HC Deb 23 April 1918 vol 105 cc869-968

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


The Chancellor of the Exchequer has received from all quarters congratulations on the force and the lucidity, the cogency and the conciseness, of his speech in introducing his great Budget of yesterday. These are compliments which I feel sure we shall all agree, if I may respectfully say so, are thoroughly well deserved. My only criticism would be that he has carried one of these virtues of Parliamentary speech, and it is a great virtue, that of conciseness, in one particular to an excessive length. I missed from his speech one feature to which we are accustomed in Budget speeches, namely, a comparison of the expenditure of the coming year with the expenditure of the year which has just closed. It is, after all, the increase of expenditure in the forthcoming year which is responsible for what is the main feature of this great Budget, the levying of now taxes to the extent of £ 114,000,000 a year. When the right hon. Gentleman took office, now about a year and a half ago, the total annual expenditure of this country was at the rate of almost exactly £ 2,000,000,000 a year. The completed figures for 1916–17 show that in the latter part of that year there had been some considerable increase, and that for the twelve months the total expenditure amounted to £2,198,000,000. In the following year, the year that has just closed, 1917–18, my right hon. Friend budgeted for a further comparatively slight increase to £ 2,290,000,000. The actual expenditure of the last financial year was in fact £2,696,000,000, and the Estimates for the forthcoming year, 1918–19, which one hopes will not be exceeded, and assuming they are not exceeded, show an expenditure calculated at £2,972,000,000. So that, during the period of eighteen months to which I have referred, our national annual gross expenditure has gone up from £ 2,000,000,000 a year to a figure which very closely approximates to £ 3,000,000,000 a year. In other words, where my right hon. Friend's predecessor was spending £l a year and a half ago, he is now spending 30s., and that is a fact which I think should receive the very grave consideration both of this Committee and of the country as a whole.

With reference to one item, the increase of expenditure has been almost automatic—that is the increase of the Debt charge, though, indeed, the growth of the Debt is a mere reflection of the growth of the annual expenditure; but the right hon. Gentleman is obliged to find this next year the necessary amount to pay the interest on the increased Debt. In 1916–17 the Debt charge was £ 127,000,000;last year it was £189,000,000; next year it will be £315,000,000. So that in the period to which I have referred of about eighteen months, there has been an increase of about £178,000,000 on that head. Excluding altogether the Debt charge, and taking only annual expenditure on war and other purposes in this country and outside, we find an increase in this short period of no less than £800,000,000 a year. No one can say there has been any commensurate increase in our war effort. It is quite certain that such increase as there has been in our Navy and Army and in our output of munitions—I am not speaking now of rates of expenditure, but so far as the amount of effort is concerned—bears no relation at all to the increase of £ 2,000,000,000 to £ 3,000,000,000, or £2,800,000,000, if one excludes the Debt charge. Indeed, in one great respect the total war effort of the Allies as a whole has been immensely diminished by the defection of Russia, and that should have resulted in a very considerable alleviation of the financial burden upon this country, for it is a well-known fact that the military expenditure of Russia was defrayed to a very large extent by the financial assistance of this country.

I think that one of the first facts that should attract attention in connection with the Chancellor of the Exchequer's Budget statement is that last year our loans to our Allies showed hardly any diminution at all on the previous year, in spite of the relief that was caused—a very unwelcome relief, let me say in passing—by the defection of Russia, and in spite of the fact that the United States provided no less than £500,000,000 for the assistance of our Allies. The expenditure, in fact, upon loans to our Allies was above the Budget Estimate by no less than £89,000,000. It is true that next year my right hon. Friend anticipates there will be some decrease, and his Estimates provide for a sum of £ 300,000,000, and no more, for loans to our Allies; but in view, on the one hand, of the disappearance of Russia, and on the other of the increase of loans from the United States, I confess to a feeling of considerable disappointment that last year it was still found to be necessary to finance our Allies to the extent of £ 405,000,000, or an amount not far short of that which was spent in the previous year. Next year, as I say, our loans to our Allies will be down £ 150,000,000 compared with the year before last. Consequently, if the right hon. Gentleman's Estimates are £1,000,000,000 more than my right hon. Friend's Estimates, he is also spending £150,000,000 less upon Allies than was being spent previously. Therefore his total expenditure is £1,150,000,000 more, apart from the loans to the Allies, than the expenditure which he inherited. I think that the Committee ought to have some full explanation of this really colossal increase in expenditure within so brief a period. It is due, no doubt, to some extent, but to a comparatively small extent, to the general increase of prices, but that in turn might be attributed in no small degree to causes over which the Government of the day has some measure of control. It is due partly to inflation of credits. It is due also in a considerable measure to profiteering, in respect to which neither employers nor employed are wholly exempt from blame, and to which the Government might by vigorous action set closer limits.

4.0 P.M.

There has been in the opinion of many of us, during the whole of this period, if not before, an all-round deficiency of financial control. Deeply concerned with these facts, and with the causes to which they might be attributed, the House last August appointed a Committee to survey the general national expenditure, and I was very grateful to observe in the Chancellor of the Exchequer's speech yesterday an expression of appreciation of the work which had been done by that Committee. This is not the occasion—rather it is a matter for Committee of Supply—to go into the various suggestions made by that Committee with a view of enforcing economy, but by far the most important, in my judgment, of all the passages in the five reports which have so far been presented to the House is one paragraph which I will venture to read, because it is of quite a general character, from the second Report, to which the Committee attached fundamental importance. This report was issued in December last. We said: It is necessary to emphasise that the effectiveness of Treasury control depends not only on the efficiency of officials, but on the attitude of Ministers. It is an error to look upon the Treasury as a body of Civil servants. The First Lord, having long since ceased to take part in its administration, the Treasury is the Chancellor of the Exchequer and his staff. The strength of the Department depends upon his strength, and his strength depends in turn upon the degree of support which he receives from the Cabinet. At bottom, the question is whether the Cabinet concur in the view expressed in our first Report, that the maintenance of the staying power of the country during a long war requires that considerations of cost should be put on a different plane from that which they have hitherto occupied, and, if they concur, whether they will support the Chancellor of the Exchequer in holding with a firm grasp the reins of financial control. The fact is that the forces which make for expenditure, particularly in time of war, drive forward with energy and with effectiveness, while the forces that would check extravagance are, one can only say, hesitating and weak. I think the House of Commons should use continuously its utmost efforts to import a greater vigour into this side of the Government activities. For my own part I hold the view, which I have expressed before, that in this as in many other matters we shall not secure good and successful administration so long as the attempt continues to concentrate all the functions of Government, the management of the War, the management of all the measures of domestic policy, and the management of finance, within the grasp of so small a group as five, six or seven men who have undertaken a burden of administration beyond what I believe any such number of men can possibly have the physical capacity to bear. In the third year of the War the Navy and Army, while they had not reached their maximum, were not far short of their maximum in numbers, yet we find that in the fifth year of the War we are spending 50 per cent. more upon the War and the circumstances that arise out of the-War than we were in the third year.

I turn now for a short time to consider the new taxes proposed by the Chancellor of the Exchequer to provide the revenue which he considers it necessary to have. On the whole I think the general opinion of the Committee is that this is a reasonable Budget and that the taxes are well devised to secure their purpose. With respect to the Income Tax I am very glad to note that the minor charges which are being made— I am not now speaking of the increased rates but the changes in abatement— have a tendency to continue the process that has been continuing for some years past to put the Income Tax more upon a family basis than an individual basis. The further we can approximate to that, the nearer we shall get to the fulfilment of what ought to be the first principle of sound taxation, namely, equality of sacrifice for the taxpayer. This emphasises the need for reviewing the whole of our Income Tax law and placing it upon a consistent and logical basis. That is a task which no doubt must wait until the conclusion of peace, though it is desirable to undertake it at the earliest practical date. But I cannot imagine that the experts of the Board of Inland Revenue, upon whose advice and assistance any such remodelling must to a great degree depend, can find the time and energy in these days to devote themselves to so large and detailed a task.

I regret that the Chancellor of the Exchequer is proposing to increase the Stamp Duty on cheques. It may be that this is a small thing, but our system of the transmission of money is a pipe which conveys the whole flow of the business of the country, and any increase in the duty upon cheques is, in my opinion, putting an obstacle in that pipe. The revenue to be derived is only —1,000,000, and perhaps the Chancellor of the Exchequer, on consideration, will not think it necessary to press the Committee to accept the proposal, particularly as the effect is likely to be, in so far as it diminishes the use of cheques, to substitute the use of paper money, and consequently in some degree to increase the inflation of currency due to the large amount of paper in circulation. I regret even more the proposal to abolish the 1d. post. I speak as an old Postmaster-General, and as one who, I believe, has held that office for a longer period, approaching five years, than anyone else within living memory. This question of the alteration of postal rates is one that naturally commands my very close interest. I have long been convinced that of all bad taxes the worst tax is a tax on communications. This proposal to charge an extra ½d. on what is now a 1d letter is unquestionably such a tax, and is not in any degree a payment for services, because the 1d. charge is already very remunerative. It costs the Post Office much less than 1d. to carry an ordinary letter the average distance. The letter post is very remunerative to the Post Office and yields considerably more than an ordinarily fair commercial profit. The increased charge of ½d., therefore, is sheer taxation. The number of letters which are in the nature of social correspondence is a very small fraction of the total postal correspondence passing through the post. The great bulk is commercial. In fact the Post Office is one of the greatest, and perhaps the most essential, of all our commercial institutions, and by imposing a small charge you may be doing a very considerable amount of indirect harm, just as if you put a little grit in the lubricant of an engine it interferes with the whole working of the machine.

I am very glad that the Chancellor of the Exchequer has not revived the proposal made by the Treasury Committee towards the beginning of the War to abolish the ½d. packet and charge 1d. as the minimum. The weight that can be carried is to be reduced from 2 ozs. to 1 oz., but that is perhaps not of such importance, except to seedsmen, whose trade depends very largely upon the carriage of 2 ozs. for ½d. I am glad the right hon. Gentleman has not gone further and abolished the ½d. packet post altogether. Many hon. Members, when they look at their own letter bag each morning may be of opinion that that sort of postage conveys chiefly circulars, but that certainly is not so. I had a Return made in 1915 to show precisely what was carried by the ½d. packet post, and it was found that at that time circulars amounted to only one-seventh, while six-sevenths consisted of commercial communications, bills, invoices, receipts, or notices of one kind or another sent by the id packet post. I think it would be a grave error to propose to limit that most useful department of the Post Office activity. The right hon. Gentleman is proposing to abolish the ½d. postcard and to charge ½d. for a postcard. The postcard at ½ d. is quite profitable to the Post Office, so here again we have a tax upon communications; and one indirect effect of charging 1d. for the postcard and leaving the ½d. packet post at ½d. for 1 oz. will be that a great many communications which are now printed postcards, such as notices, acknowledgments, commercial communications of all kinds which are in the nature of a printed postcard filled in with a few words in writing, in future will not be able to go for ½d., but will be charged 1d. The result will be that those who have sent them in the past will alter their methods, and by using a piece of printed paper enclosed in an envelope will be able to send the same communication at the price of ½d I do not know what the effect will be upon the weight of paper consumed, but so far as labour is concerned, unquestionably it will be more costly to induce a large section of the community to send tens of millions of communications, instead of in the form of postcards, in the form of enclosures in an envelope. I do not attach the same importance to the rise in the price of the postcard as I do to the addition of ½d. to the 1d. post. I do hope the Chancellor of the Exchequer will not press his proposal to charge an extra ½d. on the 1d. letters, and that he may see his way not to charge the extra ½d. on the postcard, although that does not stand on the same footing.

There is another proposal in regard to the Post Office which did not appear in the Budget speech but which appeared in the White Paper, and that is the increase of rates upon parcels. In future the minimum charge for parcels carried by parcel post will be 6d., but on the other hand anyone can send a parcel up to 3 lbs. in weight for that sum. The consequence will be that no one will have an inducement to keep down the weight of the parcel to anything lower than 3 lbs., because the charge will be the same. I am not at all sure that this new form of parcel post is one that will be really satisfactory or sound. The State already derives a profit from the tax revenue of the Post Office of £ 9,000,000 a year—rather more than twice as much as it was before the War I am comparing the figures of estimates and expenditure in the White Paper and totalling the three services together—postal, telegraphic, and telephone—and I hope that the right hon. Gentleman, if he makes any modifications in his Budget, will make them for the benefit of those who use these invaluable means of communication.

With respect to the new Luxury Taxes, I think the right way to limit the use of luxuries is to prevent their manufacture On previous occasions I have urged that there ought to be greater restriction of employment in non-essential industries. However, that is not being done. The next way is by a stiff Income Tax and Super-tax, but no matter what you do you will have a considerable expenditure in these directions. Anyone who enters the shops and sees the supplies of luxuries of very many kinds to-day will note that they are apparently hardly limited and are being purchased in large quantities at high prices.


What about the importation of luxuries?


That is a matter which, I think is being restricted, or should be-restricted, largely under the Shipping Regulations. I have no objection to additional taxes in the nature of sumptuary taxes if you are able to assess and collect them. The Chancellor of the Exchequer has an ingenious idea of turning every shopkeeper into an exciseman. I am not sure whether they will be found to be highly efficient collectors of revenue. In his difficulty the Chancellor of the Exchequer—and it is a compliment to this House—turns to the House of Commons for assistance and advice. I think that as a matter of principle it is for the Treasury to propose the method of levying and imposing taxation, but ii the Chancellor of the Exchequer desires the assistance of this House I have no doubt it will do its best to help him in his difficulties. We are now engaged in considering a Budget which proposes to increase vastly an already vastly enhanced revenue. Who would have thought when the War broke out that within four or five years we should find ourselves raising an amount of new revenue every year almost equal to the, whole of the National Debt as it existed before the War! It is a marvellous achievement, and very instructive was the contrast which the Chancellor of the Exchequer was able to draw between our own finances at this date and those of our chief enemy, Germany, where it appears that their permanent revenue, which they would have if the War were to cease now, is less than half of what will be their normal expenditure after the War. The immense increase of revenue which this country has been able to provide is a proof of its financial strength, and I trust that the Chancellor of the Exchequer's experience will have enabled him to modify to some extent those views which he was accustomed to express before the War in criticism of the fiscal system under which this country has been able not merely to survive without ruin, but to develop immense resources of financial power. It is a proof also of the moral strength of the nation. This Budget, with all its increased burdens, will, in its main features I have no doubt, pass through Parliament almost without a murmur. Most of the criticisms that have been heard come from hon. Members who think that the taxation ought to be still heavier than that which the Chancellor of the Exchequer has imposed. I believe the country is quite ready to pay any taxes up to the full limit of its capacity, and the people ask only that the money which they provide shall be wisely and carefully spent, for our readiness for sacrifice is as unlimited as our faith in the justice and the greatness of the cause in which we are engaged.

Mr. BALDWIN (Joint Financial Secretary to the Treasury)

I think this is a suitable opportunity for me to intervene, to reply to some of the objections made in yesterday's Debate, and also to say a word or two in answer to my right hon. Friend opposite, who has just spoken on one of the most important subjects connected with the Budget, namely, the question of extravagance, and the attempts which this Government have made in the direction of economy. There are one or two things I should very much like to mention respecting the extravagance in the early part of the War, and, having the opportunity, it is very difficult to neglect it. I was not in office at that time. I was engaged in business, and had every opportunity of seeing the beginning of an orgy of extravagance, with which it has taken the most serious efforts of the Government of this country for the last two years to grapple. Indeed, it was an open question for some time whether the Government or the extravagance would come out on top.

It is very easy, looking back, to be wise after the event, and say what ought to have been done in the early months of the War; but there is no doubt that the foundation of the extravagance which has haunted us so much through those years was laid at the time when the Ministry of Munitions was founded. I can say these things without making the slightest personal reflection upon any individuals, or on the Government that was in power at the time. Putting oneself in the position in which we all stood at that time, it is difficult to see how in any other way we could have faced the position. The country, as a whole, did not realise that we were at war, or what was the War in which we were engaged. We were being told in all the newspapers that we were to go on with our business "as usual." Few people in the country then thought that Conscription would ever become a live question, and few that the War would last into the fourth year. We were absolutely unprepared for a struggle of this character in our capacity for manufacturing munitions, and it was a matter of life and death to provide them.

I do not believe that at that time it would have been possible to have laid the foundation of this gigantic munitions industry in any other way than the way which was adopted, and that was to spend freely in order to encourage the people who were able to lay down the plants to establish them whatever the cost might be, to offer such prices as would then prove remunerative to encourage them to put the whole of their strength into the work, and to allow such wages to be offered as would not only help to draw from the industries all over the country the class of men wanted for munitions work, but would also show them that by engaging in this work they could earn such wages as they could not earn in any other industry. Those things were done, and I blame no one for it. In fact, it was the only way in which it could have been done. It was part of a bitter and heavy price we had to pay at that time; but the business we have done in that way was bound, as it went on, to lead to further trouble in all directions in the manufacturing and the labour world. It is the extreme development of these troubles that we have been engaged in actively combating during the greater part of the last Government and the latter part of the Government before, as well as during the time of this Government. When my right hon. Friend opposite (Mr. Herbert Samuel) comments, as I think he is fully entitled to do, on extravagance and increasing Government expenditure, I maintain that we are engaged in a most difficult fight against this gigantic growth, and we need the support of every man in this House who is in favour of economy.

I should like to say a word or two about several of the new taxes. First or all, I want to deal with the so-called "Luxury Tax." This tax has a great deal of good-natured sympathy. I admit freely that it is a tax which perhaps would not have occurred to a professional economist to introduce; but it is one which has a great deal of popular opinion behind it, and although the existence of popular opinion is perhaps not always a good reason for bringing in a tax, we have decided to investigate its possibilities. It is for this reason that the Chancellor of the Exchequer is going to ask a Select Committee of this House to investigate its possibilities. There is one consideration I should like to put before the Committee, and I hope hon. Members will not think that I put it before them in any sense of levity, because I do not. A point occurred to me when the tax was first suggested, and I should like to put it fairly to the House as illustrating one of the difficulties of this tax, and as one of the reasons why we are adopting the procedure which we have suggested.

It is perfectly obvious to anyone familiar with public assemblies that it would be an impossible task for us to decide what are and what are not luxuries. There is no subject which would lend itself so much to what Mr. Speaker has called the "quasi-humorous" method of treatment, and that is why the question ought to be investigated by a Select Committee upstairs, where a small number of hon. Members, without the advantage of the presence of the Press, may examine these questions, and make recommendations that can be carried without discussion, and as they are sent down. Of course, the French have adopted a similar kind of tax, and although it is now in operation, it is much too early to say whether it is going to be a success. We have to face it ourselves, and I ask hon. Members to give it a fair trial. I ask those who will be invited to serve on the Committee to do their utmost to frame such a schedule of luxuries as will cover the largest amount of ground, and bring in the largest amount of money. Let us try to justify popular opinion in the Luxury Tax, and let us show that it can be made to do something substantial in our Budget for a good many years to come.

The hon. Member for the College Division of Glasgow (Mr. Watt) said something about the farmers. This is a question which will be discussed more fully at a later stage of our proceedings, but the hon. Member was anxious lest the farmer should have to pay his tax on the high rate, and afterwards put in a claim, and go through a complicated procedure in order to obtain repayment. A farmer under Schedule B pays at double the existing rate, but he may, during a period which allows him ample time, elect to be assessed under Schedule D should he think that his profits under that Schedule would show a less amount than the amount of double the rates under Schedule B. In that case he would pay on Schedule D, and there would be no question of payment under Schedule B. But if he elect to be assessed under Schedule B, and then finds that an injustice is being done, he has the opportunity of claiming to pay his Income Tax on the profits of the current year. If he exercises that privilege it is only fair that he should exercise it after he has been assessed to pay this tax, and that he should get back anything by way of repayment.


Will it have to be on the three years' average?


No; that applies to Schedule D only.


Is Schedule D at a later date than Schedule B?


Schedule D is on the average profits of the last three years. I want to say something about the excess profits. The hon. Member for Walsall (Sir R. Cooper) expressed his satisfaction that this tax should remain at 80 per cent. —a view which was strongly opposed by the hon. Member for West Ham (Colonel Thorne), who wishes to see the tax raised to 100 per cent The hon. and gallant Member made a calculation that if the tax were raised to 100 per cent. it would secure a very much larger sum than 80 per cent., and to arrive at this he employed the calculation known as the "rule of three." Rules of this kind are admirable in theory, and can prove anything in a book, but they are very much apt to break down in real life, and there is no rule which is of so little value in this respect as the "rule of three."

There are two principal grounds on which, I think, it would be a wrong policy to increase the Excess Profits Tax. First of all, let us look at it from the point of view of the man of business. We must remember that the Excess Profitš Tax has to be paid out in cash. We must also remember that all the profits of a business are not always available in cash. There is sometimes an increase in the value of the stock, and profits arise in various other ways, which anyone familiar with accounting can easily see. But in these days of very greatly inflated values and high prices it is found in practice that the 20 per cent. which the business is allowed to keep hardly suffices for the extra working capital required to maintain the stocks and carry on the current dealings of the firm. The higher wages, the higher value of all materials and such like, have to be taken into account, and, indeed, if you study the reports and the balance-sheets of limited companies throughout the country, you will find that, broadly speaking, there has been, in spite of the 20 per cent. that is allowed, no marked increase in the dividends which have been paid. There are one or two classes of exceptions, but, broadly speaking, what I say is true.

