FINANCE BILL

HC Deb 04 June 1918 vol 106 cc1417-516

Considered in Committee. — [Progress, 3rd June.]

[Mr. WHITLEY in the Chair.]

Clause 28. — (Extension of Relief in Respect of Children and Grant of Relief in Respect of Wife and Dependent Relatives. 10 Edw. 7. c. 8. 6 & 7 Geo. 5. c. 24.)

(1) Section sixty-eight of the Finance (1909–10) Act, 1910 (which as amended by Section thirty-three of the Finance Act, 1916, gives to individuals whose total income does not exceed seven hundred pounds releif from Income Tax in respect of children), as amended by any subsequent enactments, and Section thirteen of the Finance Act, 1917, shall have effect as if eight hundred pounds were substituted as the limit of income for seven hundred pounds.

(2) If any individual, who has been assessed or charged to Income Tax or has paid Income Tax either by deduction or otherwise, claims and proves in manner prescribed by the Income Tax Acts that his total income from all sources, although it exceeds one hundred and thirty pounds, does not exceed eight hundred pounds, and that for the year for which the Income Tax is charged he has a wife living with him, or maintains at his own expense any person (other than a child in respect of whom relief is given under Section sixty-eight of the Finance (1909–10)Act, 1910, as amended by any other enactment or under Section thirteen of the Finance Act, 1917), being a relative of his or of his wife who is incapacitated by old age or infirmity from maintaining himself, and whose income from all sources does not exceed twenty-five pounds a year, he shall be entitled in respect of his wife and in respect of every such person as aforesaid whom he so maintains to relief from Income Tax equal to the amount of Income Tax on twenty-five pounds.

In this Section the expression "relative" includes any person of whom the individual in question had the custody and whom he maintained at his own expense while that person was under the age of sixteen years.

The provisions of Sub-sections (2) and (3) of Section sixty-eight of the Finance (1909– 10) Act, 1910, as amended by any subsequent enactments, shall apply to the relief given by this Sub-section, to the manner of claiming such relief, and to the proof to be given with respect thereto, as if they were herein re-enacted and in terms made applicable to this Sub-section.

Mr. PETO

I beg to move, at end of Sub-section (l), to insert the words "and any individual whose income exceeds eight hundred pounds but does not exceed one thousand pounds shall be entitled to the like abatement on each child above the númber of two."

It will not be necessary to argue in favour of this Amendment. It is a very small extension of the principle of a graduated amount for children. It has the additional merit of being some encouragement to have a reasonable British family of a more old-fashioned kind than those which are so commonly prevalent at the present time.

Mr. BONAR LAW

I have decided that it is possible to accept this Amendment in principle. The Committee will understand that I desire, when the abatement ends at a particular figure, if possible, to make the change as gradual as it can be made, and this particular form of Amendment is one which commends itself to me partly for the reason given by my hon. Friend, and I hope that it will commend itself to the Committee also. I would ask my hon. Friend to withdraw his Amendment now on the understanding that what he aims at will be put in on the Report stage.

Amendment, by leave, withdrawn.

The following Amendment stood on the Paper in the name of Sir S. COATS:

In Sub-section (2) to leave out the words "eight hundred" and to insert instead thereof the words "one thousand."

The CHAIRMAN

This Amendment would not come in here, as the words "eight hundred" in the place referred to are, I think, only consequential on the words "eight hundred" in the first Subsection.

Sir S. COATS

Shall I have an opportunity of moving it later on?

The CHAIRMAN

I am afraid that we have passed the point, which is the point indicated in the Amendment of the hon. Member for Cambridge University (Mr. Rawlinson).

Captain SMITH

I beg to move, in Sub-section (2), after the word "him" ["living with him"], to insert the words, "or, failing a wife living with him, a person acting as his housekeeper or guardian for his children."

I congratulate the Chancellor of the Exchequer. I think that he has met the case fairly well, but, like all good things, it will give rise to some peculiar forms of hardship. It provides relief in respect of a wife, but if unfortunately the wife happens to be dead and a man has to have a woman as housekeeper, it does not appear that he will get any abatement in respect of her. If a man has young children, in the circumstances contemplated by the Amendment, it is a very common thing to engage a woman to look after them. I think the Chancellor of the Exchequer might very well extend his generosity in this direction.

Sir J. SPEAR

May I ask the right hon. Gentleman whether, under this Clause, abatement will be allowed in respect of a child above sixteen years, who is in an asylum?

The CHAIRMAN

That does not arise on this Amendment, which deals with the question of a housekeeper.

Mr. BONAR LAW

I think, in regard to this Amendment and the previous Amendment, it will be thought, if I make any concession, that I am ready to give away money. But that is not so, though I am not sure that there is not justification on this further Amendment. I think, where a man has young children and his wife has ceased to be with the family, or to be of use to it, and he has to employ a housekeeper, his position is much the same in. regard to deduction. The acceptance of the Amendment, however, might lead to very undesirable things, and, therefore, I do not accept it, but I will consider whether some form of words can be framed by which to ensure the object which the hon. Member has in view, while guarding against the evils that might otherwise arise. If my hon. Friend will withdraw his Amendment, I promise to consider the matter.

Mr. HOLT

I think the Chancellor of the Exchequer ought to be very careful indeed about making abatements in respect of this or that person, who may be living in a man's house, because, before very long he would be carried a little further than he expects. Supposing a man's wife was very ill, and no longer of service in the household, he might have to hire a nurse to look after her, and not only that, but a housekeeper to take care of the children. That would surely be a strong case, and you would have representations as to the suffering, and a very great burden imposed upon a man in that position. He would not only have to keep his wife, but he would have to engage a woman to look after her, and another woman to look after the children. I am certain if this Amendment were accepted something of that kind would happen, and abatements of this kind would be made the jumping-off ground for others. The words of the Amendment are "failing a wife living with him," and it seems to me undesirable that a man whose wife does not live with him, should be able to get an allowance in respect of the housekeeper who did live with him. I do not suppose that is what is intended, but I can imagine what might be the effect of such a proposal.

Mr. BONAR LAW

I have not accepted the Amendment, and all I promised was to give it consideration. I made no definite promise, but I said I would see if I could find suitable words and deal with the matter on Report. I would like to say, in reply to the hon. Member opposite, that I quite realise the danger of concessions of this kind, where there are circumstances of peculiar hardship. That is one of the things we have to take into account in dealing with instances of exceptional hardship.

Captain SMITH

The Amendment which stands in the name of my right hon. Friend (Mr. Adamson) really is aimed at helping the man who has really lost the services of his wife, and has to engage someone to look after his young children. After what has been said by the right hon. Gentleman the Chancellor of the Exchequer, however, I ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. PETO

I beg to move, in Sub-section (2), after the word "expense" ["maintains at his own expense"], to insert the words "adopted child or."

I may be thought presumptuous in offering a, suggestion by way of Amendment on a question of drafting. Sub-section (1) of the Clause deals with children, and Sub-section (2) with dependants, but among the dependants may be voluntarily adopted children. By a further Amendment I propose to leave out the words ("other than a child in respect of whom relief is given under Section 68 of the Finance Act (1909– 10), as amended by any other enactment or under Section 13 of the Finance Act, 1917"). The omission of this reference to the Act of 1917 and the previous Acts, and the insertion of the words "adopted child or," would help people who want to know what, under this Sub-section of the present Bill, they are entitled to expect in regard to persons dependent upon them.

Sir J. D. REES

Is not this rather an extension?

The CHAIRMAN

This is purely a drafting Amendment.

Mr. BONAR LAW

I ask my hon. Friend not to press this Amendment. It is simply a question of improved drafting. I have consulted the expert this morning, and perhaps the hon. Member's drafting is the better, but I do not think it worth while to make any change.

Amendment, by leave, withdrawn.

Motion made, and Question proposed,

"That the Clause stand part of the Bill."

Sir J. SPEAR

May I ask the right hon. Gentleman if Sub-section (2)would include or secure abatement in the case of a child above sixteen years of age which is maintained in an asylum? It is a case which is extremely distressing, and it would seem exceedingly desirable if, in these circumstances, a deduction could be made from Income Tax.

Mr. BONAR LAW

That case is included, and is made certain.

Question put, and agreed to.

CLAUSE 29.—(Payment of Interest on War Securities in Certain Cases without Deduction of Income Tax.)

The Treasury may direct that any securities issued under the War Loan Acts, 1914 to 1917, or any Act amending those Acts, shall be issued or shall be deemed to have been issued subject to the condition that the interest on those securities shall be paid without deduction of Income Tax, and the interest shall be so paid accordingly, but any such interest shall be accounted for and charged to Income Tax under the third case of Schedule D, subject, however, to any provisions of the Income Tax Acts with respect to exemptions or abatements.

Sir ARCHIBALD WILLIAMSON

I beg to move, at the end of the Clause, to add the words, Provided that in cases where it is proved to the satisfaction of the Commissioners making the assessment that such securities are held for the purpose of the trade or business of the person receiving the interest the interest on such securities may be merged with the ordinary business profits and assessed under the first case of Schedule D. The Amendment is conceived with the object of placing financial concerns, companies, and firms in the same position as that occupied by bankers with regard to the assessment of their profits to Income Tax so far as those profits are derived from interest on War Loan. It is well known to the Committee that bill discounters and merchant bankers and financiers, and, indeed, other classes of the community, have gone out of their way to take larger amounts of War Loan than in an ordinary condition of things would be considered prudent. They have done so, of course, with the patriotic object of helping the nation in this time of trial. Now bill discounters and others of that class have often for Income Tax purposes an average statutory loss, which means that they pay Income Tax by deductions to a greater amount than their average profits. If, therefore, you assess War Loan interest separately under Case 3, as is proposed by this Clause, you are doing away with the intended difference between War Loan and other securities. I conceive that when this War Loan was issued without deduction of Income Tax this very great difference was made between it and other securities with the deliberate object of facilitating the investment of moneys which would otherwise have been put into commercial bills of exchange and other temporary securities of that kind. Now this Clause goes a long way to remove any advantage which was intended by making this difference, and all that I desire to secure by this Amendment is that we should put bill discounters and financial houses, merchant bankers, and financiers in the same position as that which bankers occupy in regard to the payment of Income Tax so far as their income comes from the interest on War Loan. It is quite true that my Amendment does not specify these particular classes of the community, and that the word "person" is perhaps wider than the classes to which I have referred. I do not know whether the Government think it too wide. If the Government desire, as I suppose they do, that others than, bankers who are in a strong financial position shall strain as far as possible to take the largest amounts of War Loan, there is no reason why this Amendment should not be accepted.

