If they give no remission it will be exceedingly hard on trustees who wish to deposit securities with the Government. Should the Government refuse them, they will be mulcted in the tax of two shillngs. I am sure that that is not intended, but that is the Bill. Under the conditions of the original loan, the Government are not bound to take them unless they wish to do it. Unless some Clause is put in the Bill, these persons may be immediately mulcted in the two shillings Income Tax. The other point is that at present the Government will not accept sums under £1,000, and I think that is a point which should be reconsidered. These are minor details, but if the Government go on with this they certainly should receive attention.

Mr. WING

This afternoon we have heard a discussion in which a number of speakers objected to this proposal of the Chancellor of the Exchequer, and I have heard nothing from these conscientious objectors to this financial proposal in the way of an alternative proposal except the one to prevent luxuries coming into this country from America. That is in no way a solution. The non-purchase of food and munitions is suggested by the right hon. Member for Islington, but there is no other way by which to place the balance in our favour except by the purchase of these things which are required for the maintenance of the lives of our soldiers.

Mr. LOUGH

I said nothing about the purchase of food.

Mr. WING

The right hon. Gentleman was speaking of purchases from America, which must include food.

Mr. LOUGH

No!

Mr. WING

I do not see how you can avoid purchasing these things, for if that were not done the exchange would go against us. I am very sorry we have had the position put to us as it has been put in regard to this question of finance. We can commandeer hay, straw, horses, and other things, but when it comes to the commandeering of American shares, then we have a discussion such as that we have heard this afternoon. I think the Debate we have had in regard to this taking over of American shares will leave an exceedingly bad impression amongst the masses of the people of this country.

Sir ALFRED MOND

The hon. Member has apparently not followed the objections raised to this scheme. The objection raised is not to commandeering these shares, but to the use of the machinery of the Income Tax for the novel purpose of forcing people to do something which they would not otherwise do.

Mr. WING

Is not that commandeering?

Sir A. MOND

It is using the power of taxation in an extremely injudicious manner—with no offence to the Chancellor of the Exchequer at all. The objection which the right hon. Gentleman put forward was that if the Government had gone straightforwardly to work and compelled the people to hand over their bonds, which they wanted at a given price, he would have been flooded with those securities before he wanted them, and would have to pay before he wanted them. Therefore nominally the securities would be produced at the same interest as the Exchequer Bonds, and he would lose nothing, but, on the other hand, I think, if he had adopted that course, he would have had a profitable balance on the transaction. That was not a good argument. I think you are quite entitled to say in war-time, "I must have these products for the benefit of the country," but I do not think you are entitled to say, "I will not take them over now, because I am afraid of making a loss on them; you may make the loss on them, and then, when it suits me, I will take them over." That, no doubt, is a very good Treasury argument, but it does not seem a good argument on the general principle of taking people's goods even in war-time. That was one of the chief arguments of the right hon. Gentleman in favour of his scheme, and against the more straightforward and more simple plan which ought to have been adopted at the beginning.

7.0 P.M.

You place the holders of these American securities—amongst whom I do not rank myself, and therefore I approach the subject with an unbiassed mind—in an unfortunate position by ordering them to sell them at an unfavourable time and at a great hurry. If at the beginning everybody had known that these securities were going to be bought, a limited amount of them could have been supplied at certain times, and I think that would have put the securities in a better and more advantageous position than at the present time. To what extent you are going to continue to finance by the method of selling American securities is, of course, a matter of speculation. Surely that is not the only method left. The right hon. Gentleman said with a certain amount of force that we were purchasing for our Allies. Have the French Government brought any pressure to bear on the holders of American securities, of which a very large number are held in France? I cannot understand why English holders of American securities should be penalised in order to enable the English Government to buy things from America for France, whereas the French holders of American securities are apparently entitled to retain them without any pressure being brought upon them. I think the Committee is entitled to some kind of explanation of the transaction. I have nothing to say against our financing our Allies, but I think sometimes that perhaps we are apt to have all the pressure put upon us, and that it is not quite sufficiently made clear to some of our friends that, after all, they could arrange a certain amount of finance themselves. That is one of the points which occurred to me on this subject. There is another one, and that is the question of how far we can obtain further credit in America. We have raised one very successful Loan and, in spite of what the right hon. Baronet the Member for the City has said, on what I consider to be very good terms indeed. I do not know why it should be impossible, and I think it is quite possible from what I have been told, to arrange further credits in America on a very much larger scale, if we merely give them a sufficiently attractive proposition. The right hon. Gentleman's alternatives did not include the question of raising further credits by way of loan, and I do not think that that alternative has been exhausted. From that point of view I will not say it is a great hardship, but there is some hardship, until other sources of credit are exhausted, in asking that this extraordinary procedure should be adopted. It seems to be difficult from a technical point of view to differentiate the amount of Income Tax people are to pay on particular kinds of income. The right hon. Gentleman is creating, I do not know whether he is aware of it, an extremely dangerous precedent, and laying down a principle which is not going to stop here, because there are already a large number of people agitating-the idea that for investments bought abroad there should be a higher rate of taxation than for investments in this country. This is showing them how" that is going to be done, but whether it is a good idea I do not express any opinion. I do feel that the case made out for adopting this machinery is not a strong one, and I think the feeling of the House and outside is very strongly against it.

Question put, and agreed to.

Resolved, "That there shall be charged for the year beginning the sixth day of April, nineteen hundred and sixteen, and for any subsequent year for which Income Tax is charged on the income derived from any stocks, shares, or other securities-which the Treasury have declared that they are willing to purchase in connection with any arrangements for the regulation and maintenance of the foreign exchanges an additional duty of Income Tax at the rate of 2s. in the £, and that no person shall be entitled to any exemption, abatement, or relief under the Income Tax Acts in respect of such additional Income Tax, and it is declared that it is expedient in the public interests that this. Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913."

Resolution to be reported to-morrow (Tuesday). Committee to sit again tomorrow.