I have dealt with the Excess Profits Tax as it affects the manufacturer. I now want to look at it as it affects the Revenue. Human nature is very much the same, whether you have to deal with what is called the "master" or what is called the "man," and, when the incentive is taken away from the work, very often the quality of the work suffers. If you have a tax of 100 per cent., you may convert the master from being a piece-worker into a. time-worker, and that, according to my experience, does not always result in increased production. We have no reason to believe, if we increased the Excess Profits Tax from 80 per cent. to 100 per cent,, that we should get any more production. On the contrary, we have found that even the 80 per cent. tax has in many oases led to slackness and carelessness of management, because the amount of profit which a business is allowed to keep can be earned in a comparatively small portion of the twelve months' trading. When that profit has been made, the incentive is gone, and the man is very apt to say then, "Well, I am not going to drive my plant any more, as I have been doing. I am wearing it out quite fast enough in a time of war; I cannot replace it; I had much better go easy." The master is not the only sinner. How many cases are there where masters and men have put their heads together, where the man has said to the master, "Why should you not give me more wages, it all comes out of the Government?" and where the master has said to the man, "By all means." There is nothing to prevent that kind of thing happening, and it has happened again in another way. It makes firms increase their standing charges in a reckless way. They may spend more money in advertising, more money on travelling, and so forth. When you once get people conducting their business in a wasteful method, it is like the Russian Army—it cannot be got back all in a minute, and when peace comes and we want our industries to mobilise themselves for the competition in the world's markets, we shall have enfeebled them to the degree that we have allowed them to slack off, and we shall find that we shall be all the worse equipped. I do not think that I need labour that point any more. I am quite sure from the cheers with which what I have said has been greeted that I have been uttering platitudes.

Colonel W. THORNE

The cheers all came from the employers.


Perhaps I should say that the facts which I have tried to put before the Committee are very familiar to them. I ought perhaps to say a word about a tax which met with some little comment yesterday in various quarters of the House, and that is the increased tax on sugar. My right hon. Friend the senior Member for Derby (Mr. J. H. Thomas) spoke about it, and I think what he said was very natural; but he spoke just after my right hon. Friend (Mr. H. Samuel), and I am sure that he had not had time to look into the matter very carefully. The amount of the tax proposed comes to l½d. per individual per fortnight on the rational amount of sugar, or 2s. 8½d. per annum. My right hon. Friend said, "It is true that is a very small amount, but think what a lot it means in the case of the man who has four or five children! My reply is this. The man who has four or five children has probably a wife, and in this Budget there is an abatement of £25 —the same as for each child—given for a wife. That means that the saving the man would make, if he came within the Income Tax limit, would allow him to have nineteen children! I cannot help thinking that the effect of this tax has been a little exaggerated. We must remember that the Income Tax does not, as many hon. Members would make us imagine, bear on the man with only £120 a year. By the time that a man has four children with his wife, you have £125 to be added to the limit, which at once lifts the man into the ranks of men sufficiently up in the scale to be able to stand the lowest rate of Income Tax, which I would remind the Committee has not been altered in this Budget. My right hon. Friend has been at no greater pains in anything in his Budget this year than to try and spread as evenly as he can the demands which he has to make upon the people of this country, and he has used every endeavour to see that those at the bottom of the scale of income shall be treated as lightly as is possible.

My right hon. Friend opposite said he was glad to see that the Chancellor of the Exchequer was recognising that the family should be the unit for taxation. I am sure that everyone in this Committee is in agreement with him, and I have no doubt that it will be one of the principal objects of the Income Tax Committee which will be set up at the conclusion of the War. to see how the incidence of the Income Tax—the Income Tax for many years must remain at a very high rate—can be so organised that it shall fall fairly on men according to the demands made on them for the families which they have to bring up, and the homes they have to keep, and according to the incomes with which they have to keep up those homes.

If I may say so, my right hon. Friend may be very pleased with the reception given to his Budget. It is not for me to anticipate what we may do at any later stage, but I venture to hope that the Committee will support him, and carry it through as it stands, so that our country may have the greatest amount of Revenue which it is possible to bring m. There is only one concession that he is going to make, and I think it should be now announced. The hon. Member for Stepney (Mr. Glyn-Jones) yesterday raised a point about the new duty on spirits used in medical preparations. The Government will arrange to give an abatement at least equal to the tax in those cases. We have not yet decided on the exact way in which it shall be done, but I wish to tell him that it has been considered, and considered favourably.


I, like my right hon. Friend opposite the hon. Member for the Cleveland Division (Mr. H. Samuel),have the honour to be a member of the Select Committee on Expenditure which was appointed last year, and I quite agree with my right hon. Friend that this is not the occasion, nor do I think it would be proper for us now, to comment upon the expenditure of the Government generally, but I should like to say that I am in absolute agreement with what the right hon. Gentleman has said that when the country have to meet large increases of taxation they have a right to ask that the money shall be properly spent, and that the Treasury shall continue, although it is war-time, as far as they can, to keep that control which it has long been the duty of the Treasury to exercise. Having said that, I should like, with other members of the Committee, to congratulate the right hon. Gentleman upon his statement yesterday. After the splendid way in which the Revenue has come in and the expansion that was made during last year of no less than £68,000,000 on the Budget Estimate, it must have been a hard and unenvious duty to come down to the House and ask for more taxation, and I am sure that our sympathies are with the right hon. Gentleman in the duty that he has to perform. When we see that the Income Tax and the Super-tax has increased by £15,500,000, that the Excess Profits Duty is up on his Estimate by £20,500,000, and that the miscellaneous headings are up by £25,000,000, we realise the enormous expansion that was made in direct taxation during that year. The right hon. Gentleman must have gone through a good deal of mental anxiety. I can well understand his difficulty. The Committee knows that a very large proportion of the money required for the War this next year has to be raised by borrowing. It cannot be helped. Of the Estimate of £2,972,000,000 for next year, no less than £2,130,000,000 will have to be raised by borrowing in some way or other. He told us yesterday that he only expects 28.3 per cent., which is certainly an advance on what he received before, out of Revenue, which he estimates to bring in £842,000,000. The difficulty which my right hon. Friend must have had to face is this: "This means that we must raise a large amount of money by borrowing in some way or other. I am afraid if I increase taxation I may unintentionally discourage the flow of money to my loans." If that should be the effect of putting on this increased taxation, it would be serious indeed. I can see a difficulty that those who have hitherto subscribed to loans may say to themselves, "I have got to pay so much more in Income Tax and Super-tax and other taxes, I am afraid that I must keep my balance in the bank and wait and see what the future is going to bring." The right hon. Gentleman gave his answer to that yesterday. His answer was a very true and right one, and I hope that those who have hitherto subscribed largely to the War Loans will not forget the answer which the right hon. Gentleman gave. After all, the Revenue that he is adding by increased taxation, namely, £114,000,000, is absolutely making the loan a better security. If the country will think of that I imagine they will agree that it was a very proper answer which the right hon. Gentleman gave yesterday, and that it ought to be an encouragement rather than anything to the country to continue to supply the money so much needed.

Let me turn to another point. Comparison has been made a good many times, both in this House and outside, and in the Press as well, of the proportion which we are raising now out of taxation compared with the proportion which was raised during the French War, from 1793 to 1815. The accounts after that war was over showed that the war expenditure, as a whole, was £831,000,000, and that the revenue had contributed to that amount no less than £391,000,000, or 47 per cent. A comparison has been made with the percentage raised out of revenue during the present War. The right hon. Gentleman gave that percentage up to the end of the last financial year as 26.3. I think that wants a little explaining. My first point is that the accounts of the French War showed that after the war was over the whole revenue had been got in. But the position is different now. There is a large amount due to the Exchequer after the end of the financial year which must be taken into account if a proper comparison is to be made. Another reason is this, that of the total amount which we have raised for the War a very large sum has been lent to the Allies and Dominions; a fair amount also is due for materials which have been purchased in various quantities, and the proceeds of the sale of which will come back to the Exchequer in due time. It is estimated that these two amounts may increase the sum raised out of revenue to £2,000,000,000, and if we deduct this £2,000,000,000 from the war expenditure to the 31st of March last it is necessary to take the lower figure into account and to put the expenditure not at £6,952,000,000 but £4,952,000,000. The percentage of revenue raised to expenditure, therefore, works out at 36. Consequently the true comparison between now and a hundred years ago is that 36 per cent, has been paid out of revenue during the present War as compared with 44 per cent paid out a hundred years ago.

Alarm has been expressed as to the growth of the National Debt. Here again the figures want looking at. After the Napoleonic Wars we had a debt of £900,000,000. The other day I was reading a very interesting article in the "War Savings Journal" for this month, written by the right hon. Gentleman the Member for West Birmingham (Mr. Chamberlain). It was an article intended to encourage the public generally to save and invest in the War Loan, and to assure them that their money is absolutely safe. The right hon. Gentleman takes the figure of £900,000,000 as the debt after the French War, and compares it with the total of the National Debt at the present time, with a view to showing that the present ability of the country to meet its debt is far greater than it was at that time. He has ascertained from a reliable source that at that period the national income for the whole country was£ £350,000,000 a year, and, taking the National Debt as £900,000,000, it works out at two and a half years' income; in other words, the National Debt at that time, was two and a half times the national income. But taking the National Debt to-day, which my right hon. Friend the Chancellor of the Exchequer told us yesterday was £5,850,000,000, that being the gross figure, the right hon. Gentleman the Member for West Birmingham compares that with the income of the country at the present time. That income has been estimated by my right hon. Friend at as much as £3,000,000,000, and I think he probably is not far wrong, because before the War the estimated income of this country was £2,300,000,000, and with the rise in prices and in money, I think it is a fair conclusion to come to that the national income at the present day is £3,000,000,000. This £3,000,000,000, compared with the gross Debt of £5,850,000,000, is not two years' income. Therefore, you have a National Debt today which is not two years' income of the country, and that, I think, is sufficiently clear proof that the present ability of the country to meet the National Debt is far higher than it was after the Napoleonic War. Furthermore, we have to take into consideration our capacity for expansion owing to railways and all other modern developments—a, capacity which is much greater than ever before.

Out of the total amount of money spent up to the present time—a total of £6,952,000,000, a large part, I believe, has been expended in this country at home. I remember a speech made in this House when the present Prime Minister was Chancellor of the Exchequer, at the commencement of the War, in which the right hon. Gentleman was appealing for a Vote of Credit. He put this argument to the Committee and to the country. He appealed to them to contribute their money on the ground that it would bring prosperity and give employment to industry. That I believe has been the case. I do not know whether it is possible for the Treasury, or for my right hon. Friend, to tell me in any way how much of this large sum of £6,952,000,000 has been, in fact, spent in this country. I believe the present Prime Minister went so far as to say that two-thirds of the money would be spent here, and if that foe the case, and I think probably it has been the case, for we are paying for a large Home Army, for camps all over the country, for hospitals, for large munition factories, for shipbuilding and aerodromes, and all this has created an immense amount of employment, and has resulted in the circulation of vast sums of money.

It is said that the Loans raised by the present and late Governments are responsible for the so-called inflation of prices and wages. On that I should like to say a few words, because it is a question which involves the whole policy of the Government in raising the large amount they have done and are proposing to do by loan. The suggestion is that they are doing what the country does not want, namely, they are inflating prices. But my view is that prices have risen, and wages have risen, solely on account of the War, and by the operation of the natural law of supply and demand. I believe this applies both to wages and to commodities. When the War broke out there was a shortage of labour caused by men being taken away, there was also a shortage of commodities due to scarcity, and at the same time the country was being flooded with money in the shape of wages paid to workmen. What happened? You had a scarcity of labour and a scarcity of commodities, with more money to pay for them, and the natural law of supply and demand operated, wages increased, and the prices of commodities rose. I consider that is a just statement of what happened, and that the idea that the Government policy of borrowing is responsible for these high prices is incorrect. Sir John Bradbury, in his evidence before the Expenditure Committee, corroborates what I say. He states: That the whole of the rise in prices is due in the main to the operation of the law of supply and demand, treating currency as a. commodity. 5.0 P.M.

The Treasury also have been charged with responsibility in some way for the inflation of prices because of their large issues of currency notes. It is true that the issue of these notes has increased very largely indeed. I believe at the present time they amount to about £233,000,000. The Treasury has been blamed for issuing so many of them and thereby causing the rise in prices. I do not think that that is correct In my view, they have not caused the rise in prices; on the contrary, that rise in prices has created the demand for the currency notes. Gold has been commandeered and withdrawn, as everybody knows, and the country absolutely needed some money in place of gold. These currency notes are issued by the Bank of England and they are not issued except on demand from the banks for value received, therefore it must be quite clear to the Committee that the issue of these notes as simple legal tender in response to the demand by the banks is not responsible for the inflation of prices. Again, at the beginning of the War the Government raised large sums of money in long loans; now they have reversed that policy and Exchequer Bonds are issued for short period of years—ten years is the extreme, I believe. In my opinion that is a convenient way for the Treasury to raise money because it cannot be called upon suddenly to pay a larger amount of interest and the time is long enough to give them security that they will not be suddenly called upon to pay a larger rate. Then they have borrowed on Treasury Bills; that is also a convenient method of borrowing; it collects money from banks which probably would not otherwise be got. My right hon. Friend the Member for the City of London (Sir F. Banbury) knows that banks have to keep a large proportion of their deposits liquid, and these Treasury Bills which fall in at three or six months enable the bankers to use their money for that period. If the Treasury Bills were not issued, the probability is that the Exchequer would not get that money, which is extremely useful to it, and to the banks and to the country. There is another way in which they get money, and that is by advances from the Bank of England—what is called Ways and Means. These are obtained from deposits which the Bank of England holds in banks all over the country. Therefore, that is banking money which is available when the Treasury wants advances to make up for the Revenue not being quite so good as they expected. Before I sit down I should like once more to emphasise what I said at the beginning, namely, that the country, I believe, will be willing to pay these taxes. I think, on the whole, they are equitable, that the Chancellor of the Exchequer has spread the net so as to get money from all classes of the community, and I gladly respond to the appeal made just now by the Secretary to the Treasury that the House of Commons should pass the Budget as a whole. It will be a very gratifying thing to the nation in after years that we were able to say that this money was raised willingly without contest in a House of Commons as a proof that the country meant to bring this War to a proper conclusion. I think in return for that promise by us and by the people of this country we are entitled, and they are entitled, to say to the Treasury, "We must rely upon you to see that this money is properly spent. We have nobody else to go to. You, the Treasury, are responsible, and it has been your duty since the time of the Norman Conquest to keep control over expenditure, although we are aware that the War has altered things and that the Treasury cannot, as in the past, closely scrutinise the Estimates and keep such a strict control over the expenditure." At the same time, I am convinced that if the Treasury will keep in close touch with the financial advisers of the various spending Departments—because that is where the money is going, in the Munitions Department and the Air Department—they will have a very great influence in checking extravagance. I must not deal myself with cases of this kind, but they have occurred in our experience on the Expenditure Committee, and I am afraid we shall have to disclose to the House ere long still further extravagances that have come to our notice. When poor people are doing their best to save everything they can and to economise, it is disheartening to see huge sums of money squandered by irresponsible officers, both in khaki and out of khaki, and we look to the right hon. Gentleman to see that an end is put to this kind of thing,


At the outset of my remarks I should like, in common with other members of the Committee, to thank the Chancellor of the Exchequer for the extremely lucid speech which he made yesterday. It was a model of clearness, and has been a great help to Members who are taking part in these Debates. Whatever else may be disputable in regard to the Budget, it is agreed in all quarters that increased taxation must be levied this year, and I wish to urge, in the first place, that the increase of taxation proposed is insufficient, and, in the second place, that it would be better sooner or later to meet a large part of the War liabilities by means of taxation of capital—that is to say, by a levy on capital rather than by taxation of income. I will discuss those two problems in order. First, I maintain that the increase of taxation proposed in this Budget is insufficient. A review of the position will show that the permanent revenue to be obtained from the Budget falls short of the requirements of sound finance by £70,000,000 a year, and therefore a further £70,000,000 of taxation ought to be imposed as soon as possible. Speaking in the House on the 12th December of last year, the Chancellor of the Exchequer used these words, and I would like to ask the Committee to pay very careful attention to them: If the War is going on when the next financial year begins— that is to say, now— I am convinced that it will be the duty of the Chancellor of the Exchequer to put on additional taxation which will make it certain that when the War ends there will be no possibility of our having to put on new taxation to meet the peace needs. My hope will be that the amount received when that time comes will enable us. on the contrary, to take off some taxes."—[OFFICIAL REPORT, 12th December, 1917, col. 1230, Vol. 100.] Those are wise words, and they are perfectly clear and definite. There is no ambiguity and there is no reservation about them, but, unfortunately, the right hon. Gentleman has not acted up to them. He has not acted up to them if the War ends in a year; still less has he acted up to them if the War goes on for longer than a year, which it may very well do. However, yesterday the right hon. Gentleman made his calculations on the basis of another year of war, and I will do the same. On this basis I estimate that the post-war expenditure will amount to £720,000,000—that is, £70,000,000 more than the estimate given yesterday by the Chancellor of the Exchequer. I will proceed to show how I arrive at the figure £720,000,000. The expenditure of the country in the year before the War, apart from the Debt charge was £173,000,000, as the right hon. Gentleman said yesterday; but owing to the great increases which have taken place in prices, wages, and salaries, and the much bigger cost of old age pensions, it will for many years to come require at the very least £210,000,000 to meet the same expenditure which before the War cost £173,000,000. Many authorities would take a very much higher figure, but I am going to be moderate in all my statements and estimates. That would be the first item in the future peace Budget—£210,000,000 for pre-war expenditure. In addition to this, I estimate that there will be an increase of expenditure of £510,000,000, making a total post-war expenditure of £720,000,000. This sum of £510,000,000 for increased expenditure will allow for three main items—first, the charge for the Debt; secondly, the cost of war pensions; thirdly, a margin for other increased expenditure which, will have to be met. I will deal with those items in detail. First, then, the charge for the Debt. If the War goes on for another year the National Debt will amount to £8,000,000,000. That figure is arrived at by adding to the present Debt the borrowings to be made during the current year, and by adding a reasonable amount for the cost of demobilisation and winding up, which is bound to be a very large item— the Chancellor of the Exchequer never referred to it yesterday at all—and then deducting from the total the Estimates which he gave for recoverable assets and other items of that kind, and for the revenue from Excess Profits Duty to the end of the accounting period after peace.

I propose, then, to work on the basis of a National Debt of £8,000,000,000, although if the War should go on longer the Debt will be more, and therefore the Debt charge will be more. This Debt of £8,000,000,000 will, it is true, include a large sum, probably by the time another year has elapsed in all not far short of £2,000,000,000, for advances to the Allies and Dominions. It is to be hoped that as years go on the interest on these advances will cease to be a charge on the British taxpayer, and that indeed much, if not all, of that capital will be repaid. But all countries have suffered severely from the War, and, as the right hon. Gentleman pointed out yesterday, it would be sanguine to expect payment even of interest alone on the whole amount until, at any rate, a considerable period has been allowed to elapse for recuperation after the War is over. In all the circumstances I think it is best to adopt the course suggested a few months ago by the late Chancellor of the Exchequer, and that is to treat all sums which may be received after the War from the Allies and Dominions, either by way of interest or capital, as a Sinking Fund for the Debt. If this plan is followed it is not necessary in building up the future peace Budget to allow for both Sinking Fund and interest, but for interest only on the Debt of £8,000,000,000. The rate of interest may be put at 4¾ per cent., and with interest at 4¾ per cent, per annum on £8,000,000,000 the figure is £380,000,000. That is the first item of increased expenditure, £380,000,000 for the charge of the Debt. That is the same amount as the right hon. Gentleman gave yesterday, although it the Committee has been good enough to follow me it will have observed that I arrive at that figure in rather a different way. The second item is the cost of war pensions. The Chancellor of the Exchequer yesterday named the sum of £50,000,000 a year, but about a month ago an official estimate was issued of the liability for pensions already in sight, and that amount is over £40,000,000 a year, quite apart from the increased new scale which has been since announced—which will mean an addition of many millions of pounds a year to the pensions — and also without provision for the enormous casualties which are occurring, and which I am afraid will occur during the current year. In view of these facts, I do submit to the Committee that £50,000,000 a year is too low a figure. I am afraid that the amount will be at least £70,000,000.

The third item of increased expenditure is a margin for other expenditure which will have to be met. This item, which the Chancellor of the Exchequer with almost criminal optimism nearly always leaves out of account in his calculations—although it is true he made passing but quite inadequate reference to it yesterday—will include about £10,000,000 for increased expenditure on education as compared with before the War. The amount may be more. Some authorities say it may amount to £15,000,000, but I think £10,000,000 in two or three years will probably be the additional charge on the National Exchequer. Then there will be a much bigger charge than before the War for the cost of government. An enormous number of officials of all kinds have been created, and several new Ministries have been set up, and some of them will be permanent— the Ministry of Labour, the Ministry of Air, the Ministry of Pensions. Then money will be required for many years, at any rate—I do not say this will be a permanency—for the Ministry of Reconstruction, and for other Ministries of that kind. Money, too, will be required for reconstruction schemes, and also, I am afraid, for compensations and subsidies of various kinds. Then a very large sum of money must be available for social reforms, which will be urgently demanded and very much needed, especially housing and national health. Then I am afraid there will be a much bigger expenditure than before the War on the Army, though I hope not. I say that, for these and other items which I will not take up time by enumerating, there should be allowed in all a sum of at least £60,000,000 a year. All these estimates are to some extent speculative, but I do submit that they err on the side of moderation, and adding them together— that is, £380,000,000 for interest on Debt, £70,000,000 for cost of war pensions, and £60,000,000 for other increased expenditure, we reach a total increase of expenditure of £510,000,000. Add to that £210,000,000, which must be allowed for pre-war expenditure, and we arrive at a total, on the basis that the War goes on for another year only, of £720,000,000. Against this, the right hon. Gentleman estimated yesterday that on the basis of the present taxation he will, in a full year, receive a permanent revenue of £650,000,00), including the yield from the new taxation he has proposed. If, then, the permanent or post-war revenue is £650,000,000, and the post-war expenditure is £720,000,000, as I have estimated, there will be a deficiency of £70,000,000, and that is the basis of the proposition I set out to establish that further taxation of £70,000,000 ought to be imposed as soon as possible. In the main this will have to come from increasing the Income Tax, and it means that the general rate of Income-Tax ought to be increased as soon as possible from the figure of 6s., as proposed by the Chancellor of the Exchequer, to 7s: 6d. in the £. The conclusion, the irresistible conclusion to which we are driven is that we shall be faced with Income Tax at a general rate of 7s. 6d. in the £, apart from Super-tax.