Mr. BALDWIN (Joint Financial Secretary to the Treasury)

I do not think there is any necessity for my right hon. Friend's Amendment, because what he desires to effect by it is consonant with the existing practice. I do not know exactly how far he proposes to go, but in the case of persons whose business it is to traffic in money, and whose ordinary trading receipts regularly include interest on money, it is the established practice under the existing law to assess the Income Tax liability on the whole of the profits, including interest not taxed by the Government under Case 1 of Schedule D. This includes bankers and bill brokers, discount houses, and what you might call strictly kindred businesses to those, but it does not go beyond those. I do not know whether that meets the case. [An HON. MEMBER: "We cannot hear!"] I beg the hon. Member's pardon. It includes bankers, bill discounters, discount houses, and any business that might be strictly analogous, but which perhaps might not be included in those exact terms. It is, broadly speaking, confined to our financial houses, and if that be the only assurance that my right hon. Friend desires, he has it. But if he wishes to press the application of the principle and make it general, then we could not accept it.

Sir A. WILLIAMSON

In those circumstances I should like to withdraw the Amendment, but I should like to say that this is an important declaration, because it has been quite misunderstood up to now, and this is quite a new light on the subject. If we may accept this with confidence, as I am sure we may, as being the custom, it is all right.

Amendment, by leave, withdrawn.

Clause ordered to stand part of the Bill.

Clauses 30 (Payment of Schedule A Income Tax by Instalments) and 31 (Excess Profits Duty Charged in Respect of Profits Arising from the Sale of Trading Stock Not to be Allowed as a Deduction) ordered to stand part of the Bill.

CLAUSE 32. — (Exemption from Income Tax of Certain Funds under the National Insurance (Health) Acts, 1911 to 1918.)

(1)An insurance committee established under Part I. of the National Insurance Act, 1911, shall in respect of income derived from any funds or credits of the committee under the National Insurance (Health) Acts, 1911 to 1918, to any investment thereof, and the trustees of the special fund constituted by Sub-section (6) of Section forty-eight of the National Insurance Act, 1911, as amended by the National Health Insurance Act, 1918, shall in respect of income derived from that fund, be entitled to exemption from Income Tax, and the National Health Insurance Joint Committee shall be entitled to a similar exemption in respect of any income derived from any funds held by that Committee or under the control or management of that Committee under or for the purpose of the National Insurance (Health) Acts, 1911 to 1918.

(2)Any exemption granted under this Section shall be claimed and allowed in the same manner as in the ease of income applicable and applied to charitable purposes and shall be in addition to and not in derogation of any other exemption under any other Act.

Motion made, and Question proposed, "That the Clause stand part of the Bill."

Mr. BOOTH

I should like to ask whether the Secretary to the Treasury can say what is the loss to the Exchequer and the gain to the Insurance Fund under this Clause?

Mr. BALDWIN

If my hon. Friend will be good enough to put a question down, I should be glad to get an answer, but I have not the information now.

Question put, and agreed to.

Clause 33 (Effect of s. 97 of Taxes Management Act, 1880) ordered to stand part of the Bill.

CLAUSE 34. — (Continuation of Excess Profits Duty.)

The Finance (No. 2) Act, 1915 (in this Part of this Act referred to as "the principal Act"), as amended or extended by any subsequent enactment, shall, so far as it relates to Excess Profits Duty, apply, unless Parliament otherwise determines, to any accounting period ending on or after the first day of August, nineteen hundred and eighteen, and before the first day of August, nineteen hundred and nineteen, as it applies to accounting periods ended after the fourth day of August, nineteen hundred and fourteen, and before the first day of August, nineteen hundred and eighteen.

Motion made, and Question proposed. "That the Clause stand part of the Bill."

Mr. HOLT

I wish to reiterate the protest I have made on previous occasions against the Excess Profits Duty. I venture to say, as I have said before, that it is one of the very worst taxes that has ever been proposed by any Government or enacted by any party. It has never been defended at any time on sound financial principles. When my right hon. Friend the late Chancellor of the Exchequer introduced this tax to the House he defended it expressly on the highwayman's ground that the Chancellor of the Exchequer wanted money and that he was obliged to go to those persons who had got money in order to take it from them. There is, of course, a certain amount of force in that defence; you can only tax people who have money, but in itself there is no worse tax in this country. One of the reasons why this tax was originally put forward was that it was necessary in order to quieten the disturbance to labour, and that labour could not tolerate the idea that while they got nothing out of the War a certain number of employers and business people were making large fortunes. We have seen for ourselves that the tax has had no such effect. Since the tax was put into operation, so far from the wage-earning classes being satisfied and appeased by discovering that the employing classes were not making any more fortunes out of the War, they have indulged in an orgy of increased demands for wages, the like of which has never been seen before. It has not had, and no sensible person supposed it would have, the effect which it was supposed to have in that direction; but I want to speak very strongly about the general injury to trade which this tax has brought about. If it had been the object of the Government to do the greatest possible amount of harm to the trading interests of this country, this is the tax they would have proposed. It has had the most disastrous and damaging effect upon British trade of almost any tax— almost as damaging as a great many of the Government's restrictive Regulations.

4.0 P.M.

This tax, more than anything else, is encouraging the most gross extravagance. As everybody knows, when once you have-got above a certain limit—and, as a matter of fact, a large number of traders have got above that limit—when once people-know the Government is going to pay 80 per cent. Excess Profits Duty and 6 per cent. Income Tax, anybody who has had practical experience of business knows perfectly well that is in the mind of everybody. People are saying on every occasion, "What does it matter? The Government are going to pay 86 per cent. for this, that, and the other thing." You develop an atmosphere of extravagance in connection with every business in consequence of this tax, which it will take generations to get over; whereas, on the other hand, people ought to be trying to see how to economise and produce the best possible result at the minimum expense. The Government have said, "It does not matter how much you economise or how successful you carry on your business; if you get above a certain limit, you will get no advantage out of it yourself." I am rather surprised that the Chancellor of the Exchequer, who, I understand, was once a business man himself, so entirely forgets what he must have experienced in business, as to countenance a tax which, from the point of view of trade and commerce, is very unfortunate. Moreover, it leads people into doing absolutely unsound things. For instance, if you have property and" realise your property for a price considerably greater than it originally cost you, that is an increase of capital value, and it is not taxable, but the insuring of that property, causing increased value, is a disbursement. That is paid for, or may be paid for, out of Excess Profits Duty. People are therefore put in this position, that they can insure to enhance the value of their property by paying 14 per cent. of the premium. That is inducing people to insure property they ought not to insure. If you have a benevolent Government announcing that they will pay 86 per cent. of the insurance premium, that is a very bad thing, and it is the inevitable result of this tax.

It has another bad effect. The effect of this tax is to penalise all the efficient firms. In the competition between one firm and another those persons who are most efficient, who conduct their business in such a manner as to make the greatest profits, get less, because when they get to a certain line, 86per cent.is taken from them. On the other hand, the person who has never been able to conduct his business to produce more than 6 per cent. only pays ordinary Income Tax; so that you are really giving a preference to those who are inefficient in a trade as compared with those who are efficient. Then, see how that is going to affect you in the competition with foreigners, which is likely to ensue after the War. During the whole of the War the more efficient traders have been penalised by this tax, while the less efficient traders have not been penalised, with the result that you are exposed to foreign competition with the more efficient foreign firms, which have got large financial resources accumulated during the War, whereas the more efficient British firms have not got those resources. In other words, the more efficient British firms will be, as compared with the more efficient foreign firms, in a much worse position than ever before, whilst the less efficient British firms will find that their opportunities for competing are not materially damaged. For these reasons, I venture to say, this tax is a thoroughly bad tax, which ought to be removed. I believe it has always been a wrong tax. There ought to have been no distinction made in the amount of Income Tax which a person is called upon to pay by reason of the fact that his income before the War was or was not below a certain figure. I have not the slightest objection to a graduation of Income Tax, but to say to a person that, because three or four years ago his income was a certain figure, it has now never to get above that figure, at all events for the duration of the War is, I think, to strike a very serious and grave blow at the prosperity of the country.

Mr. CURRIE

I do not wish to follow the argument of my hon. Friend who has just sat down, but, looking to the amount of money which the Chancellor expects to reap from the Excess Profits Duty in the coming year, it must be plain to the whole country that there are people in our midst, possibly without any evil intention— I attribute no motives— who are becoming rich as a result of the War. It may be inevitable— I do not wish to make any remarks to inflame feeling against people of that kind— but at the same time the speech to which we have listened is merely a recital of the grievance of those who have made a considerable amount of money out of the War, and would like to live in peace and quietness so as to make a good deal more. That appears to me to be really what the hon. Gentleman's speech amounts to. He says he has no objection to a graduated Income Tax. I think there can be little doubt the country would very strongly object to the abandonment of the Excess Profits Duty, and the substitution of an Income Tax of 11s.,12s. or 13s. That is the plain fact of the matter, and I do not think the country or House is in the least likely to go back on the policy of this Excess Profits Duty.

I would like, however, to address one or two questions to the Chancellor, simply for information. On previous occasions I have called attention to what appears to me to be a great anomaly, and that is that about one-third of our revenue next year will be raised in taxes of a certain kind, and, so far as we know, the Exchequer tells us that it itself does not know from what sources, what trades, these moneys are derived. It does appear unreasonable to the last degree that, year after year, we should go on levying taxes of this kind and be content to remain in total ignorance as to the sources from which this money is derived. I would like to hear from the Chancellor of the Exchequer whether any attempt is being made at the Exchequer to arrive at this information. The second point on which I think the Chancellor might very usefully make a statement is as to the future of this tax— that is, as to whether it is the settled policy of the Government to remit this tax altogether as soon as the period of actual fighting comes to an end. I do not want to repeat what I said in this House only three weeks ago on this point, but it does seem that it would be much more satisfactory if the Treasury were to say quite frankly, if it can do so, that it now sees that this Excess Profits Duty cannot be entirely remitted on the very day, or in the very year, that the fighting comes to an end, but that it intends to adopt some other policy. I think there are some practical difficulties, and if there is any question I think it is better that the mercantile community should be told where it really stands.