All this is quite apart from the question of whether the revenue is being raised on the best and most equitable basis as between the various sections of the community. I hold strongly, and have urged again and again, that the Tea and Sugar Duties are much too high, and I protest most emphatically against the further big increase in the Sugar Duty proposed this year. These duties are inequitable and economically unsound, both in time of peace and time of war. They are at present pressing very heavily on those persons who are below the level of subsistence, and the number of these persons is very much larger than is commonly supposed. If this matter were put rights— indeed, I should like to see these duties disappear altogether—then it would be necessary to make good the deficiency from other sources, again mainly from the Income Tax. Therefore the level of the Income Tax would be higher even than the figure I have indicated. I would conclude this part of my remarks by saying that a review of the financial position of the country shows that we shall be faced after the War with a National Debt of at least £8,000,000,000, and with Income Tax at a general rate of not less than 7s. 6d. in the £. This is a very serious prospect, and it would be still more serious if it were the only way of dealing with the problem. But it is not the only way, and it is not the best way.

That brings me to the second question with which I said I would deal, namely, to urge that it is better, sooner or later, to meet a large part of the liabilities caused by the War by means of taxation of capital—that is to say, by a capital levy, rather than by taxation of income. This scheme for a capital levy which I propound is put forward as a business proposition. There are many other grounds on which it may be recommended, but as a business proposition there is an overwhelming case for a capital levy. A consideration of the proposal will, I believe, have a reassuring effect, and far from injuring credit it should help credit by showing the financial strength of the country and by demonstrating that the huge incubus of the War Debt can be supported and dealt with. It will also be seen that holders of War Stock will not be penalised by a capital levy, as many of them seem to think. Indeed, so far from being penalised, I will show that those who hold War Stock will be in a better position than those who do not hold War Stock. The first thing to be done in considering the question of a capital levy is to give an estimate of what the taxable capital of the country will be for the purposes of the levy. I believe that in all for the purpose of a capital levy the taxable capital of the country will amount to about £24,000,000,000. I will not take up time now by showing how this amount is arrived at. It is an approximate figure, and as such I am quite prepared to defend and substantiate it if it is challenged. Some calculations make the amount rather higher and others rather lower. If the amount should prove to be rather too high or rather too low it does not materially affect the argument, because the scheme could be adjusted accordingly and any changes necessary would not be great.

This capital sum of £24,000,000,000 will, of course, be owned by individuals in greatly varying amounts, and the proposal I wish to make is that on the individuals who own capital there should be two levies. This first levy should be made as soon as possible, but that will probably not be until after the end of the War, and the second levy should be made two years later. The levies would be made and paid after the manner of the Death Duties. I wish to make it perfectly clear that the levies will be on individuals; they will not be on banks and limited companies. The whole of the capital of all the limited companies in the country, whether liquid or otherwise, will remain absolutely untouched and unaffected by the operation. The average yield of the Death Duties is, in all, about 10 per cent. of the property passing at death, but for the purpose of the capital levies, I would propose that the scale should be somewhat increased so as to make the average yield of each levy about 12½ per cent. of the total capital. The scale would be a graduated one, on the same principle as the Death Duties scale, but with a somewhat steeper graduation. The small capitalists, those below £l,000, would be exempt. [HON. MEMBERS: "Why?"] That is the plan I propound, and I will give the reason in a moment. I say that the small capitalists below £1,000 will be exempt. A man who is worth £5,000 will pay 4½ per cent., or £225 at each levy; a man worth £20,000 will pay 7½ per cent., or £1,500 at each levy; a man worth £60,000 will pay 12½ per cent, or £7,500 at each levy, and so on, right up to the owners of very big fortunes, the millionaires, the average yield, as I have said, will be 12½per cent. The Committee will have noticed that a man must be worth £60,000 before he will pay at the average yield of the scale, that is at 12½ per cent. Therefore, the great majority of those who will pay will be paying at rates below 12½ per cent.—indeed, probably only 20,000 persons will be paying at rates higher than 12½ per cent. As regards estates below £l,000, which I propose should be exempted altogether, I should say that the aggregate amount of those estates is small, and the rate on them will be so low that exempting them makes only a very slight difference, and in their case most or a good deal of the yield would be swallowed up in the cost of collection.

Let me now show what this process will accomplish in lightening the burden of the Debt. If at a given date everybody were presumed to be financially dead, and a capital levy in the form of the Death Duties at an average yield of 12½ per cent, were to be made on their estates, the yield would be 12½ per cent, of the total capital, and 12½ per cent, of £24,000,000,000 is £3,000,000,000. If the first levy is made as soon as possible after the conclusion of the War, and the second levy two years later, the total sum received would be £6,000,000,000. I should explain that just as under the Income Tax a man when making his return for abatements or Super-tax is not allowed to deduct Income Tax from his dividends, and so forth, but has to return gross income, in the same way a man, when being assessed for the second levy, would not be allowed to deduct from his capital the amount which he has paid at the first levy. Therefore, the sum received both at the first levy and the second levy would be a full 12½ per cent, of the total capital —that is to say, £3,000,000,000 would be raised by each levy, making a total by the two levies of £6,000,000,000. By this process the National Debt would be reduced by three-quarters to about £2,000,000,000. It might remain at that, which would not be an insupportable burden, especially with the hope that the vast sum, something not far short of £2,000,000,000, advanced to the Allies and the Dominions would be repaid, at any rate, in part sooner or later.

This scheme is not confiscation and is not repudiation. It is merely an alternative method of meeting a liability that has to be met anyhow, and met by the wealthier classes of the country. It must be borne in mind that the great bulk of the War Debt is held by the Income Tax paying classes, and that they are paying most of the interest on the War Debt through the Income Tax. The working classes do not hold War Debt in any material amount in proportion to the whole, and they cannot, in my opinion, pay the interest on the Debt to any material extent. In my belief it is out of the question, on balance—and I say on balance advisedly—to increase indirect taxation at all, and some of it, as I have said, ought to be remitted. It must constantly be borne in mind that the Income Tax paying classes, who hold the great bulk of the War Debt, are themselves paying their own interest, chiefly through the Income Tax. It comes to this, then, that the class of the community which holds most of the War Debt and receives interest on it is itself paying that interest. The War Debt could not, of course, except for a small proportion, be expended on productive assets; accordingly there are practically no revenue-producing assets to provide interest on the Debt. The interest on the War Debt, therefore, does not represent real income to the country, because it is being paid, through the Income Tax, by the same class of people who receive it. Surely, then, it would be better largely to liquidate the Debt, that is, to write it down, just as all sound commercial concerns write down similar assets. There is all the more reason why that should be done, in view of the fact that the War Debt has been borrowed at a time of great inflation of prices, and at a rate of interest nearly twice what the Government used to pay. That is a strong reason for reducing the Debt, and reducing it quickly. It is as certain as anything can be that, as the years go on, prices will fall. My argument is that as we have borrowed enormous sums at a time of inflated prices we ought to repay them at a time when prices remain more or less inflated. If we were to wait until prices have fallen perhaps 50 per cent., then when we came to redeem the Debt we should be repaying a sum which, in real values, would represent twice the sum we have borrowed.

If I may illustrate this point in a homely way, I would put it like this: At the present time a man lends one pair of boots to the Government, but, later on, when prices are lower and the purchasing power of money is greater, it might be necessary, in order to redeem the Debt, to return the equivalent of two pairs of boots. My argument is that it is best to deal with this matter when it is only necessary to repay one pair of boots. Such a result, such a speedy liquidation of the Debt, can only be accomplished by a capital levy, and before I come to deal with the objections to, and the difficulties in the way of, a capital levy, I ask the Committee to consider again for a moment what the alternative means. It means a very high Income Tax and a general rate of not less than 7s. 6d. in the £, the actual rate, with abatements on the one hand and Super-tax on the other, varying from about 3d. in the £ on the smallest incomes liable up to at least 12s. 6d. in the £ on the largest.

I need not labour the harmful consequences of such a tax. They are patent to everybody. The right hon. Gentleman and the late Chancellor of the Exchequer both dealt yesterday with the great harm which may come from an Income Tax that is too high. Moreover, I am satisfied that this high Income Tax would prove to be an inequitable and precarious fiscal instrument. Many evasions of Income Tax take place now, and with a high rate of tax it would not be difficult for some persons to devise fresh means of evading a part, at any rate, of their liability, and that would be grossly unfair to those who cannot evade, or do not attempt to evade, any part of the liability. Moreover, as years go on, we are almost certain to be faced with falling prices, bad trade conditions and industrial crises, and the yield of the tax would then fall, and in order to get the requisite revenue it would be necessary to raise the tax once again. In short, the cumulative objections to the very high Income Tax which will be necessary are such as to make the mind reel. On the other hand, if the plan of a capital levy is adopted, and three-quarters of the War Debt is liquidated, and £6,000,000,000 is paid off, the general rate of the Income Tax could be reduced at once from 7s. 6d. in the £ to 2s. 6d. in the £, and the Super-tax also could be reduced. Apart from the saving of interest there would also be a saving on the Sinking Fund. If £6,000,000,000 of debt is paid off, it is not necessary to allow anything for Sinking Fund on that big sum. Without going through all the calculations, I would say that if the Income Tax were reduced to 2s. 6d. in the £, and three-quarters of the Debt is liquidated, there should be in all sufficient revenue, reckoning on only a moderate contribution from the Allies and Dominions in respect of the interest due from them, to meet the whole of the national expenditure, including an ample Sinking Fund, for the comparatively small balance of Debt of £2,000,000,000. It is clear that one very strong argument for a capital levy is that by clearing off £6,000,000,000 of debt it is not necessary to allow anything for Sinking Fund on that very big sum, and that alone means a saving in expenditure of about £45,000,000 a year.

Many objections have been and will be urged against the capital levy. I am quite aware of that. I am going to deal with the chief of them. I admit at once that there is substance in some of them, but there are also enormous objections to a high Income Tax. Also any new tax, or new system of taxation, is naturally more liable to criticism than a form of taxation to which people have grown accustomed. Suppose, for instance, that the Income Tax in this Budget was being proposed this year for the first time. It is clear that criticism would be multiplied tenfold or a hundredfold. That is an important consideration, and it ought to be borne in mind when we are considering the proposal for a capital levy. But the critics of the capital levy are utterly misleading, not to say unfair, in their methods. They point to all the disadvantages of the levy and say nothing whatever about the much greater disadvantage, in my opinion, of the high Income Tax which will be necessary. They will not face facts, but facts must be faced, and it is necessary to realise that there is no easy way of dealing with the problem. Either course would be difficult. My case is that the balance of net advantage lies with a capital levy. As a matter of sound economics, I think that is clearly so, because the great bulk of the War Debt will be wiped off from past accumulations, instead of being a charge for many years to come on future earnings. So far as the future is concerned, the position can be faced with comparative equanimity.

I come now to the objections. First, it is said that a capital levy would absorb and use up liquid capital just at the time when it is wanted most—that is, during the period of reconstruction following the War. The reply to that objection is a very short one. It is not true. It is most important to realise that a capital levy does not on balance absorb or use up liquid capital at all. As a matter of fact, the total amount of liquid capital available in the country will not be altered or diminished a penny piece by the operation. After all what is a capital levy for? It is for the purpose of paying off War Stock, and in so far as the levy is paid in cash— and by cash I mean not only gold and notes, but also cheques and so forth—the Government does not keep the cash, but it will be used by the Government to pay off holders of War Stock. In a word, the total amount of cash taken by the Government from persons under a capital levy will be exactly equal to the total amount of cash paid by the Government to other persons, that is to holders of War Stock. Much of the cash will be used to pay off part of the holdings of banks and big companies, and some cash also will be paid to individual holders of War Stock. The banks, limited companies and individuals who receive cash will then have it available to lend or use in one way or another, and, therefore, on balance the total amount of liquid capital available in the country will not be altered a penny piece by the operation. In fact, the scheme would have some advantages, because after the War there would be a larger aggregation of liquid capital in a freer form in the hands of banks, that is in the hands of the agencies to which people are accustomed to go for capital. It would also mean that those limited companies which hold War Stock—and nearly all do—would be receiving cash for a part of their holdings of War Stock, and therefore the main industrial concerns of the country would, after the War, have a larger amount of liquid capital available than they would under the alternative plan of a high Income Tax But I ought to say that the amount of the levy which would be paid in cash would be proportionately very small. The amount of actual cash required for the operation would be very much less than is generally thought. There is, indeed, at any rate in theory, no absolute reason why a penny piece of cash should be required for the operation. I am not proposing a scheme which does not require any cash, because such a scheme would be somewhat inelastic, but under a good and easily practicable scheme the amount of cash required would be very much smaller than is commonly supposed, and it will not constitute any difficulty at all.

The second objection is that a capital levy could not be paid because of the difficulties of realisation, that securities and so forth would be thrown on the market all at once when there were few buyers about and that prices would collapse. Those who make this objection ignore, or overlook, several important considerations. In point of fact by four principal methods the whole of the levy can be met or paid with little or no realisation or selling of property at all. I would describe what these methods are. The first is by payment direct in War Stock. War Stock could be handed over to the Government in payment of the levy, and therefore no realisation would be involved. When I say War Stock I mean War Stock of every kind—the big War Loan, 1929-47, National War Bonds and Exchequer Bonds of every denomination, Treasury Bills, and so forth. Any kind of British War Stock could be handed over to the Government in payment of the levy, and the Government when it received the War Stock would of course cancel it. But that does not mean that War Stock holders would be in any worse position than anybody else. I will make it plain, as I proceed, that they will be in some respects at an advantage. Everyone above the exemption limit will have to pay the levy and not only War Stock holders, but in War Stock a large amount would be paid.


At what price would these different stocks be taken?


That is quite a detail. It would be a price which would give some advantage to the War Stock holders. But I am not proposing a scheme which is to be carried out now. It is quite impossible for me in dealing with an enormous question such as this to give every detail now. I am proposing a general scheme and the price is really a detail. It would be arranged to be advantageous to those concerned, but War Stock holders would not be obliged to pay in War Stock. It would not be compulsory on them. Probably many would elect to do so, for there will be some advantage in price given to them and also they would be saved the necessity of realising other forms of capital. It would be an easy way of paying the levy and it would be largely chosen.

The second way of paying the levy without realising securities or selling property is by the exchange system. The Treasury would issue a list of securities which would be accepted in payment of the levy at certain fixed quotations. This list would be similar to those which have been issued by the Treasury during the War for the purpose of mobilising certain securities. It would include Colonial Government Stocks, Indian Government Stocks, British Corporation Stocks, loans of public bodies in the United Kingdom, debentures and prior charges of Home railways and the best Colonial and Foreign railways, and it would include debenture stocks and preference shares of good commercial companies. All these securities could be handed over to the Government in payment of the levy. Practically none of them, however, would ever need to be realised by the Government, and none of them need be realised for a considerable period. The great bulk of them would be speedily exchanged by the Government with War Stock holders under voluntary and agreed arrangement, some slight advantage in price being given to War Stock holders as an inducement to them to make the exchange. Details of these arrangements would be at the discretion of the Treasury. Under them a very large amount of the Debt of the country would be dealt with and cancelled. There would be no compulsion about these exchanges. They would be perfectly voluntary, but many companies and individuals would be only too glad to make them, especially in view of the fact that the rate of interest at present yielded by high-class securities is almost certain to go down as years go on, and therefore good first-class securities with fixed interest which are irredeem able are better as a permanent holding than War Stock. In view of these considerations it is clear that many companies and individuals would be very willing to exchange on favourable terms, say, £10,000 of War Stock for about £16,500 of London and North Western Railway Debenture Stock, and the Treasury will have at its disposal a large mass of most excellent securities which will be handed over to the Government in payment of the levy. For practical purposes these securities are as safe as War Stock, and there is a much greater prospect of them appreciating largely in capital value, because they are irredeemable.

It is well known to those in touch with these things that many companies and individuals have taken more War Stock than they really want. It is true the rate of interest is high, but at this time of great depreciation of good stocks, when tempting bargains abound on every hand, investors would prefer to put their money into these low priced first-class securities yielding a high rate of interest in perpetuity. While many have invested largely in War Stock, others have not done so, but have picked up these bargains of low priced first-class securities yielding a high rate of interest with perfect safety in perpetuity and with every prospect of a big appreciation in capital value. War Stock holders, on the other hand, cannot look for much appreciation in capital value because of the redemption clause. It is, therefore, only fair that these matters should be adjusted, at any rate, to some extent, so that War Stock holders will not be penalised, as they will be penalised under a high Income Tax scheme, and under the exchange system which I have outlined it is clear that a big adjustment would take place to the advantage of War Stock holders, and also a very large amount of War Stock would be dealt with and cancelled.

The third method of meeting the levy without the necessity of realising securities is by credit facilities. The Government would arrange for credit facilities to be given in certain cases. These credit facilities would be chiefly given through the banks, and the banks would be guaranteed by the Government against loss. Any loss there might be would only be small, and it would at worst be quite negligible in proportion to operations of this magnitude. Credit facilities would, in particular, be given to owners of land and real property, and to those men who have their money locked up in their business—as, for instance, in a factory, fixed plant, carrying stocks of goods, and so on—and it would be necessary, in many cases, to arrange for a mortgage or for a form of security to be given. These credit facilities would not require the provision of cash, and they would not be a drain upon the liquid resources of the banks. Much of the accommodation, possibly all of it, would be provided by the banks in War Stock out of the immense blocks of War Stock which the banks themselves hold. The operation would be a very simple one. War Stock would be handed by the banks to the borrower against the security of a mortgage or otherwise. The borrower would then pay the War Stock over to the Government, and the Government would, of course, cancel it. By these, or similar methods, none of which involve the realisation of securities or property, nor the provision of cash, arrangements could be made by the Government whereby those persons who have capital in a form not easily realisable could meet the levy.

The difficulties, however, of persons in this class should not be exaggerated. Nearly all of them would have some War Stock or some personal property. If they have no War Stock, or if they have not a fair proportion of War Stock, they have not been doing their duty, seeing that the War has been going on for nearly four years, and with all the facilities that have been provided by the Government for acquiring War Stock! Therefore, they are not entitled to much sympathy if a levy should cause them some personal inconvenience. In so far as they own War Stock or personal property, the levy will present little difficulty to them; and in so far as their liabilities cannot be met in these ways, it can be met by the system of credit facilities which I have described. There is an alternative method. These persons could be allowed to pay the levy over an extended period, say, in sixteen half-yearly instalments, as is provided for in certain cases under the Death Duties. I should also explain that an important feature of the capital levy scheme would be the setting up of commissions or tribunals to deal with hard, exceptional, and special cases. These cases could be submitted to a commission and the commission could adjudicate upon them. If, for instance—to take an extreme case—it was urged by an individual that he had no War Stock, and no realisable personal property, and also that he did not wish, and had valid reasons for not wishing, to resort to the credit facilities system, nor desired to pay the levy in sixteen half-yearly instalments: in that exceptional case it could be arranged that such a person, instead of paying the levy, should pay a special Income Tax—that is to say, he would fall out of the capital levy scheme altogether, and would be in the same position as if a capital levy had not been made. He would have to pay a special Income Tax in lieu of the capital levy, and provisions would be laid down to meet the case of his death. These special cases would, I think, be but few, and I think I have said enough to show that in any event there is an embarrassment of alternatives for enabling the levy to be met by persons whose capital is in a form not easily realisable.

The fourth method of meeting the levy without the realisation of securities, or the selling of property, is by payments in cash. Not very much would be done in this way. One of the objections urged against the scheme is that there is not enough cash to do it. I have already said that the total amount of cash would be small. But a long period, say, a year, would be given for payment of the levy; and some people would, no doubt, decide to pay a part of their liability direct in cash out of savings effected during the period, or from cash which they have already had on deposit at the banks or elsewhere. In these two ways a small amount of the levy would be paid in cash. By these four methods, which I have described, the whole of the levy could, as a. matter of fact, be met without the necessity of realising any securities or of selling any property at all. There would, however, no doubt be cases of persons who, for one reason or another, preferred to sell something. The total amount of such transactions would be small—certainly small in proportion to the total Stock Exchange transactions during the period of a year—and a year would be allowed for the payment of the levy. Further, in so far as there was selling of Stock Exchange securities or other forms of property, it is not the case that there would be no buyers, or few buyers, on the market. Banks, limited companies, and individuals who were having a part of their War Stock paid off by the Government would all be potential buyers—and I say, a collapse of prices is absolutely out of the question—because they would be receiving cash for a part of their holdings of War Stock. All these considerations, and also other plans which could be developed—but which I cannot indicate at this stage without going into too great detail—show that the difficulties of realisation, and of paying the levy, are greatly exaggerated. I am perfectly satisfied that the whole operation is quite a practicable one.