Another point on which I should like to repeat a protest I made last year and the year before is as to the exemption of professional men from the payment of Excess Profits Duty. I know representations have been made to the Chancellor that the exemption enjoyed by professional men is utterly unfair, and the explanation of the Treasury, I understand, is that they themselves are satisfied that the cost of obtaining information and collecting a comparatively small sum of money would not be worth the expenditure of energy. It may be, of course, that few professional men are making excess profits at all, but it is common knowledge that a good many professional men are making them on what is a considerable scale for them. I think it would be just to professional classes that the Chancellor should once more give an assurance that the exemption which professional men continue to enjoy is not to be taken as at their request, but entirely as a matter of Treasury policy. The one remaining point on which I should like to address a question to the Chancellor arises out of Section 49 of the Finance Act, 1916: Where the pre-war standard of profits is taken to be the percentage standard, or is calculated by reference to the statutory percentage in the case of any trade or business owned or carried on by a company or other body corporate whose directors have a controlling interest, the Commissioners of Inland Revenue may, if they think fit— That is where my point comes in— as respects any accounting period, including a past accounting period, for the purpose of the provisions relating to the statutory percentage and for the purpose of the determination and computation of profits under Part I. of the Fourth Schedule to the principal Act, treat the company or body corporate as if it were a firm and not a company or body corporate. Of course that Clause was passed in order to prevent companies placed in a certain position from adopting a dodge of some kind to the prejudice of the Exchequer, and one has no objection to that; but my query arises, Is the option given to the taxing authority absolutely retrospective? Does it empower the taxing authority to reach back to an unlimited extent? I understand the question has arisen and is causing trouble just now, and it may be my query is rather in the nature of a legal conundrum, and the Chancellor may not be able to answer it offhand. But it is raising trouble, and I think it would be convenient to many firms that might be affected to know whether the taxing authority is under any limitation as to any process of reaching back, or whether it is bound to commit itself on the first occasion when the accounts of such a firm pass under its notice.

Mr. PENNEFATHER

I merely wish to point out that the speech which has been made by the hon. Member for Hexham (Mr. Holt) may express his own personal view, but does not express the view of the business men of this country as a whole. I have had the honour of waiting on the Chancellor of the Exchequer during the last two or three years with many deputations from the Chambers of Commerce and other deputations of that kind, and at none of those meetings— I think the Chancellor will bear me out— have the views expressed by the hon. Member for Hexham had any echo. There have never been any objections to the principles of this Excess Profits Tax. It is true, we have protested against points of detail, against matters of administration. We have made suggestions as to how it might be changed so as to fall with greater fairness upon some, and with less unfairness upon others, but on the broad question of principle, I venture to say without contradiction in any quarter, that the great commercial bodies of this country have taken a wider view than the hon. Member, and a less selfish and more patriotic view realising that if less is taken from those who pay excess profits, more must be taken from the less fortunate who have not made excess profits. I thought it my duty, connected as I am with the Association of Chambers of Commerce, just to enter that protest against the speech the hon. Member has made, and to make it quite clear that that is a personal expression of opinion, and does not express the opinion of the great business organisations of the country as a whole.

Mr. BONAR LAW

I am sure it is not the desire of the House that there should be any lengthy discussion of this matter, and I would rather hesitate to say anything except there ought, as a matter of courtesy, to be some reply. The hon. Member for Leith Burghs (Mr. Currie) asked me several questions, some of which I can answer, and some of which I cannot answer. He said the last one was rather in the nature of a legal question. To this I cannot at present give any answer. As regards the continuance of the Excess Profits Duty after the War, it was said by my right hon. Friend when he introduced the tax— and I have adopted his view— that it could not be regarded as a permanent tax, though obviously it cannot come to an end the moment the War ends. As regards the speech of the hon. Member for Hexham (Mr. Holt), I can at least pay him the compliment of saying that he is not afraid to express views that are not held by anybody else. That is something to his credit. I entirely disagree from him, and in one or two sentences I will tell him why. First of all, he said he was surprised that I, as a business man, or who once used to be considered a business man, should ever have approved of this tax. I can explain that to him on two grounds.

I was once discussing political affairs with a lady who is connected with a well-known statesman, and in the course of conversation she dwelt very strongly on the view— it was a very long time ago, and it has no reference to present conditions— that business men were no use in politics. After a while she suddenly realised that I was a manufacturer, and not having any desire to be rude she exclaimed, "Oh, I always understood you were not prominent in business." That is one explanation. The other explanation is that I am a Scotsman. If I cannot get 100 per cent. of the excess profits, I do the best I can to get as much of the 20 per cent. that is left; there is still the incentive to get as much as I can out of the business. The real explanation of the Excess Profits Taxis a very simple one. First of all, take it on the ground of merit. The idea underlying it is not, of course, that the excess profits are all made out of the War. The idea is that if anyone gets a bigger income now than before the War he is not, from the point of view of fairness, badly off. But there is also the other aspect, that, speaking broadly, a large part of the excess profits are directly due to the War, and that nothing could be more fair than that they should pay an unusual part of the expenses of the War. Another reason is this: We are this year going to get out of the Excess Profits Duty £ 300,000,000. My right hon. Friend who proposed this tax has good reason, I think, to be proud of the result. When I tell the Committee that if we were raising that money, say, by Income Tax, it would mean something like 8s. in the £l. I do not think there are many people who believe other than that this is a good tax.

Sir W. PEARCE

There was one point put by the hon. Member for Hexham to which I should like to bring back the attention of the House, and that is the condition of the country after the War in the matter of its industries. The German chemical manufacturers, including those in the dyeing industry, have made very heavy profits during the War. These have not been taken away from them except in a little degree, but they have not been allowed to spend them; they have been obliged to capitalise them with the avowed object of putting these firms into a supreme position as soon as the War is ended. It is obvious, I think, in taking very large amounts of excess profits, that points of this sort should not be lost sight of. It may be inevitable, but it is no good losing sight of the fact that this policy is going to make this country pay pretty dearly in some respects after the War. To that extent the hon. Member for Hexham, in raising the point, has really done a service. We are obliged to have this heavy taxation. We are obliged to get a large sum of money out of it. But it is no good shutting our eyes to the fact that it is going to impair the industrial possibilities and industrial extensions of this country, and to that extent it is a bad tax. It is only through the dire misfortune of War that we can endure it.

Mr. J. MASON

The right hon. Gentleman just now took credit for the fact that this tax is going to yield more than any other single tax in the country. It is, however, very important that the House should bear in mind where the money comes from that goes into the Exchequer. Practically the whole of the expenditure of the War now, or the greater part of the expenditure from which this tax is derived, is coming from Government expenditure. It is entirely a question of the prices that the Government pay for goods as to how much this tax will yield. The higher the prices, the more careless the contracts are made, the more this tax is likely to yield, inasmuch as it is merely taking money out of one pocket of the Government and putting it into another. Inasmuch as this tax only yields 80 per cent. of the total expenditure it is not good business for the Government to pay high prices, if they can avoid it. What I mean to say is that we would be infinitely better off if the Government were to be very careful in all possible ways in making very close prices, and cutting down profits as much as possible, because every saving in that direction means putting into the Exchequer, not 80 per cent., but the whole 100 per cent. Cutting down, and making close prices, is very largely a matter of careful costing and working out the actual cost that should be paid for things. We know that in the earlier days of the War very extravagant prices were paid in a great many directions. We know that there has been a good deal of care exercised since. I cannot, however, help thinking that the Government might go a little further, and, if they did, the inevitable result would be to reduce the yield from this tax. In so far as that yield was reduced, it would be a good sign, and a real saving to the country, much greater than the yield of the tax.

Credit was taken by the Chancellor of the Exchequer for the fact that the tax is a very successful tax. Something has been said as to the question of this tax being continued after the War. I do not want to pursue that, but I do want to say that I believe that when this tax comes to an end— and pledges have been given in this direction— it will be essential to find some substitute in the shape of a profits tax, but, of course, on a different basis from the present case. It will be desirable to find a tax which will be much more justifiable than this, and one which would not be levied only on one class or in one direction, but one that would be levied oh the general expenditure and the consumption of the whole country. Some sort of substitute of that character will have to be found. It is quite obvious that if any measures of protection are taken— and they are likely to be taken against our enemies for other than fiscal reasons— that these measures of protection can very justifiably he accompanied by a provision that there must be some portion—

The CHAIRMAN

May I draw the hon. Member's attention to the fact that we are now discussing only one year's expenditure?

Mr. MASON

I will not pursue that aspect of the case any further, Mr. Whitley; there will be many opportunities before the end of the War to review this subject. I should like merely to express the view that it is not altogether a matter of congratulation to this House that this tax should keep on yielding such enormous figures, when, by a closer administration and closer cutting of prices, the yield might be a much greater one, although not obviously so great.

Sir F. BANBURY

I think the remarks of my hon. Friend behind me (Mr. J. Mason) deserve the serious consideration of the Committee. It is undoubtedly true that one of the reasons for a very large yield from this particular tax is the fact that a large portion of it comes from Government expenditure, and Government expenditure has been in the past extremely extravagant. I have had the honour of sitting upon the Select Committee on National Expenditure, and though I agree with him, so far as we can ascertain at present, the costing is not so great as it was. There are still, however, plenty of directions in which economy might be advantageously pursued. I do hope— and I said this on the Second Reading of the Finance Bill— that with this enormous taxation attempts will really be made to lighten it by reducing the expenditure, which is really the most essential thing to do at the present time. The hon. Member below the Gangway (Sir W. Pearce) drew the attention of the Committee— and it is perfectly true— to the fact that when there is so much which should be put by in sayings being taken at the present time for the War, the manufacturers will not have that reserve they would like to fall back upon. I do not see how that is going to be avoided, unless the whole policy of the Government is altered, and the necessary money is found by loan instead of being found to the extent it is by taxation. I quite admit the difficulty. It is really a very serious thing. I fancy the Chancellor of the Exchequer thoroughly appreciates the point, and has had it in his mind.

With regard to the speech of the hon. Member for Hexham, my recollection certainly bears out what he said that one of the reasons, if not after all the chief reason, given for the imposition of this tax was the fact that the working classes and especially the trade unions, objected to the employers making large sums of money, and tried to excuse themselves for demanding increased wages by stating they only did it because the employers were making large sums of money. I remember an hon. Member representing one of the coal districts saying that the colliers would never have asked for any increase in wages if there had been a limit put to the price of coal. There has been a limit put. That has not in any way affected the demand of the colliers for shorter hours or higher wages. Ever since this Excess Profits Duty was introduced, instead of having the effect which it was supposed to have by the leaders of the working classes, they have continually urged that they should have higher wages, and not be subjected to the Excess Profits Tax themselves. The Chancellor of the Exchequer said that he thought it was clear that anyone who was making a larger income now than before the War ought to give some of it to the State. That does not apply to the very large number of the working classes who are making very much larger incomes than they did before the War.S5CV0106P0I0721.jpg

Mr. O'GRADY

They are spending it in foodstuffs.

An HON. MEMBER

So are other people!

Sir F. BANBURY

Is it contended that the man who is making £ 3 or £4 per week now, when before the War he was only making 30s. or a couple of pounds, is spending the whole of the extra in food stuffs?

Mr. O'GRADY

Yes.

Sir F. BANBURY

How can he? You cannot spend as much in foodstuffs as before the War, because you are rationed. In the evidence before the Select Committee it came out that the actual amount a man can spend is possibly about 50 per cent. more than he did prior to the War. Of course prior to the War no man unless he was receiving very small wages ever spent the whole of his money in foodstuffs, or anything like it, and certainly not where he was making £ 5, £ 6 or £ 7 per week. All these matters are now being brought into consideration. I do not quite share the view that the tax is entirely a bad one, because a certain amount of revenue must be produced. I hold the view that people who are making larger incomes really ought to pay something in consideration of that fact. The only objection I have to this tax is, as I think the Chancellor of the Exchequer has admitted, that it does not wholly fall upon the people who are making the increased incomes out of the War; but that it does-fall, to a certain extent at least, on people who, while they are making increased incomes, are not making them out of the War. That is the unjust part of it. With that exception I do not think any part of the tax is really unfair.

Mr. J. HENDERSON

When the late Chancellor of the Exchequer introduced this proposal he was the first to admit that in ordinary times it would not be supported. There are, however, one or two dangers I should like to point out which have been referred to by the hon. Member for Hexham (Mr. Holt). One very unfair thing about the tax is that there are a great many firms who had a good pre-war standard, and they have been able to keep up to that standard and have not gone beyond it, and they have paid nothing for Excess Profits Duty. It is supposed that people make a great deal more money who pay excess profits, but an extraordinary case came under my own purview where they paid £ 15,000 in excess profits the first year and did the same last year. This particular company used to pay its dividends free of Income Tax, but the result this last year is that the dividend is 2½per cent. less than it was in the pre-war year, so that they are not making any more profit. There is want of fresh capital, although foreign companies are allowed to put these moneys by for reinvestment and the extension of their works for larger output after the War.

A great many of our companies are not really able to do this unless they realise their stock and plant on account of the excess profits which are charged. I know a case where £ 150,000 excess profits are payable, and how can they pay that amount unless they have time to do it. That will be a burden for them after the War, and they cannot extend their business and go ahead as they ought to do. People are afraid to put money now into a prosperous concern, or what seems likely to become prosperous. I have frequently been consulted by people who are prepared to put up money for certain purposes, but they have said to me, "We know we have a good thing, but we have no pre-war standard, and we want to-know what we shall have to pay in excess profits, assuming we make so much profit." After going into the figures they have turned down such investments, and this cannot be helped under the circumstances, because the Chancellor of the Exchequer must have the money. Then there is the inequality of people starting with a fine pre-war standard on a fortunate year, and they are still doing very well, but there is the danger of the heavy costs that are being put upon them by wages and all sorts of things, and they cannot compete with these heavy charges. There is no doubt that the great virtue of this proposal is that it brings in money. As the late Chancellor of the Exchequer said, it would be perfectly inexcusable to continue this a day longer than is necessary, and we take it that as soon as the War ends this particular form of taxation will cease, because it does not treat everybody fairly; and then, if necessary, some other form of taxation which will hit everybody will be substituted in its place.

Question put, and agreed to.

CLAUSE 35. — (Profits Arising from Sale of Trading Stock.)

(1)For the purposes of Excess Profits Duty the profits arising from the sale at any time after the twenty-second day of April, nineteen hundred and eighteen, otherwise than in the ordinary course of trade of the trading stock or part of the trading stock belonging or formerly belonging to any trade or business, shall be deemed to be profits arising from a trade or business, and where any such sale takes place after a trade or business has ceased the trade or business shall be deemed to have been carried on up to and including the date on which the sale takes place, and the accounting period shall be taken to be such as the Commissioners of Inland Revenue may deter mine.

(2)Where a trade or business has ceased but is deemed for the purposes of this Section to have been carried on for any period—

1. (a) the person by whom or by whose authority any trading stock is sold whether as owner, agent, liquidator, trustee, or receiver or other person acting in a similar capacity shall be deemed to be the person carrying on the trade or business and Excess Profits Duty shall be assessed on and recoverable from that person and nothing in Sub-section (2) of Section forty-five of the principal Act shall operate so as to impose any liability to duty on the purchaser of the trading stock; and
2. (b) the appointment of any such liquidator, trustee or receiver, or other person shall not be treated as a change of ownership of the trade or business, and Sub-section (3) of Section thirty-eight of the principal Act and paragraph seven of Part I. of the Fourth Schedule to that Act as amended by any subsequent enactment shall have effect as if the profits arising 1438 from the sale of the trading stock had been made by the owner of the business immediately before the appointment of the liquidator, trustee, receiver, or other person, and as if the duty were payable by him.

(3) Where any trading stock is sold together with other assets of the trade or business, the part of the consideration attributable to the trading stock shall, subject to appeal in manner provided by Sub-section (5) of Section forty-five of the principal Act, be determined by the Commissioners of Inland Revenue, and the part of the consideration so determined shall be deemed to be the price paid for the trading stock by the purchaser.

(4) For the purpose of this Section any trading stock which has been disposed of otherwise than by way of sale shall be deemed to have been sold, and any such trading stock so disposed of, and any trading stock which has been sold for a consideration other than cash, not being a consideration the value of which can be easily ascertained, shall be deemed to have realised the market price of the day on which it was so disposed of or sold.

No person shall at any time after the fourteenth day of May, nineteen hundred and eighteen, dispose otherwise than by way of sale of any trading stock unless he has previously made provision to the satisfaction of the Commissioners of Inland Revenue for securing the payment of any Excess Profits Duty which may be chargeable by virtue of the provisions of this Section, and if any person attempts to dispose of any trading stock in contravention of this provision the disposal shall be void and of no effect.

(5) In this Section the expression "trading stock" includes—

1. (a) any goods such as are sold in the ordinary course of a trade or business whether in a finished condition or not; and
2. (b) any raw or other materials used in the manufacture or preparation of any such goods,

and references to disposal of trading stock do not include disposal by way of testimentary disposition.

The following Amendment stood on the Paper in the name of Mr. J. HENDERSON:

At the end of the Clause to insert the words "but nothing in this Section shall be held to relieve the vendor who has sold his business prior to the twenty-second day of April, nineteen hundred and eighteen, from accounting for the profits made in trading during the period between the date of his last accounting period and the date of such sale."

The CHAIRMAN

I want to ask the hon. Member for West Aberdeenshire a question. Does he consider the words put on the Paper as merely defining the effect of the Clause as it stands? Are his words intended as a pure definition, or do they charge somebody who is otherwise exempted?

Mr. HENDERSON

I quite see the difficulty, but my contention is that my proposal defines what is meant by this article, and I hope to draw from the Chancellor of the Exchequer an expression of opinion that that is what is intended. These men whom I propose shall not escape are already charged, but I want to be assured that this Section shall not excuse them from that duty to which they are at present liable. If that is so, I want to have it clearly defined, because no one would think reading this proposal that it could be held to relieve the vendor who has sold his business prior to the 22nd day of April, 1918.

Mr. BONAR LAW

I do not quite follow what the hon. Member means. If he means that we should make this proposal retrospective, I am not prepared to do that.

Mr. HENDERSON

I do not want to make it retrospective. May I give an illustration of what I mean? A firm's last accounting period is June, 1917, and they have accounted for that period. The months up to December intervene and in the following January they sell. What I want defined is whether in regard to the profits in the intervening months for which I hold they are liable, they are to be assessed for that period?

The CHAIRMAN

Now I am certain that the hon. Member's point is clearly superfluous. He is dealing with trading profits which do not come under this Section. This is profits made on the sale of the business, and therefore the proposed Amendment is in the first place irrelevant to this Clause, and if it were relevant it would be superfluous. To me that is quite clear. I cannot accept an Amendment which is both irrelevant and superfluous. With regard to the next Amendment standing in the name of the same hon. Member proposing to insert the words "prior to as well as subsequent to twenty-second April, 1918," that would be a charge upon the subject, and cannot be brought in without a special Resolution.

Mr. PENNEFATHER

I beg to move, at the end of Sub-section (1), to insert the words "provided always that this Section shall not apply to sales by executors of the trading stock, or part of the tracing stock of the business, or the sales of such stock made by proprietors in consequence of fire or other accidental occurrence."

My object in moving this Amendment is to provide for the case of sales made force majeure by executors owing to the death of a proprietor and sales caused by fire or collapse of a building, because such things happen as the result of bombs. I do not expect the Chancellor of the Exchequer to accept this Amendment at this particular moment, and I have no doubt he will require time to consider it, but I hope the right hon. Gentleman will promise to consider the matter between now and Report stage.

Mr. BONAR LAW

My hon. Friend has already said that he hardly expects me to accept this proposal. I will promise to consider it, but I do not think on the face of it that it seems one on which I can give any pledge.