Thirdly, it is objected—and this is a common objection with which I am going to deal—that a fair valuation of all the various kinds of property is impossible. The first reply to this is that a valuation is made for Death Duties, and what can be done in the case of persons who die can be done in the case of all owners of capital.

Sir F. BANBURY dissented.


I will make the right hon. Gentleman a present of this, when I say that no doubt the valuation would take time, but it is worth doing if as a result three-quarters of the War Debt is going to be liquidated. The magnitude of the problem would be much lessened, and the time would be much less than anticipated by some; first, because the small capitalists—those below £l,000—would be exempt from the levy altogether; and, secondly, because the vast amount of property of one sort or another owned by the limited companies of the country would not require to be separately valued at all. Such capital, of course, would be assessed for capital levy in the prices of the shares of the companies. The problem of valuation for a capital levy would be also very greatly simplified by certain regulations being laid down. I am not going into these fully. They would take too long to describe in detail, but I will outline them very briefly. Every man would make, or have made, his own valuation, and there would be enacted certain safeguards to protect the State. In particular, there would be heavy penalties for deliberate attempt to defraud. Every man would pay the levy forthwith on the basis of the valuation which he had returned. But the Government would subsequently go through all the valuations and check them, and the amounts paid under the levy would, where necessary, be adjusted accordingly. If, for instance, a valuation was too low the balance still due under the levy would have to be paid up. If, on the other hand, a valuation was too high the amount overpaid would be returned by the Government. By these methods the levy could be paid quickly, and it would not be a serious matter if the subsequent process of checking the valuations, and of adjusting the balances took a considerable time.

Looking next at the problem of valuation generally, it will no doubt be said that whereas personal property—that is War Stock, Stock Exchange securities, and so on, can be valued easily, fairly, and quickly; the valuation of real property is a much more difficult matter, and that, therefore, owners of real property might escape more lightly than owners of personal property. I do not think there is very much in this objection, having regard to the fact that all kinds of property are valued for Death Duties. In so far, however, as it has substance, the same objection applies in equal or greater degree to the alternative scheme of a high Income Tax. It is a well-known fact that many owners of real property do not pay their proper proportion of Income Tax.


Oh, oh!


Surely that is admitted. The Chancellor of the Exchequer himself admitted it yesterday, and has altered his Budget accordingly. It is well known that farmers, agriculturists, and so forth, under Schedule B, and also that under Schedule A many owners of real property escape lightly in the matter of Income Tax, and are not paying and never have paid, their fair amount. Even after the changes made by the Chancellor of Exchequer this year many farmers will still be much underpaying. It is notorious also that many owners of private businesses under Schedule D, and many professional men, escape much more lightly in paying Income Tax than shareholders in limited companies. In the case of limited companies and some private businesses the Commissioners have properly audited accounts to assist them in their work; it is not so with many private businesses and individuals. I am afraid that there will, always be a big leakage, and, of course, the higher the Income Tax the greater will be these inequalities of assessment as between the various classes I have named. The simple fact is, that whether under a capital levy or under the alternative scheme of high Income Tax you never will get, and you never can get, perfect equality and exactitude to five places of decimals. I want here to make a further point. It is that some capitalists are now investing money in non-income producing capital. They are doing this deliberately in order to avoid paying Income Tax, and they are looking for their remuneration, which they will most probably get, to appreciation in capital value. Under the capital levy scheme, these people will not escape, but under the high Income Tax scheme they will escape, and that would be a gross injustice. I further submit that the whole problem of valuation must be looked at broadly. Those who have most of their money in real property are only a small minority of capitalists. Probably well over 80 per cent, of the property to be valued could be valued quickly, and valued fairly. If the valuation of the remaining property could not be done with the same expedition and exactitude, that is no reason why the whole scheme should fall to the ground; more particularly when, as I have pointed out, you do not get, and you never can get, anything like absolute equity under the alternative scheme of high Income Tax.

In considering all these questions, it should also be borne in mind that this huge War Debt, and how it should be dealt with, is a war problem. It is a legacy of the War. I have not noticed that those persons who advocate conscription of life show the same anxiety for meticulous equality of sacrifice as they do when they are considering questions of property.

General CROFT

Is that so?


What has happened under the Conscription Acts? Many men have lost their lives, or their limbs, or have been maimed for life. The vast majority of those conscripted have lost their work, and not a few have had their businesses closed down, and have lost their capital without receiving a penny piece of compensation. On the other hand, other men of military age who, for one reason or another, are exempt, and large numbers of men over military age have been doing extremely well out of the War. Consider also the hardships caused by certain decisions of some of the medical boards. They have given what may be termed a Governmental valuation of life, and life is much more valuable and important than property. In saying these things, I do not for a moment admit that there is any more difficulty in carrying out a capital levy scheme equitably than there is in equitably levying a high Income Tax. I do, however, say that if the considerations which I have advanced are borne in mind and are applied to the problems of the valuation of property, such slight difficulties as there may be can have but the smallest weight. There is, indeed, in view of the hardships and sufferings of men in the Army, to my mind something almost indecent about the quibblings of older and wealthier men regarding minute points of valuation. To sum up my argument, the valuation can be made, and ought to be made, and on balance the operation of a capital levy will be quite as fair, if not fairer, than the incidence of a high Income Tax. I come to the fourth objection, and it is very frequently made by many people. It is said that a capital levy would discourage savings and penalise thrift


Hear, hear!


I want to deal with that, and I hope that my hon. Friends who object will do me the honour to pay very close attention to what I have to say, because there is absolutely nothing whatever in the objection, and I can, I think, prove what I say. It is said that a capital levy would discourage savings and penalise thrift.




I take precisely the opposite view. I say that what will discourage saving and penalise thrift would be, a high Income Tax of 7s. 6d. in the £. Surely it would discourage saving if a man felt that in future 7s. 6d. out of each £1, in some cases 10s., or even more, up to 12s. 6d., it might be, in the £ on unearned incomes would be taken. On the other hand, a capital levy would be one operation, carried out quickly, and when the operation has been put through, it is finished! It is said, on the other hand, that a capital levy would operate inequitably as between those who have saved and those who have not saved.




But precisely the same objection applies to high Income Tax.



6.0 P.M.


In my view it does. Precisely the same objection; for if a capital levy is unfair, so is a high Income Tax unfair. Why should a man who has saved money be obliged to hand over about half the interest on his savings, and in some cases more than half, to the Government, while the man who has not saved, and does not save, has the use of his money all for himself? Therefore, as between a capital levy and a high Income Tax, there is really nothing whatever in this objection which has been so frequently urged, and, further, the whole point is greatly exaggerated. Generally speaking, there is a relative proportion between a man's capital and his income. There are, no doubt, exceptions, but if we are going to argue on the basis that exceptions are the rule, we shall never get any further either in taxation or anything else. Moreover, in the case of a man who has a good income and a small capital—that is, a man who presumably has saved little—a provision could be made for the levying of a special Income Tax on a sliding scale where there is a great disproportion between income and capital. In this way, again, the capital levy scheme would work out more equitably than the high Income Tax scheme.

The fifth and last objection is that as the earliest date at which the War Loan can be redeemed by the Government is 1929, therefore the Debt cannot be paid off earlier. In point of fact large amounts of War Stock are redeemable long before 1929—Exchequer Bonds due 1919-22, National War Bonds due 1922-23, about £1,000,000,000 of Treasury Bills, and so on—all these are due in the course of the next few years, and unless there is a capital levy arrangements will have to be made by the Government to redeem them. As regards, however, the chief items, War Loan 1929-47, and National War Bonds due 1927, there really is no difficulty at all. The position can be met by giving holders the option of having their stock, or a proportion of their stock, paid off earlier on advantageous terms. There would be no compulsion and no breaking faith at all. The whole operation would be entirely voluntary, but most of those concerned would be glad to take early repayment on good terms. Further, it is not proposed to pay off the whole of the Debt, and therefore those persons who preferred not to take repayment would continue to hold that part of the Debt, which, in any event, will remain in existence. Also let me point out that as under the levy very large amounts of War Stock will have been paid to the Government, or exchanged with the Government, the whole of this objection which I am now discussing has little force, for the simple reason that the balance of stock outstanding to be paid off would be small.

I have now dealt with five of the principal objections to a capital levy. No doubt there are others, but they are really minor ones, and they can, in my view, be answered and met without difficulty. It is also only fair to say that there are many other considerations in favour of a capital levy which I have not touched on in this speech, but I will take one of them. It is this: Most of the capital of the country is owned by older men, and therefore most of the levy would be paid by men who have not fought in the War, and the levy would do something to make conditions approximate a little more nearly to that ideal of equality of sacrifice of which we have heard so much and seen so little. Unless a levy is made the high Income Tax which will be necessary will be a bigger burden on younger men than on older men. Most younger men have already, quite apart from their immense hardships in the Army, lost two or three of the best business years of their lives. Their careers have been gravely prejudiced, and they will start again at a great disadvantage in the work of building up businesses and saving capital. This is inevitable, but if, in addition, they have to bear their proportion of a high Income Tax, they will be still further handicapped in securing an income and in accumulating capital. A little reflection will show that a high Income Tax, generally speaking and despite abatements, will be a heavier burden on younger men than on older men, whose position is established and who have already got their capital.

Clearly it has been easier for the older men to accumulate capital, for they have done it when the Income Tax has been low, and in order that the younger men may have anything like the same chance, the Income Tax should be made as low as possible for them also, and this can only be accomplished by a capital levy. Older men keep passing away, and as years go on the simple truth is that under the high Income Tax scheme much of the cost of the War will fall on men who have done actual fighting. They will not only have fought for their country, but they will be called upon to pay a big part of the bill. In conclusion, all schemes of taxation and finance should be practicable, equitable, and economically sound, and I submit that the scheme which I have outlined is practicable, is equitable, and is economically sound, and that to meet a financial problem of unparalleled difficulty and magnitude a capital levy, combined as it would be with a large and immediate reduction in the Income Tax, possesses a balance of net advantages over any alternative plan that can be proposed.


I must congratulate my hon. Friend on the great ability with which he has put his conclusions before the House, but as entirely dissenting from those conclusions I shall hope to give reasons why his proposals are neither businesslike, equitable, nor economically sound. He started by assuring the House that he was putting this forward as a business proposition. I rather regretted one or two departures that he made from the line of pure argument. For instance, he used the ad captandum appeal, used by so many people in favour of a capital levy, that, whereas the capitalist made money sacrifices, the man who is not a capitalist lost his life. A great many of the men who have lost their lives were capitalists, both young and older. At all events, the older men have sons who have fought in the War, and I do not think that it is quite fair to argue that as the younger men will have to pay Income Tax for the War in which they have fought therefore on the older people who have more money and can afford to pay more money, this tax ought to be made a capital tax instead of an Income Tax which will come on the younger man later on. There again I could not help thinking that there is something, after all, in catching those with large incomes, and you are doing it already. The weight of taxation is greater on those large incomes than on the small incomes. This House has adopted the principle of increasing the percentage on the income of a wealthy man, which I think is quite right.

It struck me while the hon. Gentleman was speaking that the whole thing is put forward not on pure grounds of reason, but on grounds of emergency. If it is put forward on grounds of pure reason how is it that this splendid measure of paying for expenditure is not advocated for current expenditure? What a roundabout way it is to incur a debt and then pay it off! Why not at once take all current expenditure out of capital? There would be advantages in that method. If a levy on capital is the best way to pay for expenditure incurred formerly, then no argument can be used against a levy on capital for the payment of current expenditure, and it would have this additional advantage that it would tend still more in the direction of economy, because people are more disposed to be economical when they have to pay for a thing at once than when the period of payment is postponed. So that if there were anything in this argument there is no reason why it should not be applied to the repayment not only of the debts incurred by the nation, but the repayment of the debts of every municipality in the country. But it is a question of national expenditure. If a nation were exactly the same as a private individual or firm, if there were not such a great diversity of interests among different classes of the nation, as has been illustrated by the speech of the hon. Gentleman himself, if, for instance, Members of this House, by unanimous vote, could say that they would pay their share of the Debt off to-day; and if we could afford to do it by all means we should be in favour of it, but we must not treat a whole nation, with these diverse interests, as if they were a private individual or firm. There is no analogy.

I take it that the Chancellor of the Exchequer in his proposal of a Luxury Tax, of which we all approve, though the difficulty will be in the application, is endeavouring, by taxing extravagance, to prevent it. Will the capital tax promote extravagance or economy? Will it have the effect that the tax on luxuries is intended to have? Will it not have the very contrary effect? Let me give a practical illustration, treating it as a business proposition. Here is a man, Mr. A, whose income was £1,000 a year before the War and who was accustomed to save £300 a year out of his income, and who, before and since the War, has accumulated £5,000, which he has invested in Government securities Let us suppose that his income since the War has been £l,500 a year. Because of that he has had more money that he could save. He has exercised the strictest self-denial and economy, and instead of saving the £300 a year of his income of £1,000 he is saving more even out of that £1,000. There are many such cases where families are denying themselves in order to save. This man saves £5,000, and the Chan- ceilor of the Exchequer comes along and says: "We must wipe off our National Debt. I am going to make a capital levy on you of 20 per cent." My hon. Friend's proposal is to take £6,000,000,000 or £8,000,000,000 two years. after the War.


The first levy should be made as soon as possible after the War. A year would be given for payment. Then there would be an interval of two years, when there would be a second levy over another year, so that the period would be four years in all.


In four years we are to pay £6,000,000,000, or £8,000,000,000, off what we shall owe after the War. The Chancellor of the Exchequer is to come to this man and say: "You have saved £5,000. I want £1,000 of it." What would be the effect upon the man's mind, when his next door neighbour, who is in exactly the same position, and who, instead of saving and denying himself to lend money to the Government, has spent every farthing of his increased income of £l,500? Is that an encouragement to a man to save? How will this man, A feel when he compares himself with B? He has denied himself, and he has helped the Government in a very substantial way, in the first place, by lending money to carry on the War, and in the next place by not requiring the services of those who would have supplied him with luxuries, and who have been doing war work instead. His reward is that he is to be deprived both of his capital and his interest in order that his extravagant neighbour may be saved the future burden of a heavy Income Tax. Of course, it may be said, "Is not that the effect of the Income Tax?" I think that my hon. Friend has said so already. "Do you not always penalise the thrifty man?" Quite true, but there is no use in making the thing worse than it is. There is no use in aggravating a thing which is bad already. We know the state of things in the East, in India, China, and Japan, where they have got the family idea. They do not have any Poor Law there. That means that each member of a family must pay for his own family. Until we have got the family feeling more widespread than it is, I do not think that it is a very good thing to be extending the area of pauperising. What we want to do is to pauperise people less, and to encourage the family responsibility, and I believe that to be the best way to secure the greatest production of national wealth. I know that we want more money now, and I agree that there are only two ways or, rather, three, in which to obtain it. Besides the taxation of capital and raising sums of money by Income Tax, there is another way of levying capital duties which is not open to so many objections as is the hon. Member's proposal. It may be said in regard to the question of the Death Duties that there you have a taxation of capital, but the effect is not the same as in the case of taking slices of a living man's capital, particularly if you cannot guarantee that another 20 per cent. and another, and yet another, will not be taken. You cannot give that guarantee, and I submit that the whole case lies there. I think that objection alone is fatal to my hon. Friend's proposal. Unless you can guarantee the man against further slices being taken, you simply take the heart out of him. He would say: "What is the good of my saving?" I am now comparing the taking of capital from the living man with the levying of capital on the estate of a deceased man. There is a very great difference in the effect of the two operations. I say if you levy a capital tax of 25 per cent. on a man you cannot guarantee him against a repetition. I defy my hon. Friend, and I defy any man in this House to show that you can give the slightest assurance to any taxpayer that, when you have once taxed his capital you can guarantee him against a repetition of that. If a thing is sound and equitable, why should it not be repeated? My hon. Friend says the circumstances are exceptional. They are always exceptional, when people want money. You do not know whether we are not going to have another war; we shall want money for social reform, "What a splendid thing to take that old chap's money; he is not using it half so well as it would be used by the State!" But if that is to be the way in which the nation is to treat our money, I am not disposed to trust the State very far. I recognise that we must have some State control of trade in the special circumstances under which the law of supply and demand has not been working, and when the consumer of commodities has had to be guaranteed against overcharges and high prices. I myself would back the Government to do everything it can to stop profiteering, but in ordinary peace-time, if the State took half or a quarter of the business of the country under its control, it is my profound conviction that instead of having a greater total amount of wealth produced in the country you would get a less amount, because of the withdrawal of individual initiatve and motive.

My hon. Friend will say, "What has that got to do with the question?" I will tell the House. My hon. Friend talks rather airily of paying £6,000,000,000 in three or four years. The money is going to come through credit; there is hardly any cash going to pass at all, and it sounds to me something like a conjuring trick. The Government is going to have the Debt liquidated—that is the word—but I cannot see how you are to find the money, or where it is to tome from, that is necessary to effect that operation. I agree with my hon. Friend that under his proposal all the money is left in the. country, but I do not agree that the kind of thing he suggests will not have a bad effect upon a further issue of loans which the Chancellor may want. I hear the views of some of the greatest bankers in the country upon this subject, and they tell me personally that the mere suspicion of this kind of thing going to happen— that is, the levying on capital—will prevent people from applying for loans. I know that the Chancellor of the Exchequer—for he has said it over and over again—is not going to do anything worse to those who have lent to the country their money in time of stress like the present, than to others who have not lent their money to the country. I should not have been sorry if the Chancellor of the Exchequer had made a different rate of Income Tax between Government Loans and other forms of income, and I think he would have done well to have raised the tax on other forms of income more highly than he has done, and so encouraged the holders of Government Loans. The investment of capital is a very delicate thing. We all know that people with money, who have been saving while their neighbours have been spending, are very much afraid when they hear the slightest rumour; and it should be remembered that this country's business, after all, is managed very largely on credit. Let no man think that he can tamper with the credit of this country and not thereby make people the poorer. One of the most important facts that we can realise is the necessity of maintaining our national credit.

Take the case of a man who has, say, £5,000 in business. Is the Chancellor of the Exchequer to go to that man and say, "You have £5,000; I am going to pay off debt to the extent of one-fifth, and I ask you to take your share by paying one-fifth of what you have got"? What would be the effect of that? Does not my hon. Friend realise that a large part of the business of this country is carried on by men with the assistance of bankers? There are hundreds and thousands of business men in this country who, in the time before the War, have been heavily indebted to their bankers. I say that without fear of contradiction. Go to a man in those circumstances, with £5,000 sunk in his factory. He has not made it into a limited company; he has not put his money into securities; yet is the Chancellor of the Exchequer to go to him and say, "I want £1,000 of your capital"? The man would reply, "I have, borrowed £2,000 or £3,000 of my bankers on the security of my property, and they have got my deeds." What kind of credit is going to enable the Government to get a large sum from such a. man and hand it over to somebody who holds it as a loan? I still maintain the view that such a course of action would lower the value of businesses. The law of supply and demand is a law that you cannot work against without damage to the whole community, and if you attempt to force men out of business, as you would do wholesale by taking a fifth of their capital, or whatever the proportion may be, you are going to do very great damage to the business of the country. Take the working man before the War; he then had £2 a week, and now he has, perhaps, £4 a week.

Mr. C. has had more work, and members of his family may be working, so that he has been able to save the value of a War Certificate each week or fortnight, until he has saved £100 or £200 during the War. That amount, I know, is below the line which the hon. Member laid down, and he says that is the reason why he is left out—it is not worth while. I ask, is that really the only reason why capita lists under £1,000 are not to be levied upon? Mr. C. has saved £200, but you do not go to him and say you want a portion of his capital. If you did he would say, "Well, there is my neighbour, who has £4 a week, and he has not saved anything; he has eaten and drunk and spent everything. What encouragement is this to me or my wife?" But you are going to leave him alone. Is it any more heinous for a rich man to save money than for a poor man to save money? Should he be blamed or put under disability in any way? The principle is just the same, the only difference being the small amount in the one case as compared with the amount in the other. Depend upon it the War is being fought and ought to be fought, has been fought and will be fought, more out of the money provided by the well-to-do-classes than out of that of the poor. We all know that to be the case, and it ought to be so, and still more so, I agree. In my judgment, there are two great reasons why this taxation on capital is neither right nor practicable. One is that it is a discouragement, and necessarily a discouragement, of self-denial, which is not a crime—on the contrary, is a great virtue. It would be said that it was an encouragement to extravagance, for, after all, what was the use of saving money if it was to be taken, while those who were improvident and had not saved were to escape? A man who has saved would say, "We might as well spend the money on our own family, if there is any prospect of the State coming to take all we have got." I hold that we should look after our families, for our own children come first, after all. If a man saves for his children, there is nothing wrong in that—indeed, I think it is a right and proper thing for parents to care for their families. I do not believe in giving everything to the State. I think we should do all we can to preserve interest in the family, and in the welfare of our own people, and I submit that this applies as much to the rich as to the poor. Therefore, that is one reason why I am against it.