Mr. CURRIE

Will the right hon. Gentleman clear up the meaning of the words at the end of the Clause "and references to disposal of trading stock do not include disposal by way of testamentary disposition." If a man dies and leaves his stock, that is a passing of property, and I have been under the impression that the real meaning of those words were a trust disposition contained in instructions to executors as to what they were to do at a later date. There is a distinction between what is done under the instructions of a will and what is done by a will itself. My hon. Friend who moved the Amendment seemed to take the other view, and I think it is important that the Chancellor of the Exchequer should explain the point.

Amendment negatived.

Motion made, and question proposed,

"That the Clause stand part of the Bill."

Mr. HENDERSON

Is it intended that there is to be no accounting prior to this particular date?

Mr. BALDWIN

I am not quite clear what it is that the hon. Member wishes to get at. This Clause deals with the sale of stock in bulk. Does my hon. Friend want to know if there is any means of getting at a man who sells his stock in bulk and makes a sale at some date prior to the 22nd. April, 1918? With regard to the period of the ordinary run of excess profits, that goes on as under the ordinary law, but there are certain conditions attaching to a man who makes a sale in bulk. We have already discussed whether it would be possible to bring up and include in this Clause transactions that had taken place at an earlier date. It might have been possible satisfactorily to have included some of them, but it was made clear to us that we could not include all of them. Therefore we fixed this date, 22nd April, before which we will not bring them within the ambit of the tax.

Mr. HENDERSON

I mean the profits made by a man by the sale of his goods during the intervening period.

Mr. BONAR LAW

That is perfectly clear, and I am sorry that neither my hon. Friend nor myself understood what was the object of my hon. Friend's question. I now understand it to be this: Supposing the business had been going on up to 1st April in the ordinary way, and had made excess profits, does the fact that it was sold after 22nd April save them from paying excess profits? The answer is, "No; they will pay excess profits."

Question put, and agreed to.

CLAUSE 36.—(Increase of Stamp Duty on Certain Bills of Exchange.)

(1) Twopence shall be substituted for one penny as the Stamp Duty on all bills of exchange and promissory notes chargeable under the First Schedule to the Stamp Act, 1891, with duty at the rate of one penny and drawn on or after the first day of September, nineteen hundred and eighteen, and two pence shall accordingly be substituted for one penny in Sections thirty-four and thirty-eight of the Stamp Act, 1891.

(2)The provisions of Sub-section (2) of Section thirty-eight of the Stamp Act, 1891, shall apply so as to enable an adhesive penny stamp to be fixed on any such bills of exchange as are mentioned in that Sub-section which are liable to a duty of twopence under this Section and are stamped only with a penny stamp, as they apply with respect to the fixing of a stamp on an unstamped bill.

(3)Sub-section (1) of Section thirty-eight of the Stamp Act, 1891, shall not operate so as to render any bill of exchange which is liable to a duty of two pence under this Section and is stamped with a penny stamp invalid for any purpose until the first day of December, nine teen hundred and eighteen, if the person who takes or receives the bill fixes thereto an adhesive stamp of one penny and cancels the stamp.

The CHAIRMAN

The Amendment—in Sub-section (1) to leave out the word "Twopence" ["Twopence shall be substituted"], and to insert instead thereof the words "One penny"—standing in the name of the hon. Member for Coventry (Mr. D. Mason)—does, I am afraid, not make good sense. It would hardly do to say that "One penny shall be substituted for one penny."

Mr. D. MASON

Might I put this to you?

The CHAIRMAN

No; the point does not need any argument.

Amendments made: In Sub-section (2) leave out the word "such" ["such bilk of exchange"].

Leave out the words "as are mentioned in that Sub-section," and insert instead thereof the words "to which that Subsection applies being bills."—[Mr. Bonar Law.]

Motion made, and Question proposed,

"That the Clause, as amended, stand part of the Bill."

Mr. NEEDHAM

I think we ought to look into this question a little more closely. We have already had two discussions on the subject, but I would just like to refer to one or two points that have been made. My main point is the probable effect of the increased Cheque Tax upon banking in this country, and particularly upon small accounts, which, I. believe, in the main constitute the credit accounts in this country. This 2d. tax is a retrograde one, because it is going to interfere with the further development of our banking system. I was very interested indeed to see the reports of two French banks in the papers of the last day or so. I have here an extract from a report which appeared yesterday regarding the Comptoir National d'Escompte, and in the concluding part of that report it says that they are doing all they can to further the use of cheques in France. The report of the Credit Lyonnais refers with great satisfaction to the immense growth in Paris of clearances by cheque. The figures may appear great in Paris, but bearing in mind the enormous figures in. London, they do not appear great here. There passed through the clearing banks in Paris in 1916 £28,000,000 in cheques, and in 1917 there passed £182,000,000 in cheques. Everyone knows that during the last few years in this country there has been a great growth of small cheques. It has become a very convenient method of clearing transactions. It is one of the striking features of the economic use of money and of credit in this country, and in my judgment it ought to be encouraged. The Chancellor of the Exchequer, in one of his speeches, said that he did not pay very much attention to the argument that the growth of currency notes increased inflation. I do not know quite to what extent I agree with him, but I would like to put this to him. If an increased use of currency notes does not carry with it inflation, then he ought to be content to see all our transactions carried on by currency notes. I cannot imagine that is in his mind at all, and, if that is not his argument, he is bound to believe that there is some inflation as a consequence of the way in which we are using currency notes at the present time. If currency notes are so good their use ought to be extended, but none of us like them from the point of view of the credit of this country. We would prefer that currency notes should be backed by gold reserves, just as in the main Bank of England notes are backed by gold reserves. If they were so backed, I for one would not mind the use of currency notes being extended, but they are not backed by gold in this country to any considerable extent. We have about £28,000,000 gold ear-marked against currency notes, which are very rapidly mounting up to £300,000,000. The Chancellor of the Exchequer might really give a little more consideration to the inflation argument.

May I draw the attention of the right hon. Gentleman to another point. He expects to make £1,000,000 out of a full year's revenue from the 2d. Cheque Tax. Supposing that is so, there are two things which follow. In the first place, he is budgeting for a diminished use of cheques. That is clear, and to that extent it is very unfortunate, because he himself gives point to our plea that the 2d. cheque stamp does mean a diminished use of cheques. There is another point. The whole of this £1,000,000 is not pure credit to the Revenue, because if this £1,000,000 does not go in the buying of the extra penny stamp it will go to the credit of the Profit and Loss Account, and the Chancellor of the Exchequer will get Inland Revenue as Income Tax to a very considerable amount. I do not put the whole £1,000.000 as bearing Income Tax, because a considerable number of cheques are used by people who come within the £130 exemption, or who, owing to allowances, do not pay Income Tax, but a very large proportion of the £1,000,000 which he expects to get would be credited to the Profit and Loss Account and would, therefore, be subject to Income Tax. Therefore, as a pure matter of accounting, he is not to that extent going to receive £1,000,000 from his increased cheque stamp, because other- wise he would have a considerable portion, of it added to his Inland Revenue as Income Tax. Therefore, what he would gain on the one hand he is losing on the other, and he is at the same time doing an injury to the credit facilities of this country which ought not to be done at the present time. The Chancellor of the Exchequer himself has seen a great many of the difficulties, because he contemplates that he may have to create 5s. notes and that he may have to coin more silver. These things would follow as a matter of course. People would have to carry more currency notes. We should swell the use of currency notes, and that in itself would be a very bad thing. I suggest to the Chancellor of the Exchequer that it is not in his interests as custodian of the commercial welfare of this country that he should impose this 2d. cheque stamp for the sake of the extra money which he may get. The disadvantages are so very considerable and the possible advantages in the way of revenue are so very slight that on the balance I think he ought not to pursue the increased tax which he has proposed.

No one objects to finding the money for the War. I do not suppose that the Chancellor of the Exchequer thinks that those who have objected to this tax are seeking to escape some sort of liability. I am quite sure that is not in his mind. All of us are perfectly willing to find all the money that is required, but we want to have it found in an economic way, and we want to do it so that the trade of the country will not in any way suffer. I started by saying that my main point was the ill-effect on the small credit accounts in the banks of this country. I close with that point. It is a matter of surprise to very large numbers of people that the great credit banking business which is done is built up out of innumerable small accounts. The more we cultivate small accounts, the wider the basis of our stability. The more we cultivate the small accounts, the more credits there are in the bank; and the more credits there are in the bank, the more are the trading facilities of the banks, the more they can lend to traders, and the more they can offer facilities for financial operations for the purposes of the War. The instrument is a very important one in the financial structure of this country, and anything which will in any way impair it or make it more difficult to extend the growth of small credit accounts is something which ought not to be done, particularly at this moment. I hope that the Chancellor of the Exchequer will see his way to withdraw this tax. We miss to-day the powerful plea of the late Member for Clapham, who made his last speech in this House on this subject. He said that a relative of his opposed this tax when it was proposed by Sir Michael Hicks-Beach, and that he was rather successful in his opposition, but he had been transmitted to another place. The late Member for Clapham has had the same fate, and we miss his help to-day. I hope the parallel will continue, and that, as the opposition of the relative of the late Member for Clapham to the tax as proposed by Sir Michael Hicks-Beach was successful, so will be the opposition of the late Member for Clapham to the tax as proposed by the present Chancellor of the Exchequer.

5.0 P.M.

Sir C. HENRY

After the speech of my hon. Friend little can be added to induce the Chancellor of the Exchequer to withdraw this extra Cheque Tax. Those who oppose this tax do so not with any desire to evade liability, but in order that the financial position of this country shall not be in any way jeopardised. The Chancellor of the Exchequer expects to get £1,000,000 extra from this increased tax. The right hon. Gentleman has to take into consideration that from that £1,000,000 sterling his Income Tax receipts will suffer to the extent of £100.000 or £200,000. In estimating that £1,000,000 sterling he has calculated on a reduction in the number of cheques used, and I see in to-day's papers, in answer to a question by the right hon. Gentleman the Member for Cleveland (Mr. H. Samuel),it is estimated that last year 321,000,000 odd cheques were put into circulation. Consequently 321,000,000 pennies fell into the revenue. Those pennies represent a total sum of £1,300,000 and consequently the right hon. Gentleman expects the revenue from the cheques, although the duty is doubled and should produce £2,600,000, will only now reach £2,300,000. My strong objection to the tax is that it must lead to an increase in the use of currency notes. The Chancellor of the Exchequer would be the last man to insist on this tax if he thought it would have that effect. There are enough of these notes already. There may be some advantage in their use to the Treasury, because they enable the Chancellor of the Exchequer to obtain money without interest having to be paid for it. But notwithstanding that, I am certain the system is one he would be the last to advocate. The cheque system, as has been pointed out, is of incalculable advantage to this country, and, indeed, to any country which adopts it to the extent we have done. I feel it would be very unwise, very injudicious, and a thing which could not be justified, to have a larger number of these notes out, and even if the revenue would thereby be increased by £2,000,000, £3,000,000, or £5,000,000 sterling, any proposal which would in the end have that effect would have to be looked at hesitatingly before we gave consent to a scheme involving an increase of currency notes and a consequent restriction or curtailment of the cheque system.