The other reason is, that the effect upon the mind of a man who is going to have his money taken from him while he is living is very different from that upon a man whose estate is going to be divided on his death; in other words, if you mean to have a tax on capital—and I do not believe there is any need for it, for I believe a high Income Tax, though bad in one way, will do less harm than taxing capital—levy higher Death Duties. A man puts off the evil day of Death Duties as long as ho can. Death does not look near to any of us. At all events, our money is not divided in our lifetime, and what we do not see we do not feel. Death Duties have actually caused men to be economical and to save. If you take a slice of the capital of the average man and say to him, "I am taking 20 per cent., and I will not take any more "—a promise which is not worth anything—action of that kind tends to relax the efforts of men to make capital, and certainly causes a man to spend it, because he will say his family is not going to get the benefit of it. Well, I want to say to the Chancellor of the Exchequer how grateful I am that he has given us a Budget which does not tax the poor very much. There is, however, one blot on the Budget, in my opinion—it covers 11½ per cent. of the total new money to be raised—and that is the Sugar Tax. It may be a small sum at present, compared with other things, but these taxes have a trick of remaining, and I do hope that, at all events, if the Chancellor of the Exchequer feels bound to put over £12,000,000 on sugar, he will shortly be in a position to lower that duty again. I would urge on him also that the taxes on postage are really not economically sound; they are taxes on communication, on the service of the State. I do not think that is an economical way of raising money. A little more on the Income Tax—1d or 2d., say, on the Income Tax—would be very much less felt. I do not think these taxes are worth while. For a long time receivers of letters will have to pay the double excess, and I think it will be a long time before the Postmaster-General will get the money he hopes for. At any rate, I do not believe the Chancellor of the Exchequer will entertain the idea of taxing capital, because it is impracticable and uneconomical.

The POSTMASTER-GENERAL (Mr. Illingworth)

I must apologise for intervening in the Debate at this moment, but I should like to make a few remarks with regard to some of the criticisms of my right hon. Friend opposite (Mr. Samuel) with respect to some of the postal proposals in the Budget. I can assure the Committee that no Postmaster-General would ever look back with pride or pleasure to being the man who has to abolish that great institution the penny post, which was introduced, I think in 1840, by the great Sir Rowland Hill. Many things have taken place since the beginning of the War that those who have introduced them are not particularly proud of, but it is no time at present for sentiment. The needs of the country are the first thing to be taken into consideration. When my right hon. Friend had some similar proposals to consider in 1915, the Budget then, speaking from memory, only amounted to about £272,000,000. Not only that, but at that time there were many sources of revenue which were still untapped. Now we have to consider a Budget of some £840,000,000, and not only that, but, in spite of the figures which my right hon. Friend gave, the Post Office at present is barely self-supporting. For one thing, before the War parcels lost £1,000,000 sterling per annum. The additional rate which was put on in 1915 resulted in reducing that loss by about £300,000, but since that time the increase of expenditure in all directions has practically made that sum disappear. My right hon. Friend said this increased scale would lead to abuses of one sort or another, but I can assure him it will simplify the administration of the counter work very considerably, having this triple scale instead of eleven points in the scale. The eleven points postage which has been in operation up to the present caused the weighing of practically every parcel handed over the counter. I am informed by my advisers that this triple scale, which is carried out in many countries and in the Colonies, will only cause the weighing of about one-third of the parcels. The scale is 6d. for parcels up to 3 lbs. in weight; 9d. up to 7 lbs.; and 1s. from 7 lbs. to 11 lbs. This, it is hoped, will bring in an addition of about £500,000 to the Revenue. My right hon. Friend said the postcard was one of the most paying parts of the postal service.


I said it was remunerative—that there was a slight profit.


I apologise. If my right hon. Friend will refresh his memory I think he will find that before the War it only just paid its way. I do not consider, when the Post Office is barely self-supporting, that the increased rates are a tax on communication. I think the user should pay for the post and not the taxpayer. Now, this statement with regard to the £9,000,000 profit or surplus that was mentioned by my right hon. Friend appears on the face of it to be accurate from the way the account is presented in the White Paper. The expenditure is put down at £26,000,000, and the receipts at £35,000,000. This has been taken on a pre-war basis, assuming that the expenses of the Post Office were the same as before the War, and the Vote of Credit is not taken into account. I may mention that since my right hon. Friend was Postmaster-General the war bonus alone amounts to fully £6,000,000 per annum, and over and above that there are further claims before the Arbitration Committee. There are other things, also, for instance, £3,000,000 for telegraph poles, and another £1,000,000 for Army and Navy separation allowances. But without going into the details of the accounts, I may say that when all the accounts are made up on a commercial basis the surplus will amount to barely £2,000,000 per annum, and when the amount that it is hoped the increased rates will bring is added to that we may assume the surplus is somewhere about an additional £4,000,000 per annum. That will only bring the Post Office back, financially speaking, to the happy state it was in when my right hon. Friend was Postmaster-General, and was able to have a surplus of some £5,000,000 or £6,000,000 per annum. I hope the Committee will see from these few words the unfortunate necessity we were under of making these increased charges, and will offer no further opposition.


I only wish to call the attention of the Committee for a few moments to one item in the proposals of the Chancellor of the Exchequer, and I shall not attempt to follow the fantastic scheme of a levy on capital, as outlined by the hon. Member for Holmfirth (Mr. Arnold). My hon. Friend opposite (Mr. Taylor) has sufficiently answered his arguments, and I trust it will be many a long day before any Chancellor of the Exchequer will be found giving any heed to such specious arguments as those proposed to us this afternoon. I am sorry that, amid such a chorus of general approval from all sides of the House, I should be the first member who finds it necessary to raise a discordant note with regard to this Budget. I represent an agricultural constituency and I cannot help feeling that those whom I represent, especially the smaller farmers, will feel exceedingly aggrieved at the proposals of the right hon. Gentleman. I believe that farmers will consider that the proposals made by the right hon. Gentleman are unjust, inequitable and unfair. I think my right hon. Friend would have been wiser if he had allowed sleeping dogs to lie. My hon. Friend the Member for Bewdley said that no doubt when the Bill is brought in we should hear a good deal in regard to this question. I feel pretty confident that my hon. Friend's anticipations in that respect will be fully realised, and I do not think it is right even at this moment to let the occasion pass without raising some protest on behalf of the agricultural community against the proposals which have been introduced by the right hon. Gentleman. I said a moment ago that I thought my right hon. Friend would have been well advised to have left this matter alone. Before the War the farmer was called on to pay Income Tax in respect of one-third of his rent. Then it was raised to the rent itself. To-day we have got the proposal that the rent is to be doubled and that the farmer is to be called on to pay Income Tax on that double rent. The result will be that any farmer whose rent to-day is over £60, when it is doubled will be called on to pay Income Tax in respect of a sum of over £120.

The Chancellor of the Exchequer gave us figures yesterday and quoted the amount he had received in respect of the previous assessment. I think that was a totally fallacious argument, because I know numbers of farmers throughout the country who paid that Income Tax like lambs without having had the matter investigated by any of the Income Tax Commissioners of the district and who paid it without really realising whether they were liable to pay it or not. I know of one instance of one of my own tenants who got rather behind-hand with his rent, and when I asked him what was the matter he gave as his reason for not paying that he had to pay Income Tax, and having to pay the Income Tax made it difficult for him to pay his rent. When I went into it with him we found that, so far from his being liable to Income Tax, unquestionably he had paid under a total misapprehension, but, of course, then it was far too late, the time for appeal having gone by, and therefore he was unable to recover it. There are many instances, I am sure, of a similar character. It is suggested that farmers are making enormous profits at the present time, which justifies this additional tax. That, again, is an entire mistake on the part of a large number of people who are unacquainted with agricultural affairs. The farmers are not making that large amount of profit that is believed in many quarters. The farmer has to pay very large sums for his feeding stuffs; he has to pay, and is paying, increased wages to those whom he employs; he has to pay enormous sums for machinery and implements, and everything else that he uses on the farm. And, recollect, we are to-day dealing with the English farmer. We are not dealing with the question of the Irish farmer, who is allowed to get over 100s. per cwt. for his live-stock, when the English farmer is reduced to getting only 76s. per cwt., and we here are subsidising the Irish farmer and allowing the deficit to be made up by a subsidy from the English taxpayer of something like £50,000 per week. I say emphatically that the farmers are not making the large amount of profit which is said to be the case in many quarters.

But the real point that I want to put to the Chancellor of the Exchequer and his advisers is this. Surely it is unfair and inequitable, considering the incidence of local taxation, that you should deal with the farmer in the summary fashion in which you are dealing with him. I do not like to use such a word as I am going to do in connection with my right hon. Friend the Chancellor of the Exchequer, but I do say that it very nearly amounts to a breach of faith on his part to raise this question at the present time. Chancellors of the Exchequer, one after another, long before I ever came to Parliament, have made the same promise to the House of Commons, that they would allow these questions of taxation to be dealt with and put on a fair basis. It was never more pressing than at the present time. Look at the enormous number of motor lorries and other heavy vehicles that are passing over our roads, the large amount of timber that is being cut down all over the country, rendering most of the roads impassable, all of which will have to be paid by the farmers out of the local rates! Again, in regard to this matter, the local ratepayer will, under the new Education Bill, be called upon to pay the increased rate which unquestionably, and inevitably, will fall upon him. I do say that it is not the time, when there are so many of these local burdens pressing so heavily upon the agricultural community, that they should have this increased burden placed upon them. Surely the Chancellor of the Exchequer might have left well alone, and might have been content to tax the farmer upon his rent as it stands in the rate book, without having gone in for this duplicating system.

I want to say, in conclusion, that if this does pass, I do hope that the notices will be sent out by the Treasury at the earliest possible moment to the farmers, so that they may have some knowledge of the tax that is being imposed upon them. May I also venture to ask that when those notices are sent out some care will be taken that they are. couched in intelligible and plain English language? At the present tune the farming community have had no less, I think, than 230 different Orders and notices served upon them, and it is almost impossible, owing to the phraseology of these different notices, for anyone to understand them. I do urge upon the Chancellor of the Exchequer that when these notices are sent out, therefore, they shall be in such a fashion that the farmer can understand them. I hope to have another opportunity when the Bill is brought forward, and when the Clause comes before the House, of stating my views, but I did not think it right, representing as I do a community of comparatively small farmers, to let this opportunity go by without protesting against the injustice and the unfairness of this single proposal of the right hon. Gentleman towards the agricultural community. In all other respects, I venture most humbly to congratulate him upon his Budget.


I should like to join in the universal praise and in congratulating, also, the Chancellor of the Exchequer on the Budget which he has brought in. I think he has tried to spread taxation over a large portion of the community very fairly. But, differently from the hon. Gentleman who has just spoken, I think that the one weak point in the Budget is that he has let off the farming community so lightly. The last speaker made a great attack upon the Chancellor of the Exchequer, and I think he said that it was a breach of faith. I think it would have been a far greater breach of faith to the majority of the taxpayers of this country if he had allowed the farmers to continue what is, I believe, fashionably called "profiteering" any longer, because if there is one section of the community more than another that has made large profits without being taxed it is the farming community. A right hon. Gentleman below me says, "No." He has only to pick up the Report of the Board of Agriculture and he will see in that—and he knows it perfectly well—the enormous rise in prices which has taken place. It does not matter what the farmer has to deal in or to sell—wheat, barley, stock, milk or butter—not only has it doubled in price, but it has often gone up a great deal more. It is perfectly true that now prices have been fixed, so that they cannot go up very much higher, but the farmer has got a long lease of prosperity before him, because he has his prices guaranteed under the Corn Production Act. I am disappointed that the Chancellor of the Exchequer has not forced the farmer to come under the Schedule the same as a business man.

I notice that the hon. Member for Tavistock (Sir J. Spear) had a very interesting interview yesterday with one of the newspapers, and he, like the last speaker, raised a great cry, and said that farmers would leave their farms. Well, I think if there is anything more ridiculous than another it is to say that, because of this slight tax, farmers would leave their farms. My experience is that if there is a farm to let there are ten or a dozen people who are only too glad to take it, and who would even pay a higher rent. But I think that generally throughout the country landlords have behaved very well, and very seldom have raised the rents of farms. Then this hon. Gentleman goes on to say: He cannot keep accounts, because he is taking things from his farm daily, such as eggs, milk and butter, and occasionally be will kill a pig. This would take the whole time of a clerk. I am afraid that the hon. Gentleman—I am sorry he is not here now—does not know better what a clerk is capable of doing. I might assure him that it would be a great advantage to the farming industry if farmers were compelled to come under Schedule D They could then keep their books, and I can assure the farmer that if he could get a bank clerk, who often has a half-holiday, to go over on his bicycle from the county town and keep his books, it would show him the part of his business which pays well and the part which is not satisfactory. I would commend that to my hon. Friend the Member for Tavistock as a suggestion to his farmer friends that they should employ a clerk for one or two hours a week to keep their accounts properly, and when they are kept properly I do not think they will want to get away from the very generous proposal which the Chancellor of the Exchequer has made, which is to make them pay twice the amount of their rent. My right hon. Friend the Member for the City of London (Sir F. Banbury) is now taking the farmers under his protection as well as those of us who have business in the City of London. I will give him two cases—the case of a farmer, and the case of one of his constituents in the City of London. We will say that a farmer has 1,000 acres, and pays a rent of £1,250. He produces on the farm £10,000 worth of produce, and his expenses are £5,000. That leaves him a profit of £5,000. I do not think that is too much, because if you will consider some of these gentlemen who have been before the Civil Liabilities Committee, I think it is called—


The Losses Committee.


The Losses Committee—I see there is a case there where a farmer only pays a rent of £582 a year, and he says his pre-war profit averaged about £l,375 a year. That was exclusive of his profit on pigs and poultry, milk and cows. In 1915 there was a profit of £5,000. It is an extraordinary thing, when farmers want to prove their profits are large, they can always do book-keeping and can always find some method of proving that their profits are high. This was a gentleman who was trying to get something out of His Majesty's Government because an aerodrome was going to be put up on his farm, and he admitted that taxation on farming was very unfair indeed. I think that shows that £5,000 profit on 1,000 acres is not a high estimate.


It is not fair to take one isolated case. There are, no doubt, isolated cases where a great deal of money has been made, where people have grown potatoes, for instance, at a time when there was a great demand for potatoes; but, taking the average of farmers at the present moment, although they have done well, I have reason for saying that they have not made large sums of money.

7.0 P.M.


I quite agree, but I am giving what I think is an average case. If the right hon. Baronet wants me to give the case of potato growers I can give him a great number, and these potato growers would have to pay Super-tax. I want to ask the Chancellor of the Exchequer why the potato farmer, who in many cases makes £10,000 or £12,000 a year, should not come under the Super-tax, and if he is to come under the Super tax how does he propose to get him? I am taking the case of a farmer who has made £5,000, and his Income Tax on wholly earned income at 5s. 3d. in the £ would be £650. That is what he will have to pay under the new scheme, but he has no Excess Profits Duty to pay. That is where it is so unfair compared with the circumstances of many thousands of the constituents of the right hon. Baronet. Take the case of any constituents of the right hon. Baronet who had a pre-war standard, like the farmer who gave his evidence before the Commission, of £1,000, and this year he makes £5,000. He would have to pay 80 per cent. of the excess profits, amounting to £3,200, and Income Tax about £470. Out of his £5,000 he would have to pay over £3,600 in taxes, whereas the farmer who has made £5,000 only has to pay £650.

Major WOOD

Is the illustration which the right hon. Gentleman is quoting the real case of a farmer who has made £5,000?


I will hand to my hon. Friend the extract from the evidence given by the farmer before the Commission. I am taking the case of what I think would be an ordinary farm of 1,000 acres at £1,250 a year. This man pays a lower rent. Before the Commission many farmers appear to prove their very high profits, in order to get compensation out of His Majesty's Government, and I do think that these cases show perfectly well that the Chancellor of the Exchequer might charge four times the rent quite easily. The farmer could not complain, as he, like any other man, could come and have his profits assessed, and then he is in the same position as anyone else. I quite appreciate the Chancellor of the Exchequer's difficulties, because he tells us that it would be impossible to go into the accounts of the farmers. I regret that he has not raised the Income Tax on farmers to three or four times the rent, which I think would be much fairer than his present proposal. May I point out another matter in connection with the excess profits? The Chancellor of the Exchequer has raised the Stamp Duty on cheques to 2d., and he is raising the 1d. postage to 1½d. Has he considered that a large amount of that will mean reducing his Excess Profits Tax, because it will be expense that can be taken out of the excess profits? I am sorry that he has not spread the Excess Profits Tax further. I have no enmity against the farmers, for I am sorry that he did not include everybody under the Excess Profits Tax. I think professional men ought to come in. There are, I will not say a large number, but a certain number of professional men who have made war profits. Accountants have made war profits, and certain members of the legal profession have made war profits through their practice in the Prize Courts, and in other ways. I admit that the average professional man has not increased his profits, but that is no reason why the profiteers who have made these enormous profits and taken big fees should not come in and have their profits checked.

I think a good deal of excess profit slips away in a manner which perhaps the right hon. Gentleman has considered or perhaps he has not considered. I want him to consider this case, which is a very substantial one, and that is the large amount of money which is being spent in advertising by people who pay excess profits. He has only to take up one of the large weekly illustrated papers and also the daily press, but particularly the weekly illustrated papers, and he will see ten or twelve sheets of advertisements of articles which cannot be used at the present time, such as motors and machinery, which are being advertised for delivery after the War. All that paper and ink is being wasted and the printers time is being wasted. It is no value to have an advertisement of some motor car when one knows perfectly well that the motor works are on war work, or to have advertisements of jewellery on. which he is going to put a tax. I suggest that he should ask his staff to look very carefully into the large amount of advertising which is allowed to people who are making excess war profits. I understand a firm which advertises is allowed by the Government accountants to spend the same amount in advertising in proportion to their turn over as they did before the War. That may have been all right at the beginning of the War but at the present time of shortage of paper and labour I would ask him if he will kindly consider this matter because I believe it would be better for the Exchequer and it would save a great deal of labour which could be used for more important purposes.

I think everybody agrees that if you can successfully put a tax upon luxuries it will be an excellent thing. I think it is good that a Committee of the House of Commons should be formed to assist in dealing with this Luxury Tax. I am afraid that there will be a rush of people to buy articles which they may imagine will come within the scope of this tax. In the train this morning I heard one man say, "I shall at once order a new dress suit." I am pointing out the difficulties of the situation. I know the Chancellor of the Exchequer has had these things in his mind, but if he is to deal with this matter I am afraid he will have to put work upon the very people to whom he wants to give less work. I saw in the paper this morning that some persons in the large retail businesses say they are going to pay the tax. If the profits of the shopkeepers are so great that they can afford to pay this Luxury Tax of 2d. in the 1s. it will have to be dealt with in some way or other, or the very thing which the Chancellor of the Exchequer wants to get at is going to be evaded. I hope that he will consider these points very carefully, so that, if possible, the spirit in which the Luxury Tax is imposed can be properly carried out.

There is another matter to which I would like to draw attention, and that is the large Government Stocks amounting to many hundreds of millions, perhaps thousands of millions of pounds, which are held. I know it is impossible for the right hon. Gentleman to take stock in the same way as an ordinary firm, but I suggest that there is a great deal of unrest among people in all branches of business at the present time over the way in which the accounts of the Government Controllers are being handled. We have Controllers of wood, leather, sugar, grain, dates, and petrol—their name is legion. Each of these Controllers, or most of them, are dealing in certain articles, of which they have stocks. It is said, rightly or wrongly, by the public that directly a thing is controlled it goes up in price. That may be so or it may not be so. What I want the right hon. Gentleman to do is to see that each of these Departments connected with the Treasury, in which they have their own accountants, should be instructed to issue in the next year's accounts a profit and loss account showing what is going on in the Department. That is what the hon. Member the Financial Secretary to the Treasury (Mr. Baldwin) would do if any one of these Departments was part of his own business. He would want to see what the Department was doing. Is a profit being made on wood, or is a loss being made on grain? We know that an enormous sum is being lost by the large subsidies on bread. If £750,000 a week is being lost in that special Department, is it being made up in another? I feel sure that it would give a great deal of satisfaction, not only to business men in the House of Commons, but to the taxpayers generally, if it could be shown in next year's Budget or if from time to time a balance-sheet or profit or loss account could be issued for all these Controllers' Departments which are now connected with the Treasury. I have made these remarks in no hostile spirit. I am glad the Chancellor of the Exchequer has had the courage to deal with the farmers' rent tax, and if he is in the same place next year I hope he will see that it would be quite easy to treble that tax or quadruple it.

Captain Sir C. BATHURST

I should like to join with others in congratulating the Chancellor of the Exchequer on his courageous Budget, and particularly upon that which deals with the taxation of luxuries. I hope that a good many of those who extravagantly and unpatriotically spend their money in all classes of society upon unnecessary commodities will, in the future, be induced by this tax to put their money into War Loans. I rose chiefly to express regret that the Chancellor of the Exchequer has devised the particular method which he announced yesterday for dealing with the additional taxation on farmers. I am quite sure that the right hon. Gentleman who has just spoken will find it quite impossible to substantiate his allegation of profiteering against the farmers as a class, there is no community of whom it is more dangerous to say Ex uno disce omnes. A good many farmers have, no doubt, made considerable profits, especially those who have been fortunate enough to occupy valuable potato land in Lincolnshire and elsewhere; but there are a very large number of farmers who have found it very difficult in the last twelve months to make any margin of profit at all.

If you were to take the whole of the farming community and average their profits, I question whether there is any other leading industry which would show such a small increase in war profits as the farming industry. The farmer's grievance in days gone by, and it still continues, is that he has not been asked, like other classes, to pay his taxes according to his ability to pay, and that has applied very particularly to the main burden of taxation which has constantly been put upon the shoulders of the farmer—namely, local taxation, applied in respect of public services from which every class of the community has alike benefited. There have been repeated promises made during the last ten years from the Front Government Bench that there would be no system of imposing greater taxation upon farmers, or any attempt to put them under the ordinary taxation of the country, until their admitted grievance in respect of local taxation had been remedied. That has not been done. Not only that, but local taxation is increasing during the War, and threatens to increase at a still greater rate after the War, in respect not only of public roads, the cost of police and the Poor Law, but most especially in regard to education. We all know that whatever benefits may accrue from education from the Government subsidy, besides that there is to be an equivalent additional amount found out of the local rate before the Government subsidy is brought about.

The rent basis was never fair, but fortunately in days gone by it had so small an application that the grievance was not very widespread. I should imagine that something like 90 per cent. of the farmers of this country, on the basis of the old Schedule B, never paid Income Tax at all, because under that Schedule you required a rent of £480 to make the tax operative. What has happened since? Not only was the Schedule B basis, which was one-third of the rent, trebled two years ago, but the Chancellor of the Exchequer now suggests that the rent should be doubled, thereby increasing the rate by no less than six times, as long as Schedule B basis is selected. I suggest that there is no section of the community, whatever be their profits, who during the War have had imposed upon them additional taxation at such a rate as that. What is the alternative? It is Schedule D. I wish to express my very great regret that the Chancellor of the Exchequer has not taken this opportunity of putting the farmers like the rest of the community under the obviously fair system of taxation which is based upon a man's realised profits in his business. What is the objection? It is a mere question of accounts? The right hon. Gentleman suggests that the Inland Revenue officials would find it difficult to check the farmers' returns, because as a rule he does not keep accounts. One of the strongest reasons for putting them under Schedule B is to induce them to keep accounts. I believe the farmers as a race would be more businesslike if they were compelled to keep accounts.

My great objection to this alternative system, and particularly to the alternative of doubling the rent basis is that it is going to operate unequally in different parts of the country among different classes of farmers. I will give an illustration. The large arable farmer who is to be found mainly in the Eastern counties of England is, I suggest, the result of the Corn Production Act, and he is a farmer who has made the largest profit during this War. Curiously enough, he is the man who has been rented the lowest, and by contrast with him you will find in the West of England a large number of farmers, large and small, who, owing to the climate and the nature of the soil, are not arable farmers, but are largely engaged in grazing, and those men have always been rented high per acre, and they are just the men who have not made very large profits, in fact many of them are losing money owing to the high cost of raw materials, and the high cost of replacing their stock. This applies particularly to the smallholders who only occupy a small area of agricultural land, and they are rented pro rata at a higher figure than the larger farmers. Those are the men who are going to be asked to pay taxation on a basis six times above that which they paid three years ago.

You may say let them come under Schedule D, but this is just the very class which is least capable of making out accurate accounts. They are not nearly so well educated, and even with assistance from outside they will find it difficult to make out satisfactory accounts. Whether they choose Schedule D or Schedule B, they are the people who are going to have a very unfair burden imposed upon them compared with those farmers who have made the large profits. I ask the Chancellor of the Exchequer, before he definitely settles upon the adoption of this new-system of taxing farmers, to carefully consider this matter particularly in the light of the incidence of this tax in different parts of the country among different classes of farmers occupying different areas of land who have produced most unequal profits during the War.

The CHANCELLOR of the EXCHEQUER (Mr. Bonar Law)

On an occasion like this I always find it rather difficult to decide at what time to rise to reply. To-day, fortunately, none of the criticisms which have been made require that I should make a speech of any length, and I am thankful for that, as I am sure is also the House, because I gave them a sufficient amount of my views yesterday. I must say that I am very grateful for what has been said of me personally by those who have already spoken. At a time when great sacrifices are to be made, I was very pleased yesterday, after listening to the speeches, to find that, on the whole, hon. Members thought I had tried, not unsuccessfully, to deal as fairly as I could with those who had to make the sacrifices. That gives the Chancellor of the Exchequer a great advantage at the start, and it takes from hon. Members any fear that there has been any unfair attempt, from political or any other reasons, to deal with particular people from any point of view other than that of trying to get revenue, and that was the principle on which we framed these proposals. The Budget, as a whole, was well received by those who have spoken, but that is not the end of it. The Budget has a long way to go. A great deal may happen before we see the last of it in the House of Commons, and, though, as a rule, it was well received, there is hardly one tax which has not been criticised with some force by hon. Members who have spoken.

I am not going at any length into a defence of any of those taxes, but I would like to say a word or two upon the question of the farmers, about which we have had three speeches lately. The Member for the Thirsk and Malton Divison (Mr. Turton), who made the first speech, had a feeling that farmers had been very badly treated. He said to me: "Why not let sleeping dogs lie?" Well, if the dogs were sleeping, I am quite willing to let them lie, but they are not sleeping. The enemy is not sleeping. We need money, and we must turn to every quarter that seems equitable in order to get it. Curiously enough, although many of the deputations which I have received in connection with this Budget—and I have had a large number—were of the opinion that this particular tax was going to treat their particular industries unfairly, nearly everyone of them pointed to the farmer as a means by which I could get an immense revenue, and let them off. I never believed in that, but I did feel that, apart altogether from the money— and £5,000,000 are £5,000,000, and we have got to get them—there was something which it was impossible to overlook in all the circumstances of the case, even considering the changes in the price of agricultural products as compared with other things. Taking all these things into consideration, there is evidence which absolutely cannot be ignored that the farmers are not paying at the present time their full share of the burdens imposed upon us by the War. I had to deal with that as justly as I could. My hon. Friend who has just spoken suggests that, on account of the great variety of farming, the farmers have been treated unfairly in the past; but I was surprised to find, from one point of view, that my hon. Friend actually urged me to put the farmers under Schedule D. How can it be treating them unfairly if you subject only some of them to what he wishes I should subject the whole of them? Each of these farmers, if he thinks he is paying too much, can come under Schedule D. If you regard my treatment of the farmers as compared with the treatment of other classes, they certainly cannot object.

I admit that there is another sense of injustice which arises. They feel, though nominally they are taxed on the same basis, that they are paying out of all proportion to what other farmers pay. It is true that a man with one kind of farm may be making a far greater profit than a man farming in another direction. Therefore, if you take Schedule D for the whole of them, that sense of injustice between one and the other does disappear, and I certainly would have done that had it been possible. But, looking at the case of farmers as against the rest of the community, no farmer is now being asked to pay more than other people in every other trade, and farmers as a whole are not badly used. I say this, further, to my hon. Friend and to those who are interested in that industry. I feel that very likely some of those who will be taxed too highly by having to pay on twice their rent are just those who will find it most difficult to make up accounts. For that reason—and the House must remember that in every step I have taken in connection with this matter I have acted in close co-operation and in consultation with the President of the Board of Agriculture—my right hon. Friend (Mr. Prothero) has made arrangements—and it will cause his Department a good deal of trouble—whereby they will use the Board's local agents for the express purpose of preventing farmers having that grievance. They will act as the farmers' friend, and assist them to make up their accounts when there is a prospect of them being asked to pay too much. I do not think, in all the circumstances, that I could have done more to treat that class fairly.

The Budget was in the framing treated by us as a whole. We regarded the way in which the burdens would fall from the point of view of Income Tax and of indirect taxation. The one part of it was meant to be complementary to the other, and though whenever a Budget comes to the House of Commons for examination it is obvious that the Chancellor of the Exchequer must be prepared to consider fairly any representations which are made against his proposals, yet in this case, inasmuch as one kind of taxation was fixed by me at a particular rate because of other kinds of taxation, I shall be very reluctant to give up any of the taxes which are now found in the Budget proposals, and I hope that I shall not have to do so.

I shall deal with three of those which have been most criticised. Take, first, the doubling of the Stamp Duty on cheques. I remember all about the fuss, to use a colloquial expression, I remember all that happened when Sir Michael Hicks-Beach proposed it. I was in the House of Commons at the time. It was when I was in business, and I disliked the proposal. I would not have made it now had I thought that it was open to the same objection as was the case then. At that time the opposition was focussed by the banks. Before I arranged to have this introduced in the Budget, I consulted representative bankers, and was told by them that in their opinion, in the new conditions, the change would be accepted readily, and would not cause any great inconvenience. That is my belief. People do not regard a burden of this kind, as it affects them, in the same way that they did at the time of the Boer War. The objection is made—it would be a very valid one if there were anything in it— that if by altering the stamp we limit the circulation of cheques, we increase inflation, and get more currency notes in circulation. People are now so accustomed to cheques, and find them so convenient, that I do not believe there will be any great diminution. Apart from that, I do not see in what way cheques are not "inflation" as much as Treasury Notes.


The Government are not liable.


It does not matter, it is inflation. Of course, it is true that the actual knowledge that the number of currency notes was to be increased might have a bad effect on our reserves, and to that extent there might be something in the objection. But here again the Clearing House returns are published, and as I do not therefore think there is much in the "inflation" argument, I hope that the House of Commons will allow this tax to go through. I am afraid, when we are dealing with such huge figures, that we are all of us, both in regard to expenditure and revenue, apt to look upon these small amounts as not worth considering. Well, £1,000,000 is £1,000,000, and, unless there are strong objections to it, I hope that the House of Commons will support me in this particular tax.

We will now turn to the postal change. I certainly shall insist as far as I can on that change being made. I think there is every reason for it. My right hon. Friend remembers quite well that, even in 1915, the Cabinet was very strongly divided as to whether the change should be made or not, and, if I am not coming under the Defence of the Realm Regulations, I think I may say that it was the cogency of my right hon. Friend's observations which alone prevented the change being then made. The position is very different now. The need is very much greater, and, more than that, by putting on this new charge we shall, from the point of view of the cost of the service—this was examined before we decided to make the change—only bring the Post Office back to the position in which it stood at the time when the proposal was rejected before The balance of profit which was available then without the additional charge was very much the same as that which will be available when we have put on this additional charge. It goes even further than that. I am afraid that there is a real danger, if we do not make these changes, that before the War is over, and perhaps within the next twelve months, the Post Office service will not be self-supporting, or barely self-supporting. In these circumstances, I think that it is the clear duty of the House of Commons to make this change.


If that is so, might I suggest that we should alter the form of the White Paper, because the White> Paper on the face of it clearly shows profit of about £9,000,000 on the Post Office? I was misled, as I think many other hon. Members were misled, by the White Paper.


I quite understand that, and, when my right hon. Friend the Postmaster-General pointed to this White Paper, I decided at once that I must try and find out where the mistake was and correct it. I think we are bound to accept the figures which the Postmaster-General himself has given us. The net result is this. We really need a reliable margin from the Post Office revenue, so as to be sure that it is self-supporting. It is the kind of charge that has been accepted in almost every other country. It is recognised as a reasonable charge. I think I may also say this—and it is not a reason of which we have any cause to be proud— the fact is that the habit of spending has grown with all this inflation, and I do not myself believe that the people will regard this extra ½d. on their letters in anything like the same way as they would have done three or four years ago. That may be a good thing or a bad thing—I think that it is a bad thing—but at all events it is an additional reason for thinking that the making of this change will give us additional revenue, and will not cause any serious discontent.

The only other tax to which I will refer is that on sugar. Here, again, I would ask the House of Commons to treat the Budget as a whole. I am bound to say that in all the circumstances I think it is a fair tax. My hon. Friend beside me (Mr. Baldwin) pointed out that in the case of men subject to Income Tax, with four or five children, the allowance that we give to the wife is equivalent to the extra duty which we put on sugar. Someone interrupted him to point out that in the case of those who do not come into the Income Tax scale at all, the Sugar Duty will hit them very hard. We must set one thing against another, and the Government have decided, rightly or wrongly, that in the exceptional circumstances they will subsidise the loaf. If there are any persons so poorly paid as not to come under the Income Tax, who have children, and who would suffer under the increased Sugar Duty, they are precisely the class of people who will benefit by the subsidy which we have given on the loaf. As a matter of fact, I have had an estimate made—I will not give the details to the Committee—and the result is that in the case of a man with a wife and four or five children, he will gain twice as much in the subsidy on the loaf as he loses by the increased duty on sugar.


In the figures which the right hon. Gentleman gave yesterday showing the amount of the charge on each family, did he take the tax on the sugar as sold to the family over the counter?


I know the hon. Member's point.


Has the right hon. Gentleman considered the effect that it is going to have on the price of articles in which sugar is used?


In my Estimate I only put the amount of sugar given by the ration, but I have had an estimate made of the proportion likely to be found in other things. They make the increase one third more, and it is upon that basis that I have made the calculation.


Will my right hon. Friend consider the question of allowances for advertisements in connection with the Excess Profits Duty?


I have listened to what my right hon. Friend has said, and that is a matter which can be dealt with by regulation.

I would like to say a word or two about the Luxury Tax. Everyone has agreed that it is a desirable tax, but there is some little scepticism as to the possibility of bringing it into operation. I can assure the Committee that the form in which I have presented it to the House is intended to mean that the House of Commons will agree, not that it is to be considered, but that the tax is to be imposed, and that which is left open is only the question as to the method in which it is to be imposed. That is my intention. Some hon. Member pointed out that the delay is a great drawback, and that people will buy new dresses, in order to avoid having to pay the Luxury Tax when it comes. I recognise that is a disadvantage, but in any case it is unavoidable. It would have been quite impossible for the Chancellor of the Exchequer, with the assistance of his own officials, to decide on a schedule of this kind, and the moment we set up a Committee, whether a House of Commons Committee or any other, to examine it, the same difficulty which exists now would have arisen, and people would have seen that it was in contemplation.

It is necessary to have this examination. As I mentioned to the Committee yester day, I went into this fully in January, and I had then a hope that we might get it all finished and ready to be imposed with this Budget. But I found that at that time the French Finance Minister practically was not in a position to say how it was going to work, and, having this working model before us, I thought it wise to wait, and see in what way it was actually going to function. For that reason the delay has taken place. I had to decide whether I would appoint, as the French Government did, a committee of officials and representative business men, or take another course. I decided to ask a Select Committee to help in this matter. There are a good many considerations which passed through my mind before I took that decision. In the first place, I thought it might be regarded as the thin end of the wedge in setting up Budget Committees in the House of Commons. I am not in favour of Budget Committees. But that would not have been a reason for my adopting this course. As regards the thin end of the wedge, I am more inclined to take things practically as I go along. Another consideration from a different point of view was this: There are many Members of this House who, to my knowledge, are as capable as anyone you get outside, and who feel that though they are Members of this House they do not get as much opportunity of doing work in connection with the War as they would like. I know there is a strong feeling on the matter, and I thought, "Here is a case where, in my judgment, there is useful work if the House of Commons can do it. At all events, I will ask the House of Commons to undertake it." The third reason is that it is, undoubtedly, a rather difficult tax. I am strongly of opinion if, as I hope, this Committee take it up in earnest, as if they were officials of a Government Department determined to carry it through—I am of opinion that when the Government introduces a Resolution based upon a strong recommendation by a Committee of that kind, it will go through the House with more authority than if the recommendations came from an entirely outside body.


May I ask the right hon. Gentleman will this tax be applied to sales by auction, at Christie's and other places?


Most distinctly. It said so, as a matter of fact, in the Resolution. I did not put any amount on it, but I really hope to get a good deal of money out of it. I notice that my right hon. Friend the Member for West Mon mouth (Mr. McKenna), though he entirely sympathised with the tax, had still the same feeling which influenced me last year—it was so difficult that it had better be left alone. I think my right hon. Friend has reason to congratulate himself on having departed from precedent in setting up a tax caused by the circumstances of the time which has thoroughly justified itself by results, and which could have been objected to on almost the same grounds as the tax I am now proposing— that is the Entertainments Tax. I remember very well the kind of criticisms made about that. It was treated as something almost of no importance, but my, right hon. Friend believed in it, and had the courage to go through with it, as I mean to go through with this, and I am satisfied we shall get a result which will thoroughly justify our doing so.

I am not going into calculations whether I have allowed too much or too little for the position after the War. The House understands, and can itself examine, the exact basis on which I worked. I think my hon. Friend below the Gangway (Mr. Arnold), as far as I followed his calculation, left out of account altogether as against his estimate the undoubted assets which we shall have after the War is over.


That is just what I did not do. I said on the one hand that would be met by taking present figures and adding the borrowings for the current year and a reasonable amount in respect of demobilisation and winding up, and then taking recoverable assets and excess profits.


That is really making a calculation from the point of view that everything is going to go against us, and nothing in our favour. I cannot view it on that basis. I am quite willing to leave it to the House of Commons and to the country to judge by the results whether or not it is a fair allowance in all the circumstances of the case. The only other point to which I wish to refer was dealt with by my right hon. Friend opposite (Mr. McKenna). He dwelt with great reason on the question of getting value for money. If he expects me to say that we are doing that, I certainly am not prepared to make the claim. There is undoubtedly great waste—a great deal of money is being spent that might be saved. What the House of Commons, I think, has a right to ask is that reasonable efforts are being made—that as good efforts as are in our power are being made—to secure as much economy as possible. It is very difficult. I said yesterday that I welcomed, and we are trying to take advantage of, the Report of the Select Committee. They made a number of recommendations, and we are trying to carry a number of them out. Undoubtedly it is difficult work, but I am going to give to this Committee my own real view on this matter. It is utterly impossible by any arrangement that there should be Treasury control from the Treasury over all this immense expenditure in these Departments. It is quite impossible by any system, and I think my right hon. Friend and his Committee practically recognise it. They recognised that the most the Treasury can do is to try to secure that there is a good system in these Departments. We are trying to do that, and I venture to say, with some respect, since I have been Chancellor of the Exchequer immense improvements have been effected. I have always believed myself, and I believe now, that in financial matters it is absolutely essential to have a good system as a foundation. At a time like this there is no profit or loss account to check how a man does his business. But great improvements have been made. Take the War Office. It was at one time one of the worst Departments in this respect. It is now one of the best, and that is partly due to the system, and partly also due to the fact that there is a business man there who is running the business as if it were his own. I think that has made a great difference. If you turn to the Admiralty, we have tried to do the same thing, but there is much more Treasury control there than is possible in the War Office.

If you turn to the Ministry of Munitions—you are to have an opportunity of discussing that on Thursday, and that will be the best occasion for dealing with it—but I will anticipate what will be said by my right hon. Friend by stating that we carried out one change, as a matter of fact recommended by the Select Committee. We made my right hon. Friend the Under-Secretary (Sir Worthington Evans) the purely financial representative of the Munitions Ministry, and I believe that will have a good effect. We remember the conditions under which the Ministry of Munitions was set up. Every one of us in the House of Commons remembers it well. We suddenly discovered that we were horribly short of munitions of war. We had to make a sudden move to put this right. That was done with the one idea that time was vital, and that money did not matter as compared with the lives of our men. When you start an institution on that basis, it is very difficult, and will take a long time to get it back on a sound commercial basis. I think all will agree as to that.

My right hon. Friend, I think, did not judge the question in the right way when he compared the expenditure this year with that of previous years of the War. You cannot do that. You must judge whether or not the money is being well spent on a different basis from that. I pointed out yesterday that expenditure has increased on a more rapid scale now than last year. What does that mean? Even assuming that the Army is the same, supplies of all kinds for that Army are being increased enormously by all the belligerents, and if we stood still, we might as well go out of the War altogether. But we are not standing still as compared with a year ago. The quantity of munitions we are turning out is in some cases nearly double, and in no case is it less than one-third more than it was at this time last year. That means of necessity a great increase of expenditure. That is not all. The Army strength has increased to some extent, and the numbers in France, taken in proportion to the whole, has greatly increased. Of course, the expenses in France are much heavier than here. This will give the Committee some idea of the enormous growth of this expenditure, so useless, but so necessary, that last year alone, behind our lines in France, we built 900 miles of broad-gauge railway and over 1,000 miles of light railway. All that means additional cost, and you may take it as certain that every one of the belligerents, the longer the War lasts, will devote more and more energy and money and labour to the production of these instruments of destruction, and that the expenditure will only be limited by the powers of production. I have exhausted, as far as I remember, the particular points with which I meant to deal when I rose. I have again to thank the Committee for the very favourable reception which they gave to my proposals at the beginning, and I plead with them to extend that indulgence to the later stages, when it is even more required than on the day of the introduction of the Budget.

8.0 P.M.


The Chancellor of the Exchequer has not unnaturally congratulated himself on the favourable reception which has been given both to his Budget Statement and to the proposals that he made in that Statement, and I should like to join with the Committee in congratulating him. I would venture to point out to him, however, that gigantic as are the sums with which he has to deal in this Budget, his task, compared with that of a Chancellor of the Exchequer in normal times, is, in one respect, a very easy one. In normal times the annual Budget is a careful balancing between estimated expenditure and estimated receipts, and the chief difficulty of the Chancellor of the Exchequer is always the adjustment of those two sides of the account. In his present Budget the Chancellor of the Exchequer is not in the least burdened by the difficulty of having to balance his account, because he does not attempt to do it. He merely tells us that he is going to spend a sum beyond all precedent, that it is necessary for the purposes of the War, that he proposes to raise a certain sum which he thinks is as much as the country can stand at the moment, and there is his Budget Statement. It is very easy to deal with these large figures on that basis, but the difficulty which the Committee feel, and which the country feels, is that under this system, which you are not working to estimates and under which you are not meeting your expenditure out of revenue, there is an inevitably enormous waste. That has perhaps been sufficiently dwelt upon to-day in the speech of my right hon. Friend who opened the Debate (Mr. H. Samuel), and it has been dwelt upon again by the Chancellor of the Exchequer. I cannot, however, refrain from pointing out that the Estimates of last year were really not Estimates at all in the ordinary sense. Very likely that cannot be: but the Revenue exceeded the Estimates by 11 per cent. and the expenditure exceeded the Estimate by 21 per cent., so that really you are no longer dealing in Estimates at all. You are spending what is necessary, and you are raising what money you can to meat that expenditure.