My right hon. Friend will find that not only in this House, but in financial circles generally there is a real opposition to this proposed tax. We know that opinion amongst bankers in the City is divided, but I think I am right in saying that in the aggregate the opinion of bankers and men in business firms is against this proposal. [Mr. BONAR LAW dissented.] Of course it is difficult to get at the facts definitely, but, at any rate, I am justified in saying that opinion is very divided. I have been at some trouble to get the views in the City of bankers and managers of banks and those connected with finance, and I find that the opposition to this proposal is a growing opposition. I hope, therefore, my right hon. Friend will not be obstinate, but will listen to those who are urging him to reconsider his decision, not because of the amount involved, but in the best interests of finance and of this country. Now that the cheque system has become so firmly established, to do anything to hamper it would not only be unjustifiable, but it would also be detrimental.

Mr. HERBERT SAMUEL

I sincerely hope my right hon. Friend the Chancellor of the Exchequer will listen to the friendly representations made to him, and will not insist on the inclusion of this new tax in his Budget. I ventured to express that view on the day after the Budget was introduced, and since then the opposition to this particular tax has greatly developed. My right hon. Friend has been kind enough to respond to a request I made, and to give me a list of the various commercial bodies which have approached him in opposition to the new Cheque Duty, and perhaps the Committee will be interested to hear their names. Those who have passed resolutions against the additional 1d. stamp include the London Stock Exchange, the Associated Chambers of Commerce, the Chambers of Commerce of London, Leeds, Liverpool, Manchester, Birmingham, Dublin, Blackburn, Wolverhampton, and Falmouth, the Association of Trade Protection Societies, the National Chamber of Trade, the Scottish Bank General Managers, and a considerable number of local bodies with whose names I need not trouble the Committee. The objections to this new tax have been already stated by the two hon. Gentlemen who preceded me. In the first place, the cheque system is the most civilised and, indeed, most sensible way of transmitting money. At first there was a system of barter, one class of goods being exchanged for another; then came a currency system, involving the issue of coins, gold and silver, and sometimes taking the form of tobacco, rice, or other commodities in common use in the different localities. Then came a system of exchange, and later we had the bank-note, which was an immense improvement on the ordinary currency, come into general use in civilised countries. Finally we had the cheque, which, as in this country, has been developed into the ordinary means of making payments of even quite small amounts. Last year, we have been told, no fewer than 321,000,000 of cheques passed from hand to hand in this country. Now every action of the State which checks that form of the transmission of money—in so far as it tends to discourage it—and personally I would like to see no Stamp Duty on cheques at all, for that is an ideal at which we should aim, although I am not quite sure that bankers would greatly welcome that consummation—but every action of the State which tends to discourage that method of transmitting money is thoroughly reactionary, in so far as it interposes additional obstacles to the use of cheques for the transmission of money for commercial purposes. That is the chief objection I have to this proposal. The cheque ought to be made the normal means of transmitting money of every amount down to £1 and even smaller sums, instead of using metal; it should be a simple means of paying, not merely the small salaries, but even the larger amounts of wages, and perhaps in times to come you will not have the handing over of coins involving long delay—a primitive method of dealing with the matter—but you will simply have an entry of a sum of money into a man's banking account.

My second objection to this proposal is that undoubtedly it must lead to an increase in the number of currency notes in circulation. A simple calculation shows that my right hon. Friend, in estimating the extra yield at only £1,000,000, as a result of doubling a tax, which at present produces £1,300,000, is anticipating that the number of cheques will be decreased. I believe he must have calculated that the diminution in the number will amount to 50,000,000. It is not a simple calculation, of course, for you have to take into account the present revenue and to allow certain deductions, but the calculation which I have made, and which I think is substantially correct, is that there will be 50,000,000 fewer cheques used next year than were used last year. How are the transactions represented by these 50,000,000 cheques to be carried out? In some cases, no doubt, money or postal orders will be substituted for cheques, but in a very large number of cases I am convinced people will make their payments in coin, and particularly in currency notes. In future a man who draws a cheque and sends it by post will have to pay to the Government 3½d. on each transaction—that is to say, 2d. for the cheque (instead of 1d. as at present) and 1½d. for the postage stamp (instead of 1d. as now). Small traders, and, indeed, all persons with small means who have to make a transaction involving this charge of 3½d., will naturally look at it twice; they will try to economise, and the result will be a considerable increase in the use of currency notes. Whether that would have any effect on prices I do not feel quite sure. I have consulted some classical economists on the subject, but I have found exceedingly little guidance on this point in their volumes. It may be said that by substituting notes for cheques you are not inflating credit or enlarging the purchasing power, and consequently it will not have any effect upon prices. But whether that is so or not an increase in the number of currency notes in circulation will, it seems to me, be very disadvantageous, chiefly for this reason, that the currency note is really a Government security which bears no interest. While it is very convenient for the Government to get securities of that kind into circulation because they get cash in exchange for them and pay no interest on them, in effect, when the War is over, when trade contracts, when prices fall, as we hope they will, when all war business comes to an end, when commerce generally is on a smaller scale, you will have the reflex action of what is now going on. The currency notes will come in again, they will flow into the banks as they now flow out, because of the expansion of business and the rise in prices, and when business contracts owing to the cessation of munition work, and when prices fall, these notes will flow back into the bank; the bankers will not wish to keep them, and so they will go back to the Treasury, and shortly after the War is over scores of millions, perhaps hundreds of millions, of currency notes will return to the Treasury, and the Treasury will be required to redeem them. That will cause very considerable embarrassment in all probability to our after-war finance. The claim must be met; it is a primary obligation on the Treasury which it must fulfil, and the more currency notes you have at large now the greater will be the inconvenience and embarrassment which will be experienced when the War is over. Consequently I have come to this conclusion, that by lessening our cheque circulation by 50,000,000 and by increasing largely our currency circulation the Government is exposing itself to grave embarrassment after the War, even if the effect is not at the present time to raise prices by having a large amount of money in circulation.

To conclude, this tax is calculated to yield the Exchequer only £1,000,000. My right hon. Friend has budgeted for a revenue of £842,000,000. To surrender this proposal, therefore, is not to give up a serious item in his Budget. Whether he raised £841,000,000 or whether he raised £842,000,000 is not a matter of profound importance. Of course, if one were to use that argument with respect to each tax in turn, you might at the end come to an accumulation of concessions which would have a serious effect, but it has not been so. The right hon. Gentleman's Budget has got through unscathed, his concessions are exceedingly few, and in point of money are quite negligible. We are now almost at the last stage of the Budget, and this is the last tax likely to be seriously challenged. There may be other points, and I do not know whether he is making any concession, but in effect he is being asked by such Members of the House as support this Motion to surrender £1,000,000, and that alone, apart from some very small details, out of a Budget calculated to yield a revenue of £842,000,000. I think he might do that little to meet the feeling outside the House and in it, land might congratulate himself on a very remarkable achievement in having piloted through so vast a financial proposition with so very small a concession. He has declared himself, with the open-mindedness which has always characterised him, ready to follow the guidance of the Committee. My hon. Friend the Financial Secretary said yesterday, in connection with another proposition, that he felt he had not a single friend in the House with regard to it. The Government of the day, of course, always has many friends in other parts of the House, and they, not having heard the persuasive speeches such as I trust those of my hon. Friends and myself are in this matter, can be relied on to support with whole-heartedness the Government of the day, and I suggest as a sound Parliamentary maxim that "absent friends are safest." The right hon. Gentleman, however, does not rely on that. He is ready to listen to us. I hope, therefore, the arguments used will have convinced hon. Members, and will lead others to express the same view, and that as a result the Chancellor of the Exchequer will not proceed with this particular tax, as I believe, to the general satisfaction of the majority in this country.

Mr. MARRIOTT

I have not up to this point taken any part in the discussion of this particular part of the Finance Bill at any stage, but since this proposal was first made by the Chancellor of the Exchequer there has poured into me such an accumulation of testimony from all sides with regard to the unpopularity and undesirability of this particular tax that I hope I may be allowed to say a few words in support of the appeal made to the Chancellor of the Exchequer that he will very seriously reconsider this part of his proposal. I suppose that the Chancellor has recommended to the Committee this particular tax upon two main grounds. In the first place, that it is a tax of very great convenience in the sense that it is very easy to collect. That convenience I very frankly admit. I think you cannot possibly controvert the view that it is easy to collect. On the other hand, he has recommended it to the Committee on the ground that although it is not a very important item, as the right hon. Member for Cleveland (Mr. H. Samuel) has just said, in a Budget of this magnitude, yet this tax is, and is likely to be, on a modest scale, reasonably productive of revenue. I should like to say on that latter point that although I object to the tax, yet if the Committee do decide to impose it I very much hope that in this respect the Chancellor's forecast will not only be realised but exceeded. I very much hope that he will get his million, and more than a million, from this tax. Why do I express that somewhat paradoxical hope? It is because if the tax does not produce the revenue, it must mean, as hon. Members one after another have pointed out, a diminution in the use of this most valuable medium of our currency: the bank cheque.

Either then the Chancellor will get his tax or he will reduce, and very seriously reduce, this valuable medium of currency. That is a dilemma from which it seems to me quite impossible to escape, and I sincerely hope that that latter result will not in any event be brought about. I hope so for this reason, that it seems to me a matter—and it is a matter to which I have given rather serious attention— of the very highest possible importance that the largest amount of money should be not in circulation but on deposit. The smallest amount possible you should have in circulation, and the largest amount should be in the coffers of your banks. I do not know whether the Chancellor of the Exchequer will be inclined to dispute that proposition. It is a general proposition, and perhaps he will not desire to commit himself to any general proposition. He will probably be a wise man if he does not; but, if he admits the proposition, is it not perfectly clear that the step which he is now proposing to take will be a deterrent to the banking system, and, therefore, an incentive to currency? I think it would be safe to say, if we had only the testimony offered by the Debates which have taken place in this House, that in business circles there is an almost universal agreement that this tax may mean to a large extent, and must mean to some extent, the substitution of Treasury notes for cheques. I suppose—I can only assume—that the point of the Chancellor of the Exchequer is that it does not very much matter whether it does or not. I very much hope that we shall hear from him, in the course of his reply this afternoon, what is his opinion on this matter— whether he thinks that this is or is not a matter of capital importance. I want to know from him, for my own guidance, whether he thinks it is or is not a matter of importance whether I pay a bill of £5 by cheque or by Treasury notes. I must say that it seems to me that it matters very much indeed which of these two methods of payment I select. Of course, there is a sense in which cheques are currency. That, I think, has been admitted by all who have given any consideration to this rather delicate question, but they are not currency in the same sense or to the same degree as notes or coins. They are what is technically known, I believe—though I am not at all an expert on the subject—as representative currency. The peculiar characteristic of this representative currency is that it gets home pretty quickly to roost. What I mean by that is that it tends very quickly to get back into the bank's hands. I understand that the export advice which is at the command of the Treasury has advised the Treasury and the Government that they are not really in a position, whatever they may do, to check the increase in the issue of the notes, that their hands are tied in the matter, that they are an issuing house, and that they cannot affect the issue of notes. What is the result?

I am aware that as to the effects, as the right hon. Member for Cleveland has already admitted, of this issue of notes doctors disagree, and where doctors disagree it is not for me to step in. I do, however, believe that there is an immense balance of opinion, both expert and economic opinion and good business opinion, in favour of the view that there has been and there is what is technically known as an over-issue of notes, and that the result of that over-issue is, as more than one hon. Member has pointed out this afternoon, that the notes are virtually inconvertible. We have had one terrible illustration in this country of the evil effect on commerce of the inconvertibility of our notes. We had it in our last great war, and nobody who is familiar with the results of that experiment would desire to repeat it; but if the notes are inconvertible, then it means a real depreciation, and a real depreciation must mean a rise in prices. In another connec- tion it was pointed out this afternoon by my horn. Friend the Member for Windsor (Mr. J. Mason) that the Government itself is peculiarly interested in this question, not as the issuer of the notes, but as the consumer of commodities. Anything in the nature of a depreciation of the currency, of a rise in prices, bad as it is for the private consumer, is worse for the Government, which is the largest consumer the country has at the present time. They are the largest purchasers of commodities, and therefore the greatest sufferers by the increase of prices. The State is the greatest sufferer. My right hon. Friend the Member for Cleveland pointed out at an earlier stage of this discussion that we have had an increase in expenditure in the last eighteen months, amounting, I think he said, to something like 50 per cent., and for my own part I cannot resist the conviction that some part of that increase— I should be a very bold man if I were to attempt to say how much—is due to currency inflation, and that inflation, I submit, you will still further exaggerate by any restriction in the use of cheques. I have long thought that it was a very great pity—the hint has been thrown out in one or two quarters this afternoon—not to make an attempt to pay the higher-paid wage-earners by means of this form of currency, the cheque. I have never been able to understand why the attempt has not been made to do so on a much larger scale. In the first place, you would accustom the wage-earners to the use of banking accounts—in itself a very great advantage; and, in the second place, it would certainly tend to some increase in habits of personal economy. Therefore on every ground I very greatly regret that this proposal should have been included in his Budget by the Chancellor of the Exchequer, and I very respectfully express the hope that he will listen to the representations which have been made to him from so many sides to reconsider the proposal.

Mr. DUNDAS WHITE

I should like to reinforce the appeal made to the Chancellor of the Exchequer on this subject. I do so the more readily because of the very conciliatory words he spoke on the Second Reading, when he said that he knew that, in the present circumstances, the House would give a Chancellor of the Exchequer almost anything he asked, and that the Chancellor of the Exchequer him- self was under what he called a corrective obligation to the House. Reference has been made by the hon. Member who opened this Debate to what has been done in France. I would remind the Committee of what was done in this country also at the very outset of the War. The Chancellor of the Exchequer referred to his being a Scotsman, and to certain Scottish associations. I would like to remind him and the Committee generally of a Notice which was issued very largely by the Scottish banks in the critical days of August, 1914. It is printed in the "Bankers' and Insurance Managers' and Agents' Magazine" for September, 1914, and it was brought to my knowledge by a friend of mine who is a banker. The first Clause of this Notice runs as follows: Customers of the Bank are reminded that only small sums of cash are actually required for ordinary purposes. Cheques should therefore be used for making payments to the utmost extent possible. That appeal was very widely circulated in the critical days of 1914, and it was made in harmony with an appeal which had been made by the then Chancellor of the Exchequer to economise money as much as we possibly could. In fact, of all the speeches which have been made during the War, perhaps that appeal of the then Chancellor of the Exchequer, who is now the Prime Minister, to economise money, and pointing out that economy of money was of the greatest advantage to our country in the great struggle, is one of those speeches which will last. It is really an economic model. That appeal would have gained much in force and effect if it could have been accompanied by the repeal of the Cheque Duty—at any rate on cheques for small amounts. I suggested something of the sort in a little book I wrote about fifteen years ago. I do not suggest that my right hon. Friend the Member for Cleveland (Mr. H. Samuel) has read that book, but I welcome very much the announcement he made that he thought it would be a great gain to the country, if the financial conditions allowed, to repeal the tax on cheques altogether. I doubt whether there could be the repeal of a tax which would be of greater advantage to the country as a whole, because it would give freedom to the essential mechanism of commerce. That, of course, may be a counsel of perfection. It may not be practical politics to-day. I do not think it is practical politics to-day, but what we who object to this tax are out against is a reactionary-measure which, in effect, instead of easing the wheels of commerce at the very time they should be eased, would rather have the effect of putting sand into the machine.

The cheque system is the most important mechanism of exchange that we have. It has been steadily increasing in recent years. When Sir Michael Hicks-Beach made a similar proposal, he spoke of this as having become the paper currency of the country. It is much more the paper currency of the country now, because it has developed enormously since the year 1902. It is the very cheapest way of paying debts. It involves no coin; it involves no Governmental credit. These cheques are drawn by individuals. They go, for all practical purposes, straight into the bank, where they are written off one against another by the banks or clearing houses. They are the most perfect mechanism of exchange the wit of man has ever yet devised. At the risk of possibly mentioning one or two things which have been stated already, I would ask the Committee to follow what will happen to some extent—the question of extent is another matter with which I will deal in a moment—if an extra duty is put on these cheques. One effect was foreshadowed by the Chancellor of the Exchequer when he made the proposal originally. I think it was on that occasion he suggested that the cheques would be fewer and for rather larger amounts. What does that mean? It means that instead of drawing cheques for small amounts, people will draw cheques on their banks for larger amounts. It has been asked, How can you pay more conveniently than by cheque? It has been suggested, as an alternative, that you might get a postal order, but if you sent someone round to pay all these, it would be most costly. There is one alternative which would commonly be adopted which has not yet been mentioned— namely, that when a person gets a thing he will pay for it. That is an alternative which will be adopted very readily. Instead of drawing cheques, people will draw larger sums from their banks.

Sir W. RUTHERFORD

No.

Mr. WHITE

Oh, yes they will. To some extent they certainly would, if you take the case of small household cheques, drawn in respect of a number of bills round about £2 or £3, which are paid all over the country by cheque in the ordinary way by middle-class people. In many cases it will be a question, "Shall we pay for this when we get it, or take the account and send a cheque?" In the individual ease it might not matter very much, but when you are dealing with thousands and tens of thousands of cases all over the country, the accumulated amount is considerable. You would have a very much larger amount of actual money in use. Not only so, but where customers pay more in cash, it is necessary that the shops and warehouses where they deal should have more till money. There, again, comes a greater demand for actual money in the ordinary sense of the word. Something has been said about the convenience of bankers. I suggest that in this case bankers are not the only judges. They may know what may be most convenient for the banks. I quite agree that they do know, but it is a far larger question than a question merely for bankers. We have to consider it from the broader point of view. It might possibly be more convenient for the bankers. I do not know whether or not it would. The question is whether it is financially sound for the nation as a whole. A good deal has been said about the increased demand for currency notes. The possibility of such a thing was shown by the fact that the Chancellor of the Exchequer in a previous speech on the subject foreshadowed the possibility—I do not put it higher than that—of currency notes for even 5s. That at least showed the danger. I would remind the Committee that it is not merely a question of currency notes. One of the great advantages of the cheque is that you can give it for the precise amount of the debt. There are numbers of debts for odd amounts—say £2 8s. 6d. You cannot pay that amount in currency notes only. You need currency notes, and you need also coin. There would not only be an increased demand for currency notes, but also a considerably increased demand for coin. Although it is not a demand for gold bullion, still the demand for silver is to some extent on the same level. We want to avoid at all cost the locking up of bullion in an unnecessary or useless form if it can be utilised for general purposes.