That is right.


Next year the rough Estimate, which may or may not be exceeded, is £2,972,000,000, which is a sum of more than the estimated annual income of all the people of this country, an expenditure of over £8,000,000 a day, and towards that all that the right hon. Gentleman says you can raise is £842,000,000. Although he said that 28.3 per cent, of the expenditure is to be met out of Revenue, I think, with the National Debt mounting as it is and the expenditure so large, he might have made an effort to raise even more revenue than he has done. I do not think he is going to do anything with his Luxury Tax. I think the Luxury Tax, though attractive, is very difficult to work. What is a luxury? One man's necessity is another man's luxury.




That is, perhaps, sufficiently taxed. I have not much to complain of as to the magnitude of the tax on that particular commodity.


I am sorry!


I have something to say on that which will perhaps disturb the right hon. Gentleman's equanimity. I very often think that another man's spending is your own definition of a luxury. Personally, I think that the right way to stop extravagant spending is to limit the spending income that the man has, and if the right hon. Gentleman is going to raise £25,000,000 more out of the Luxury Tax I would rather he had raised that by increasing the Income Tax to 6s. 8d. than have deferred it for this problematical taxing of luxuries. Moreover, the buying of luxuries must be almost negligible, because you are not allowing them to be imported in the main, and you are not, I imagine, allowing the manufacture of expensive jewellery, and so forth. I think, therefore, in this case, as in others, the Chancellor of the Exchequer's taxes come rather late to catch the particular revenue that he expects. There is just one point that I want to put to him. I am very much struck by the fact that he expects to get from Income Tax £290,000,000, and from Excess Profits Tax £300,000,000. Are not those estimates very optimistic? Has the right hon. Gentleman made allowances in these estimates for the injury that is going to be done to the national income by the calling up of the men between forty-one and fifty?


The present year is mainly last year's results.


That is quite true, but the right hon. Gentleman himself told us a short time ago that the Revenue was already suffering by the number of men who had been called up.


What I said was that the Government was already suffering, in my opinion, in the contributions to War Loans, because of the uncertainty about men being called up.


That, perhaps, is symptomatic of the same thing. It must inevitably happen that your Income Tax and Excess Profits Tax will suffer if the men making the income and the profits are to be called to the Colours, and are to leave their businesses. I wonder if the right hon. Gentleman has made sufficient allowance for what I cannot but believe will be found in the coming year to be the very large repayments out of amounts already received from excess profits to people who are not making up to their pre-war standard. I shall be very much surprised if there are not those claims. The right hon. Gentleman himself yesterday, in dealing with the Liquor Taxes, pointed out that a nest-egg was waiting for them in the Treasury if they found that the profits were not made.


The Treasury is waiting for the nest-egg.


I presume there is no intention to interfere in their case, as in the case of shipping, with the nest-egg that was placed there. I should be very glad if the Estimates do not turn out to be too sanguine, but I confess to feeling myself that the Chancellor has been very optimistic in that respect, and I am rather doubtful about his obtaining his full revenue there. One other general remark I should like to make is with regard to the very large amount, in respect of the coming year, at any rate, which in his new taxes the right hon. Gentleman is raising out of indirect taxation as against direct taxation. The indirect taxes in the current year are nearly £41,000,000, as against direct taxation of under £24,000,000. In other words, 60 per cent. is indirect taxation and 40 per cent. direct taxation. It is quite true that when you come to a full year that is immediately rectified. Indirect taxation is £48,000,000, and direct taxation is £62,000,000, or a proportion of 44 per cent. to 56 per cent. In the coming year, however, as I have said, of the new taxes, 60 per cent. are indirect and 40 per cent. are direct.


It is simply owing to payment by instalments.


That is so. I quite admit that, even after that alteration, 80 per cent. of our revenue is direct taxation and only 19 per cent. is indirect taxation, which is, of course, a great increase of direct taxation during the War.


Excess profits.


I have treated that as direct. There is just one point in regard to the Super-tax about which I was asked a question. The right hon. Gentleman has lowered the limit to £2,500, instead of £3,000. Has he formed an estimate of the number of new taxpayers who will be brought in by that, and the amount of money which they will pay? I wonder if he is going to get a very large sum, and, if so, I wonder whether it was worth his while to make that alteration? I have already urged that he should have made the Income Tax 6s. 8d. instead of 6s., which would have given more money and a great deal less trouble to the Inland Revenue authorities. I should just like to associate myself with what was said yesterday about the Inland Revenue officials. I think they are an extremely able body of men who do the financial work of this country with admirable ability and fidelity. They are understaffed and overworked, and therefore, unless the right hon. Gentleman is going to get a good deal of money out of it, I think he would probably have done better not to lower the level of the Super-tax, but to have left it at the £3,000 level, and have got the money on the Income Tax direct.


There will be 10,000 additional taxpayers.


Ten thousand additional taxpayers will mean a very large number of returns to be considered and gone over by the officials, and I am not sure that the returns will lead to much revenue. You may find the returns very greatly delayed by the difficulty of getting them attended to. The same consideration, I think, absolutely makes good the plea which the right hon. Gentleman makes, that it is impossible to deal with farmers' profits under Schedule D, because they have not the means of insisting on the returns and dealing with farmers' profits in the Inland Revenue. We have, however, had very different views presented of the farmers' position. One hon. Member thought we ought to have let the tax stand at the Schedule D assessment. My right hon. Friend the Member for Islington (Mr. Lough) takes a very different view of it. No doubt farmers in Islington are far more profitable than farmers in Yorkshire. My right hon. Friend suggests that four times the rate would be a reasonable assessment for farmers. What I want to suggest to the right hon. Gentleman is that the profits are no particular fraction or multiple of the rent, and the methods of dealing with farmers' taxation during the last century has proved that there is no necessary relation between rent and profit. In 1803 the taxation of the farmer was on three-quarters of his rent. That was lowered by Sir Robert Peel in, I think, 1842 to half the rent. It had always been different in Scotland and Ireland and England up to then. Then in 1896 it was made one-third in England and Wales, bringing it on a level with the Irish rate. Then last year the right hon. Gentleman puts it up to the rent, and says that it is a fair assessment. Now he puts it up to double the rent, and says that is a fair assessment. I suggest that these cannot all have been fair assessments, and that the truth is that it is the most rough-and-ready attempt to ascertain the farmers' profits that can possibly be imagined. I do not know whether twice the rent will be fair in many cases at the present time. I think some farmers have made a good deal of profit; others have not made a similar profit. One hon. Member gave some of the reasons. I do not raise any objection to an increased payment by those farmers who have been making money, but I am not at all sure that it is not going to inflict a real hardship on a certain number of farmers who, not keeping their accounts, will not come under Schedule D. I hope that as much pressure as possible will be put on farmers to make their returns under Schedule D, and, while I think that the right hon. Gentleman's answer that they can do it if they want to is perfectly true, I would point out that they do not have the three years' average.


Yes, they do, if they have so elected.


Does the right hon. Gentleman mean that a farmer may have paid under Schedule B for two years and in the current year may come in on a three years' average?


Yes. What I meant was that, as I understand it, if a farmer knows that he has power under Schedule B to elect to come under Schedule D, he can then come under the three years' average.


I understand that, and I think the farmer will wait to find out which is the more profitable before he decides. I would urge that the taking of the rent as the real criterion on which the assessment is to be based is an unscientific and unsound proceeding, and we ought, as soon as we can, to get rid of that particular method of assessing the farmer's income. I must say something about the Cheque Tax which the right hon. Gentleman has proposed. I am very sorry he has decided upon this tax. The habit of paying by cheque is a very convenient one. It facilitates business in this country. Payment by cheque has two advantages which no other system possesses: it is a record of the transaction in the case of those people who do not keep very careful accounts, and it is in itself a receipt. A cheque drawn to order, posted to a man, and cashed through a bank, unless there has been forgery, is really a receipt for the money; therefore both as a means of facilitating payments, as a record of the transaction, and as a receipt where books are not carefully kept, it is a very valuable instrument. I understand that my right hon. Friend, being aware of the failure of this proposal before, has already secured the bankers' assent.


I do not put it so strongly as that.


It is my phrase, not the right hon. Gentleman's. Therein I think he is very wise. I do not know whether he remembers that one writer, dealing with the ideal State, put at the head of the officers to manage that State a triumvirate of bankers, on the ground that they were so fully acquainted with the affairs of the people that they were very much the best men to have the management of the State. It is, perhaps, a dangerous thing to go against the bankers. I am very sorry to learn that he has got their consent before this has been done, but of course, if that has been obtained, the objection of those who are not bankers comes with less force. Both as one of the public and as one who has certain business transactions—


I am sorry to interrupt my right hon. Friend, but if what he says now goes without contradiction, my banker friends may think my statement is unjustified. All that I said was that I had consulted a number of my banker friends, and had received from them the idea that the proposal might be made without opposition.


I am not complaining of the bankers, but personally, as one of the public, I very much regret that the right hon. Gentleman should feel obliged to propose this tax. I must say a word upon sugar. The Chancellor of the Exchequer is going to get £12,000,000 out of sugar. The Financial Secretary to the Treasury repeated what the right hon. Gentleman said yesterday about the burden being only 1¼d. a fortnight. I do not accept these calculations of the workmen's Budget. After all the right hon. Gentleman is raising £12,000,000. That is a burden, on a population basis, of well over 5s. per head. No amount of calculation on the budget of the working man's spendings can make his spendings less than that 5s. I suspect that the proportion of a comparatively poor man's expenditure which goes in sugar is very much larger— I do not mean his whole expenditure, but his expenditure on food—than in the case of the rich man. I am afraid that the burden of this tax will fall very largely upon the very poor. I regret it very much. My right hon. Friend actually meets it by saying that these are the very people who get the benefit of the 9d. loaf. What is happening is that you are paying £40,000,000 in order to get the 9d. loaf, and then you proceed at once to put on a tax out of which you will get back part of the money you advanced. Why did not the right hon. Gentleman reduce the Grant for the loaf by £12,000,000 instead of putting a fresh tax on sugar? It is a vicious system to make a loan with one hand and take it back with the other. It involves a double process of collection and distribution, both of which involve expenditure.

I come to a tax on which my right hon. Friend has preserved complete silence to-day, that is the tax on liquor. Last year, in spite of the protests made by my hon. Friend the Member for Lincoln (Mr. C. Roberts) and myself, the right hon. Gentleman, brushing us aside as being the intemperate friends of temperance, the real enemies of temperance reform, the greatest obstacles in the way of rational temperance reform because we were for ever attacking the trade, insisted upon making a present to the brewers out of the Licence Duties of over £1,000,000 a year. The right hon. Gentleman said yesterday that he was surprised, in regard to the profits of the trade, that nobody had warned him. That is a little hard upon those of us who in this House did warn him. May I read to him not my own remarks, which are on record, but an extract from the speech of my hon. Friend the Member for Lincoln, who was not content with stating to the right hon. Gentleman what he knew of his own knowledge. May I say to the right hon. Gentleman that there are only two classes of people in this country who know anything about the finances of the liquor trade, besides himself. There are the gentlemen in the Gallery, no doubt, but the two classes are the members of the liquor trade themselves and those temperance workers in this country who have been at the trouble to investigate the financial side of the liquor business. To most temperance reformers the financial side is unimportant and, indeed, distasteful. Naturally, under prohibition we shall not got any revenue out of the liquor trade. Our whole idea is to get rid of it. Let me read what the hon. Member for Lincoln quoted from the "Economist": It is not, perhaps, generally realised that, taken as a whole, the brewing industry has had a prosperous time during the War up to now. There was very much more, but I will not trouble the Committee with it. The right hon. Gentleman is not justified in saying, as he said yesterday, he had no warning, when the Government gave back these Licence Duties, that the trade were having a prosperous time. Having made that error, he is not putting back the Licence Duties where they were before. May I call his attention to the figures? On page 12 of the White Paper it appears that the Liquor Licences brought in in 1917–18 —the year that is just closed—£2,411,000. The estimate for the present year is only £1,100,000. That is all he is going to get out of the Liquor Licences. Before the War, in 1912-13, the amount of Liquor Licence Duties was £4,600,000. In the last year before the War it was £4,430,000, in 1916-17 it was £3,400,000, and now he has actually got it down by his dealing with it to £1,100,000. I cannot see any justification for that. He does not in the least get over that particular point by putting a tax upon beer and a tax upon spirits, which are a direct tax upon the consumer, whereas the tax upon licences is a tax upon the trade. It is not at all an easy thing to pass on a tax on licences, and they have always been justified on the ground that it was a payment by the trade for the monopoly which was conferred upon them when the licence was granted. I hope the right hon. Gentleman will not think it is the unreasonable carping of an enemy of the trade when I say that he might in the circumstances have gone back at least to the pre-war standard of Licence Duties, when the trade would have had no right to complain if he had done it, and the public would have benefited.

It is quite true that he has put a heavy tax on spirits and on beer and is at the same time fixing prices. So long as he does that it is true, of course, that the burden comes out of the trade in some degree— that is to say, they cannot exploit the public beyond a certain point. But they have done so in a great measure hitherto. The trade has a perfect protection against high taxation. They have put more water into the liquor, and then they have raised the price. Both those processes have gone on during the War. The right hon. Gentleman steps in very late, and now he fixes the prices and is going to get out of the trade in 1918-19 £48,000,000 as against £33,000,000 in the year 1917-18—that is, an increase of £15,000,000. But he still does not get back to anything like the pre-war level, and while I think he has dealt drastically, and even boldly, with this taxation, nevertheless I would urge him to look into this question of the Licence Duties as against the taxation of liquor and see whether next year, at any rate, he cannot restore the old position. Of course he does not in these taxes touch the capital value which has accrued to the distillers, especially in the great increase of their stocks. I do not want special legislation to get the unearned increment from one particular form of property, but there is no doubt they are in receipt of an immense unearned increment as the result of their stores of liquor, and that really tempts one towards the capital tax advocated by the hon. Member (Mr. Arnold). There is no doubt a capital tax would have got at a certain amount of wealth in this country which is not touched by Income Tax and which may very likely not be reached even by Death Duties.

I should like to deal a little with this point of the capital tax. Like the Chancellor of the Exchequer, I do not approach it as if it were a matter of principle that under no circumstances one should have a capital tax. We already have a capital tax in the shape of Death Duties, and really the whole question of whether you should have a capital tax or an Income Tax is one to be decided purely as a matter of expediency, viewing the nation's position and all the circumstances of the case. The National Debt at the end of next year will be somewhere about £8,000,000,000. Taking the £8,000,000,000, and taking the pre-war capital, by which I suppose my hon. Friend meant the saved-up wealth of the nation represented by land, houses, investments of various kinds, more or less realisable securities, the £8,000,000,000 is somewhere about half the whole estimated capital before the War. The best estimate there is of it is that it was about £15,000,000,000. That capital has not gone. Most of it, at any rate, is still there. Perhaps some of the investments are gone, but the land, houses, factories, producing plant, are all there. So that although we have extended this sum, although we have this National Debt as a charge upon us, the national capital is still there. What, then, does the National Debt mean? Does it mean any more than that the individuals who have lent this money to the Government have got a lien upon the capital of the nation to the extent of half its value? When it comes to turning that into the actual facts, what it really means is that half the produce of the capital of the nation, or somewhere thereabouts, has to be paid to those people who have lent this sum to the nation. They are mainly people in this country, and when my hon. Friend tries to draw this acute distinction between capital and income it is really a somewhat unreal distinction. I had that feeling as I listened to him all through. My hon. Friend's whole conception of the problem was a little too much the point of view which would be taken by the Stock Exchange in approaching the wealth of the nation. It is easy enough to transfer blocks of stock and to wipe out blocks of Government War Loan. I acquit my hon. Friend of any intention of dealing unequally between different forms of profit. He means genuinely to arrive at the capital value and to wipe out a certain portion of it. But when he came to the difficult cases he at once resorted to income. The moment he came to a factory, which could not be wiped out, he said, "Those difficult cases must be dealt with by credit," which means the payment of interest. In many cases he turned it into sixteen half-yearly payments. A capital payment spread over sixteen half-years is already very much in the nature of an Income Tax as against a capital tax, and it is rather curious, in making all these calculations, to realise that the Chancellor of the Exchequer's proposals reach a high income, slightly over half the income, which is exactly the proportion which the National Debt at the end of the year will bear to the invested capital of the nation according to the best estimates. However you treat it, the National Debt at the end of next year is a portentous figure for us to face, and I think we have to realise that after the War we are going to be a poor country. I listened to my hon. Friend talking about the expenditure which will be necessary for education, housing, and so forth, after the War. To find the capital for them will be a very difficult thing. The funeral baked meats of this War will coldly furnish forth the marriage tables, and I think all of us, from the Chancellor of the Exchequer downwards, who have anything to do with the public life of this country have got to emphasise to the people that we have so to arrange our lives and our expenditure now and after the War as to produce a maximum revenue, to produce as much saving as we can, and, above all, to produce a maximum of utility in all that is done by the people.


I fear that by now the Chancellor of the Exchequer must be somewhat overburdened with congratulations, but I desire to express my appreciation of the courage with which he has introduced his Budget. My criticisms will not be of an unfriendly character, but will be more in the form of suggestions, and when the time comes I shall show my appreciation by supporting all his proposals. I have listened with a good deal of interest to the speech of my right hon. Friend (Mr. Leif Jones). I dissent from him entirely in the suggestion that this will be a poor country after the War. If anyone had said to him in pre-war days that this country could raise from its Revenue, without any untold burden or hardship, £900,000,000 a year, he would have said, "The country would be bankrupt." In my judgment the future of this country depends mainly, if not entirely, upon the wisdom displayed immediately the War is over in the reconstruction of this country, and in the system which will get the people back to work at the earliest opportunity, that they may be employed, not as they are to-day, in manufacturing articles of destruction which disappear themselves, but in meeting the needs of practically the whole world, which has been denuded of its requirements of carrying on the industries of all the great nations. The right hon. Gentleman opposite said he felt that the Luxury Tax would produce very little.


I do not know what it is. I do not know what a luxury is. I do not know what is going to be done.


I take it you could have no better body than the Committee suggested by the Chancellor of the Exchequer to decide what is a luxury. What I want to tell the right hon. Gentleman is that he based his argument, I think, on the fact that most businesses were controlled and were manufacturing for the Government. But he surely realises that in a country like this the stocks held of what may be justly called luxuries by the manufacturers, and by the shopkeepers, must amount to many millions of money. These articles will probably, to the extent of many millions, change hands during the present year, and, therefore, should produce a large Revenue to the Chancellor of the Exchequer. The right hon. Gentleman suggested that the excess profits might fall, that the Excess Profits Tax to be paid this year will be the profit earned in the year before. I am not sure that the excess profits even are going to fall this year, because with the larger Army you have to have a larger equipment, and larger supplies; consequently, whatever of middle-aged people you draw from industry will be more or less replaced by substitutes, and the manufacturing capacity of this country will increase in the present year, and will not decrease. I think the right hon. Gentleman objected to the differentiation between direct and indirect taxation. In a minute I shall be able to show him that the Chancellor of the Exchequer has been more than fair to the payer of indirect taxation. I also wish here, and now, to disabuse his mind of the statement made by the hon. Member for Holmfirth, and repeated by the right hon. Gentleman opposite, that the National Debt at the end of this War will be £8,000,000,000. I do not deny that by their systems of calculation they may have discovered this, but I would rather rely upon the Treasury experts. They say that the National Debt will be £6,856,000,000, which is a very different thing from £8,000,000,000. It ought not to go abroad that we are going to have a debt of £8,000,000.000 when the War terminates.


That is on the assumption that the War terminates at the end of the year.


We all assume that. I think, and I hope—and even pray—that it will end before the end of this financial year. When we realise the gigantic task which has been imposed on the Chancellor of the Exchequer we ought to be extremely grateful that we can see, at the end of the War, or at the end of the next twelve months, the sound financial position that this country will be in. I think it speaks volumes not only for the nation, of her power in the War, and in finance, but it also speaks well for those who have been responsible for financing the War from its early days. The percentage of our expenditure out of revenue we are justified in considering satisfactory. In spite of the statements made by the hon. Gentleman the Member for Holmfirth—who made a very interesting speech and a very clever speech, but one which, in my judgment, was full of economic heresies in which he failed to realise the real difference between revenue and income, and, further, what would be disastrous to this country, he did not seem to understand how the trade and commerce of the nation is carried on. The inflation of prices has a great bearing on the trade of this country. The inflation of prices has necessitated in practically every manufacturing business in this country very nearly the duplication of its capital. I was talking to a large manufacturer this morning and he said he did not believe to-day that there was one manufacturer in his industry but who had an overdraft at the bank. That was practically brought about by the inflation of prices. This, of course, necessitates, if you conduct such a business, a system of credit which ought not to be in any way jeopardised or impaired.

I said I would justify the statement that the Chancellor of the Exchequer had been generous to the payer of indirect taxation. If you take the taxes which are going to be collected this year, and refer to the Excess Profits Tax, the Income Tax, the Super-tax, and the Death Duties, out of the anticipated income or revenue of £900,000,000, £600,000,000 will be provided by these four taxes. Under these circumstances I think one is justified in saying that this Budget is fair and equitable, and does not strike the indirect taxpayer in any way severely. I would press another point It is often complained by some people—and listening to the speech of the hon. Member for Holmfirth one was made to imagine that it was so—that the well-to-do people of this country never paid a fair share of the taxation. But the bulk of this £600,000,000 will fall upon the well-to-do. That justifies me in saying that they are bearing a very fair proportion of the burden of taxation which this War has necessitated. Some people have advocated that the Income Tax should be higher. If you take all the savings of a man by means of taxation, you certainly will injure the borrowing powers of the nation. I am not going to say that another shilling would have taken all the savings of the people, because I know it would not. On the other hand, if you raise your Income Tax beyond what is a fair and equitable sum, you are going to make it impossible for a large number of people to lend any money to the Government. That would not only probably mean an increased Income Tax, but it would necessitate increased capital in the industries of the country. I am not very much enamoured of the Sugar Tax. I do not take the view that it is a great hardship, for, after all, the Sugar Tax in the rations that one is allowed will be less than 1d. per week. Assuming, then, that the sugar consumed is another 1d. or 2d., that sum is not equivalent to the sum given to the bread consumer, which is going to cost the country something like 5d. per head per week of the population. Therefore, it is not the great hardship that on the face of it it may appear to some people. We all remember the old days when we used to plead for a free breakfast table, but the gigantic dimensions of the War have made it quite impossible to adhere to those principles which were dear to us many years ago. I would make a suggestion in reference to stamps. The Chancellor of the Exchequer said that he was afraid that the Post Office might cease to be a paying Department unless the rate of postage was increased. I am not going to propose a reduction of the postage. I believe that a good case has been made out temporarily for the 1½ d. postage. What I want to suggest is that circulars should not be allowed to continue to go through the post for a ½d. I think that the most unprofitable portion of the business of the Post Office at the present time is the carrying of a vast number of useless circulars, which are reaching Members of this House in shoals every week It would be a great advantage to the country and a great advantage to the Post Office, and certainly it would be turning paper to a more useful purpose, if this system were discontinued at the earliest possible moment.

Great stress has been laid upon economy and the wise spending of the money of the nation. The Chancellor of the Exchequer said that the War Office was very well conducted so far as its finance was concerned. I was very pleased to hear him say that. Towards the end of the year 1014 the Quartermaster-General did me the honour to ask me to advise him on certain matters. One of the first things that I suggested to him was that he would be wise to call in independent outside accountants to overhaul the system of bookkeeping, and to keep under regular audit the accounts. That was done, and I believe with great benefit to this country. The profits which contractors were able to make were thereby reduced considerably, and a large portion of the goods bought by the Contracts Department have been goods bought on a costing basis, and there is a very careful scrutiny of accounts by the accountants in seeing that the costings have been accurately made. A great deal has been said with reference to the extravagance of the Ministry of Munitions. I am not going to defend the Ministry of Munitions, though I do say that, in all probability, unless that Ministry had been established, this War would have been over to-day and this country beaten. It was well known in the early days of the War that the War Office was overwhelmed with work, and was incapable of meeting the needs of the Army. If the hurried establishment of the Ministry of Munitions has led to any extravagance then there is some excuse for those people who are responsible. I think that we have got to be grateful to those who controlled the Ministry for what they have done for our soldiers. I believe that they have saved the situation and saved this country from the domination of Prussian militarism.

There are three suggestions which I want to make to my hon. Friend. On page 7 of the White Paper he will find, in reference to Income Tax and Super-tax, that the rate to be paid by people with incomes of from £500 to £1,000 on an earned income is from 2s. 6d. to 3s., or an increase of 20 per cent. For people with an earned income of from £1,000 to £l,500 the rate is raised from 3s. to 3s. 9d., or 25 per cent. Taking people with unearned incomes of from £500 to £l,000, the tax is raised from 3s. 6d. to 3s. 9d., or only 7½ per cent. Between £1,000 and £l,500 it is raised from 4s. to 4s. 6d., or only 12½ per cent., as compared with the 25 per cent. imposed on the man with the earned income. My point is this: A vast number of professional men and others, such as doctors, architects, solicitors, and small tradesmen, are men whose incomes may be somewhere round £1,000. I want the right hon. Gentleman to treat those people somewhat more generously than he does under this scheme. I do not want to see these men having their Income Tax raised from 20 to 25 per cent. while others who are probably equally capable of paying have their tax raised by only 7½ per cent. Then some scheme should be devised to tax Stock Exchange profits, either by increasing the tax stamp or by having records kept of all transactions, so that people who are making large profits by Stock Exchange dealings may make some contribution. There is another point. Now that Super-tax is being so largely increased the right hon. Gentleman should allow rebate on life insurance premiums. I believe that it is in the interests of the country to encourage people to benefit future generations and insure their lives. This being the case, I think that it would be no hardship to revert to the old system, and allow this deduction, which is made from the ordinary Income Tax, to be allowed from the Super-tax. These suggestions would not cost the Chancellor of the Exchequer anything, but would in my judgment be fair and equitable, and probably increase the Revenue for the coming year


I do not propose to follow the hon. Gentleman who has just sat down, though his speech has been of a very hopeful character, and his suggestions seem exceedingly reasonable. I would like to point out to the hon. Gentleman (Mr. Baldwin) that while one cannot help failing in with the general appreciation of many speakers, there are still one or two disappointments. One is that the limit for Income Tax is not raised to £160. Last year we had a discussion on this question in the House, and there was an impression gathered from the remarks made on behalf of the Government that the matter would receive consideration, but, apparently, instead of that it has been turned down. I presume we are to recognise that the allowance which has been made is to be set off against failure to achieve anything in the other direction. It has been stated that the allowance is to be £25 in respect of children and also in regard to other dependants. This is a matter on which I should like some more definite statement, because it is really one of very great importance, especially in a Constituency like my own, where families may perhaps be looked upon rather as being more in the nature of a commonwealth than is the case in many other districts of the country. They are mainly miners families in the Constituency which I represent, and the calling of the miner is followed from grandsire to grandson as though it were almost an hereditary occupation, followed generation after generation. In such a community there grows up the closest relationship, which is accompanied by the growth of a number of dependants, and I should like to see, in regard to this allowance, who are to be considered dependants, and to what extent. The allowance should not be absolutely a benefit gift, to be destroyed by what are called rules and regulations. For instance, in the case of a father and mother, advantage is taken of the circumstance that they are living with their son, by not allowing the parents their old age pension under existing rules and regulations, and by its being said, "Your lodging is worth more than £31 10s., and the claim is struck out." Would the allowance of £25 extend to dependants in a case like that, or to a brother or sister maintained by another brother? I hope that any definition that may be given of what is a dependant will be definite, clear, and easily understood. If the allowance extends fairly widely then it is a very great concession, and one that will be very greatly appreciated.

9.0 P.M.

Then there is the question of the Sugar Tax. I am against it from fear of its being used as a possible precedent for extending the area of indirect taxation. During the period of the Napoleonic War we had an extension of indirect taxation to almost everything, and why I am against the Sugar Tax is that it may at some time or other, if it be passed in this House without examination, be extended very much, when, in stress of circumstances, the Treasury ask for more money. The trouble about sugar just now is really not so much the price as about getting it at all, but, seeing that it is in the Budget, my fear is of its being used as a precedent for future dealing with other necessaries of life. There was a direction in which I had hoped the Chancellor of the Exchequer would have gone, but of which the Treasury seemed to fight exceedingly shy, that is in relation to the land, which is always carefully avoided. There is a feeling amongst large sections of the community that there should be more extended taxation of land values than at present, and I suggest that it would be well to seek increased revenue in that direction. As to the Luxury Tax, we are all in favour of it, though there might be some difficulty in defining what luxuries are. I was just wondering whether, in the formation of the Committee which is to deal with this question of luxuries, ladies might not be appointed in order that we might have the benefit of their expert knowledge as to whether things are or are not luxuries. Again, why is the Press to be excluded from the meetings of that Committee? Is it on the ground that the humour of the situation might occasionally be such as to destroy the character of the tax in the minds of the people? I notice that the hon. Gentleman on the Front Bench seemed to think there is a good deal of humour in it. and that the proceedings of the Committee should be hedged round with a certain amount of secrecy. However, I feel that at bottom the Chancellor of the Exchequer is right in insisting upon this tax, in order that we may finally come to some serious and profitable decision so far as the Treasury is concerned. As to the general trend of the Budget, it will be my pleasure to march into the Division Lobby from time to time in support of it. I believe it is an honest one; it is big and comprehensive —a Budget which, without any trimming, honestly saying, "Stand and deliver !" and I feel that the response of the community to the taxes imposed by it will be its justification.


I would like to make one or two remarks with regard to the extra tax proposed to be laid upon cheques. I am sorry that I had not the good fortune to hear the Chancellor of the Exchequer's statement yesterday or to-day in regard to this tax, but I understand that the right hon. Gentleman has said that it is one which he intends to insist upon. May I point out to him that this is a matter which really does merit consideration? The Chancellor yesterday pointed out to the House that a previous attempt to deal with this question had been made by the late Sir Michael Hicks-Beach, who was Chancellor of the Exchequer during the Boer War, but though that attempt, he said, had been a failure, yet he felt that at the present time the necessities were so much greater than they were then that his proposal ought to go through, and go through with alacrity. I understand, further, that he stated that he had consulted certain banking friends, who had told him that they believed the tax would not cause any serious inconvenience. For my own part, I feel that the tax is not a very good one. It is expected to raise in a full year a million of money, but that amount of money will be raised at the expense of a very convenient instrument, and for my part I think it would tend to diminish the use of cheques for small amounts. We are doing something in this matter to diminish the use of cheques for small amounts or payments, while in Germany at the present moment they are doing their utmost to cultivate small cheques. In Germany they have not had a very perfect cheque system. In this country the advantage born of this convenient means of transferring money from one point to another is entirely due to the fluidity and continued and extended use of cheques, and I think it is a mistake to do anything that would interfere with their use. There has been a very marked increase in the number of cheques during the last few years. I have had an opporutnity of looking at the objections raised in 1902 to the proposal of Sir Michael Hicks-Beach. The result was this, in effect, that more than half the cheques that were then drawn were for a value of less than £10 each. I believe that experience will show that if the average then was something slightly less than £10 per cheque, the average to-day will be very considerably less than £10. The writer of a letter, which appeared in the "Standard" on 3rd May, 1902, pointed out that it would be a considerable injustice to people who are only keeping small bank accounts. Then he went on to analyse 273,000 cheques. Of these, a large number, 56 per cent., were under £10 each, the remaining 44 per cent. were over £10 each. May I just draw the Committee's attention to what that means in terms of cost? The sterling amount drawn for by the 153,000 cheques was £566,000, and they would have to pay additional tax of £637. That is at the rate of 2s. 3d. per cent. The sterling drawn for by the 120,000 cheques was for £15,000,000, and they would pay an additional tax of £500, that is at the rate of four-fifths of a penny per cent. The taxation, therefore, is going to fall on the drawers of the small cheques. It is going to retard the utilisation of small cheques, and I think, at the present time, when the Treasury have not got a sufficient currency in silver, they ought to hesitate before doing something which is going to throw more burdens on the currency of this country. I believe it will add to the inflation of the currency. I understand that the Chancellor has expressed the view that that is an argument to which too much weight cannot be given. With all respect to the Chancellor's views on the subject, I think that is not the right way to look at it. My idea is that the more you take away from the use of cheques, pro tanto, you add to the use of currency notes in this country. I have seen currency notes grow from zero to the immense sums in millions they are to-day, and we know perfectly well that only a small number of millions are safeguarded by gold, and the residue is, in fact, unconvertible currency. The more we retard the utilisation of cheques, the more we increase, pro tanto, the use of currency notes, and therefore, pro tanto, add to inflation. I sincerely hope the Chancellor will reconsider this matter. This is a tax which is not going to bring in an enormous sum of money, but it will add very considerably to the cost of carrying on the small businesses of this country. People may say that 2d. per cheque is not a big item. It is, in fact, a very big item, and, calculated on the average small cheques, it will be surprising to the small trader how much he will have to pay to carry on his business over and above what he is paying to-day.

I had not the opportunity of hearing the Chancellor of the Exchequer make his Budget speech yesterday, but I had the opportunity of hearing people's views in my own part of the country, both yesterday afternoon and this morning, and I am bound to say they regard the Budget proposals very favourably indeed. I personally support them quite strongly. I find that most of those with whom I have talked, both in my own city and in the train to-day coming to London, have been relieved at the smallness of the increase on the Income Tax, and I am rather of the opinion that a little more would have got through quite as easily as the addition that has already been made. However that may be, I am quite satisfied that I am voicing the opinion of large numbers of commercial people in saying I think that the Budget is an excellent one, which will merit the approval of the country at large.


I agree with my hon. Friend who has just spoken in not being a very enthusiastic supporter of the 2d. stamp on cheques, but I agree with him also in thinking that one must look at a Budget like this as a whole. For that reason, be the 2d. charge a good thing or not, I do not propose to spend any time on it. I was interested to hear the hon. Member for Houghton-le-Spring refer to the £130 limit—the lower limit of taxable income. I remember, that in the Debate last year, I expressed the view that I should not have been sorry had £160 been taken as the limit, and, if circumstances had remained now as they were then, I should still be inclined to be of that opinion, notwithstanding the extra allowance in respect of the wife, and so on. But circumstances are not at all the same, and for that reason I will not spend any time on that question either. What really brought me to my feet were the two every interesting speeches that were made on the subject of the conscription of capital. Had it not been that our magazine and newspaper press has been more or less full of this topic for the last six months, I should have very much doubted whether a discussion of this particular topic at this particular juncture would serve a very good purpose. But the discussion has been opened, and that being so, I wish to be allowed to offer one or two observations from a point of view which appears to me to be essentially conservative. I should like to eliminate from the discussion the tendency to weigh sacrifices of life against sacrifices of money. This appears to me to be offensive, and to do not a little to spoil any arguments which are addressed to the merits of the question. So, quite as strongly, on the other side of the account, I deprecate the extreme readiness and great heat with which many men on my own side of the House are prepared to denounce all proposals of this kind as in the nature of confiscation. I do not agree with them for a moment. The hon. Gentleman who brought the matter to our notice this afternoon in a most interesting speech said he wished to regard this simply as a business proposal. So do I, and, regarding it from that point of view, I will say that I do not admit that any real principle is at stake, because I am sure that in the last analysis many of the problems that appear to trouble so many of the minds which devote themselves to the consideration of this are really not at all in the nature of principle, they are mere questions of expediency, and very often of bookkeeping. A distinction between capital and income is, no doubt, for many purposes very convenient, but for all purposes it is highly conventional. I do not see that a man who is worth, say £100,000, if he has an opportunity, when peace arrives, of getting rid of many of the difficulties associated with very high and permanent taxation at the cost of handing over, say, 15 per cent, or 20 per cent. of his capital wealth to the Chancellor of the Exchequer, would have much cause to hesitate. It appears to me that such a man, if he had such an opportunity, would be well advised to grasp it with both hands and get rid of many of his troubles. I am further asked if this practice is one which we may follow legitimately for a war emergency, why not follow it for many other emergencies? I do not regard this as a matter of principle really, and I accept the challenge at once. As an illustration, I will say this: If I saw no other way of providing the necessary money for dealing with the disgraceful housing conditions that continue to defile our great cities than a capital levy, war or no war, I would have a capital levy. I do not commit myself to the view that there is no other way; I put it hypothetically. If I were tied up to the choice between contemplating these disgraceful slums continually and a capital levy, I would have the capital levy, because, however much one may object to heavy Death Duties and so on, there are duties which might be described as life duties for living men; and they are equally important. The whole question is one of degree. I am satisfied that the hon. Member who raised the point this afternoon really went far to spoil the value of his speech in suggesting that three-fourths of the whole cost of this War could be paid off by a levy. I am satisfied that that is quite impossible, but, if I am asked if one-fourth of the whole cost of the War might be paid off in such a way, I would say that I think perhaps it might.

The question then arises whether a capital levy on that restricted scale is worth while making. For many reasons— at present the evidence is very incomplete, of course—I am inclined to think that one should hesitate to commit oneself to the view that objections to a capital levy on a restricted scale should close our minds to the mere idea of such a project at all. I think that would be a thousand pities, and because the throwing of half the securities on the market at one time would result in their being unrealisable, I do not think if you threw 10 per cent. of such securities on the market, oven at one time, or at an interval of a year or eighteen months, that result would accrue. As I say, I think the question is one of degree. I expressed the view that the distinction between capital and income is very much of a convention and I am very glad to see that the Chancellor of the Exchequer has laid his finger upon one particular point where the distinction operates most unfairly, and that for the future, so far as the Excess Profits Duty goes, transactions are no longer to be disguised as capital transactions so as to escape the Excess Profits Duty. That has always appeared to me to be extremely unfair, I rather regret the Chancellor has not seen his way to act retrospectively in this connection, but I think, while we must accept that retrospective action on general grounds of principle is rather dangerous, and that in addition in this case it is not very practicable to develop that line of action, something more remains to be said. Why should a man be debarred from doing with his own hand, with property standing in his own name, this particular thing (which for the future the Chancellor forbids), and yet if he only does the same thing through the guise of holding shares in a company engaged in exactly the same business, he is, so far as the Chancellor's present action goes, left free to continue to do the same thing? A man for the future is forbidden to say, with reference to a given number of bottles of whisky or logs of wood which belong to him, that in realising these en bloc, he is entering into a commercial transaction which yields no profit, and is not amenable to the tax assessor, yet if a man holds shares in a limited liability company which is doing that very thing, and in which he might buy shares at £2 and sell them at £6, he is entitled to rejoin to the arguments of the assessor that that is a capital profit, and in no sense a trade problem, and he has to pay no tax. The matter cannot be pursued now, but I do not agree that the present position is altogether satisfactory or fair. I put that particular point to my hon. Friend representing the Treasury at the moment.

Having said that, I am not prepared to recognise a distinction on fundamental principles between capital and income for fiscal purposes—and I am not—it follows that I am not myself able to answer the question whether Death Duties are a tax upon capital or a tax upon income, because they are both. In advance of the Budget I spent some pleasant hours making sundry calculations as to the amount of new taxation which the Chancellor would find himself obliged to impose this year, and my calculation came to about £15,000,000 more than the Chancellor has actually imposed upon us. And the £15,000,000 consisted entirely of Death Duties. There is only one point in the Budget which rather disappoints me, and that is that the Death Duties have not been increased. I am of opinion this year, as I was last year, that if the War is continued an increase in the Death Duties will really be necessary, not so much as an adjustment of fiscal burdens between rich and poor, but in the interests of the rich man himself, who pays Death Duties to a great extent. And, in passing, let me say, I cannot reconcile with common fairness the suggestion made that a capital estate left by a man amounting to so much as £1,000 should be exempt on the ground that it is a small estate. I think a capital estate of a couple of hundred pounds might fairly be exempted, but I do not think the argument could fairly be carried to anything like the extent of £1,000. It appears to me that many of those who argue that capital as such should bear an increased share of the burden would feel their difficulties very largely met if the Death Duties were increased, while those who argue that they do not like in principle or in practice a capital levy, would at least be able to reflect that for twenty years, more or less, they found themselves able to live governed by a system of Death Duties, and I do not think the question of principle would very sharply arise if and when the Death Duties were increased. The fact remains that a Budget of this kind must be looked at as a whole, and as such I think the Chancellor of the Exchequer is entitled to our unreserved congratulations. I am glad to think that the Death Duties as an engine of taxation still remain at our disposal, and we may make use of them next year. If necessity is as great then, as it almost appears likely to be, I hope the Chancellor will not hesitate to do so.

There are only two other points to which I wish to refer very briefly. The one is the position of the farmer. For many years the farmer in this country had a very poor and hard time, but I think the action of the Chancellor is entirely fair towards him at present. After all, the Chancellor only asks the farmer to pay Income Tax upon his profits in the same way that every other citizen in the United Kingdom is required to do. If the farmer cannot, or will not, and does not keep books, that is his concern. I know perfectly well the accounts of a farmer are a rather complicated problem, but it does not follow for that reason that a man who is making a large income out of a farm is to be accorded preferential treatment. The final point on which I wish to say a word is this: The more one listens to interest- ing comparisons as to the ratio between direct and indirect taxation, the more, in my case at least, one is driven to the view that the great ideals of Imperial, or, if you like, Colonial preference and development, which one associates with the name of Mr. Joseph Chamberlain, will require to be worked out, not as he advocated, through the medium of indirect taxation, but more and more through the medium of direct taxation. That appears to me to be the logical event in that connection, and the statement made by the Chancellor yesterday merely seems to take us one inevitable step nearer that consummation. I, for one, will not be sorry when we take finally the step and produce a preferential Income Tax on money invested in the Empire and that which is not—money put to the use of the country in War Loan and so forth, and money invested at much higher rates of interest in other directions. I wish once more to congratulate the Chancellor of the Exchequer on the widespread evidence there is that his proposals will be willingly accepted by all those who are affected by them.

Question put, and agreed to.

Resolution to be reported To-morrow. Committee to sit again To-morrow.

The remaining Orders were read, and postponed.

Whereupon Mr. DEPUTY-SPEAKER (Sir D. Maclean), pursuant to the Order of the House of the 13th February, proposed the Question, "That this House do now adjourn."

Question put, and agreed to.

Adjourned accordingly at Twenty-six minutes after Nine o'clock.