This brings me to one incidental result, a very serious result, referred to by a previous speaker. If you pay by cheque, the cheque has the advantage that you do not make the payment until it is abso- lutely necessary to make it. You do not make it until you get the thing. On the other hand, if you pay by money, you have to draw the money out beforehand. When that is done on a large scale all over the country, the result is that balances at banks are more depleted than they would be otherwise. The importance of that will be obvious at a time like this, when all bank values should be made to do their full duty in the present stringency, and when we should mobilise money as much as possible. When the proposal made by Sir Michael Hicks-Beach was withdrawn in 1902, he said: It was withdrawn because I had reason to believe that it would seriously affect small traders throughout the country, and, further, that there would be a serious diminution in the number of cheques used in consequence, largely affecting the Revenue from it. That consideration should also be borne in mind at the present juncture. There is the further point that we have not only to consider that the bank balances may be reduced, but that this extra tax on cheques, by increasing the cost of getting money out, would prevent the starting of new deposit accounts. That point was made by a gentleman who had great banking experience, in a letter to the "Times" some time back. It is very important that we should encourage people to make as many deposits in the bank as they possibly can. I feel sure that every tax on the cheques that they draw tends to make them use the money straightaway or to keep the money, instead of depositing it with the banks, which would really be to the good of the country. I had down an Amendment proposing that the duty should still remain at 1d. in the case of smaller cheques, but I did not move it, because it seemed more desirable that the issue should take place on the larger question. I hope that with the expression of opinion which has been heard from various parts of the Committee on this subject the Chancellor of the Exchequer may see fit to reconsider the matter, and that he will not press this Cheque Tax on the Committee. My own view is that it would be a service to the country if the Cheque Duty were left simply as it is.

Sir W. RUTHERFORD

It would be impossible not to sympathise with the general trend of the speeches we have heard in opposition if one really thought, that a large number of these very terrible consequences which have been suggested were really likely to arise. It is always a very popular thing to oppose a tax. You get the support and sympathy of a lot of people who do not want to pay it. It is not a very cheerful thing for anyone to say even a few words in support or in mitigation of the idea of a new imposition, but I am convinced that none of these evils which have been held up before us is at all likely to arise. The right hon. Gentleman (Mr. Samuel) introduced two features in his speech. One was a disquisition on the earlier history of exchange, which was very interesting but does not seem to affect the point to-day, and the other was that he told us that if this tax was imposed he looked forward to the day when it would bring hundreds of millions of Treasury notes back to roost—

Mr. SAMUEL

No; I did not say that.

Sir W. RUTHERFORD

—that is what I gathered—and he rather frightened the Committee by suggesting that payment would be required very suddenly, and the Treasury would not be in a position to pay them, and all that was going to arise at some date after the War in consequence of this extra 1d. being put on cheques. [HON. MEMBERS: "No!"] Anything more pictorial or more likely to be unfulfilled in actual practice than that I have never heard. There are, as I understand it, every year about 320,000,000 cheques. I do not know whether the Treasury can give us any particulars as to what is the average amount of those cheques. You have really to look at this subject from the point of view of the business that is conducted in the City and also from the point of view of your home and in each department of life where to-day cheques are commonly made use of. In my limited experience in the City the average amount of a cheque is about £50. This is taken from looking at a large number of cheques over a period of two or three years. Can it be imagined for a moment that the extra tax of 1d. is going to prevent any merchant, manufacturer, or broker in the City from paying an account by cheque? Where are these 50,000,000 fewer cheques which hon. Members have held up to us coming in?

Then I made inquiries at home, and it turns out that about eight cheques are given to various tradesmen every week. You would have thought if there was a point where this tax was going to be an inconvenience and injustice it would be in respect of these small cheques. I am contributing, say, 6d. or 8d. per week in putting a 1d. stamp on each of these cheques in order to save myself the trouble of collecting actual coin and going round to see each of these tradesmen myself or sending someone to do it. If this tax is retained I shall have to pay an extra 8d. Hon. Members have suggested that in order to save that 8d. one would have in future to send round and have each of these accounts paid separately. Are you going to hire a boy for 5s., and send him round to pay these separate accounts and get receipts to save 8d.? Or are you going round yourself in your motor car, when you cannot get petrol, and pay your small accounts at different shops? All these suggestions, to my mind, are unfounded. It is ridiculous to suggest that there is going to be a falling off of 50,000,000 cheques because of the imposition of this extra tax. I do not suggest that there is going to be any advantage to the public or to the payer or payee of any of these cheques with the extra 1d. stamp on. That is absurd, and there is no doubt it is a tax and an inconvenience, and it will to some extent undoubtedly inconvenience a number of people, but if it is going to give us £1,000,000 without any difficulty and is not going to diminish the cheque circulation, and if all these pictures of terrible financial catastrophes are absolutely unfounded, which I believe they are, we ought to take this opportunity of welcoming this little contribution of £1,000,000 from another source. We are very hard up at present for different methods of getting a little more money in order to relieve the terrible taxation which we are paying, and which will I am afraid get worse, and I welcomed this tax, not because I liked it or wanted to pay another penny on every cheque, but as showing that the Chancellor was looking in more directions than one, two or three, and was going to get a substantial sum of money. I hope the right hon. Gentleman and the Committee will not be frightened by these terrible pictures of financial catastrophe, but will stick to the tax. I am sure he will get his £1,000,000 and a great deal more, because I do not believe it will diminish the number of cheques or the circulation of cheques to any appreciable extent.

Sir F. BANBURY

I think my hon. Friend has rather misunderstood the objection to the tax. I have a list of the various associations which oppose it, and their objections, and those of hon. Members who oppose it, are not that they object to paying an extra penny or to contributing a further £1,000,000 to the Revenue, but that, generally speaking, the result of the tax will be bad for the commerce of the country. We must not judge its effects from what happens in our own case. My hon. Friend says he pays his bills by cheque, and he is not going to hire a boy at 5s. a day to go round in a motor-car, if he can get one, to pay these bills. But there is a very large number of people who are not in such a very prosperous position as my hon. Friend, and who will look with considerable hesitation upon any increased demand on their small means. The wives even of a great many prosperous people, certainly the wives of persons whose pecuniary position is not very prosperous, go round themselves to the shops, and they like doing it. I have never understood the extraordinary attraction that there is for women in going to a shop and buying something. The female mind is much more prone to regard economy in small matters than the male mind, unless it may possibly be a Scotsman. The result of this will be that a cheque for, say £10, will be drawn, currency notes will be kept in a box or in a purse, and then the lady of the house will go round and will pay the bills herself out of the money which she has drawn, which is the product of one cheque. The result will be to increase the demand for currency notes and to diminish the demand for cheques.

6.0 P.M.

The people who have sent resolutions to the Chancellor of the Exchequer against this tax can hardly be described as people who have shown any desire to avoid paying increased taxation themselves. There are the Associated Chambers of Commerce, the London Stock Exchange, the Chambers of Commerce of London, Leeds, Liverpool, Manchester, Birmingham, Dublin, Blackburn, Wolverhampton and Falmouth, the Halifax Chamber of Trade, the Faculty of Procurators, Glasgow, the Association of Trade Protection Societies and a large number of others. I do not think the City of London has shown any disposition to cavil at any burdens which have been placed on the country through its members or by itself. If it was a large amount which was going to be collected it might be said the real reason was that they objected to paying it, but when they are objecting to what is a very small point it is evident that there must be some good reason at the back of their objec- tion. The Chancellor of the Exchequer said he had consulted some of the prominent bankers, and they were of opinion that the tax would do no harm. As far as I know, opinion among bankers differs. It is like everything else. It is very difficult to get amongst a body of men an agreed opinion upon a particular matter, and though I understand some of the leading bankers have expressed the opinion that this tax will not do any harm there is a considerable number of others who have expressed the contrary view. A very prominent bank manager wrote a letter to the newspapers expressing the opinion that the tax should not proceed. Of course, it is impossible to ascertain what the exact feeling of the banks and the City itself is on the matter. We can only ascertain it by looking at the list of people who have protested against this tax, and that list I have already read out. I think it is evident that a check is certain to be put on the expansion of cheques. When I was a young man it was not supposed to be the correct thing for any customer of a bank to draw a cheque for less than £3. I am not at all sure that the sum was not higher. Up to a comparatively recent period it was thought, especially in the days of private banks, that a cheque could not be drawn for very small amounts, because it entailed a considerable amount of trouble upon the banker and his clerks. With the great increase, of joint stock banks that policy was changed The policy of the joint stock banks was to encourage customers with very small accounts, and the result of that has been a large increase in the number of cheques drawn, and in the number of cheques drawn for small amounts. I had a letter from a well-known firm in the City who paid a very large amount of money in cashing coupons in small cheques. They say that very often they have amounts of7s., 8s., 9s., 10s., and 11s., and that they will not pay those amounts in future in cheques, but will keep a certain amount of cash in the office and pay the amounts in cash. I think that is certain to occur. The right hon. Member for Cleveland alluded to the small shopkeeper, who was absent from the mind of the hon. Member for Liverpool (Sir. W. Rutherford). The small shopkeeper will think twice before he uses what will cost him 3½d., namely, 2d. for the cheque and l½d. for the letter, if it can be done in any other way. Therefore, the result must be to diminish the use of small cheques.

I do not want to enlarge upon the question of currency notes, but I think the hon. Member for Liverpool very much misrepresented the right hon. Member for Cleveland when he said that he had stated that the result of this tax would be to cause great trouble when the currency notes came to be redeemed. I do not think he said that. What he intended to say was, and certainly what I believe will be the effect, that this tax will be certain to encourage an increase of currency notes, and that anything that increases the currency notes is a mistake. In the opinion of a great number of people who are well qualified to form opinions on this matter the amount of currency notes is already for too large. It must not be forgotten that when the currency notes were started the amount of gold kept in reserve against them was £28,000,000, and the currency notes issued were £50,000,000 or £75,000,000. Now the currency notes represent something like £275,000,000, while the reserve of gold remains the same, £28,000,000. Therefore anything that tends to increase the amount of currency notes ought to be abolished, and anything which tends to facilitate the payment of accounts by other means ought to be encouraged. It is for that reason that many of us object to this tax. I am sorry that the hon. Member for Liverpool has gone, because he asked what seemed to me a very foolish question and made a very foolish request, which he does not often do. He suggested that the Treasury should be asked what was the average amount of cheques. What would be the use of that? Supposing there are ten cheques for £100,000 and 100,000 cheques for £1. What is the use of obtaining an average? It would not give any indication of the number of small cheques or the number of cheques likely to be affected by this tax. The Chancellor of the Exchequer has been asked whether, in view of the fact that he has obtained his Budget without any alterations of taxation, he cannot accede to this request. I think there has been no alteration with the exception of an alteration in the differentiation of woodlands in the farmer's Income Tax. I do not call that an alteration, because I do not think it was ever intended; I think it slipped into the Bill without being intended. It is a very unusual thing that a big Budget of this sort, imposing tremendously additional large taxation, should go through without any alteration. If there is a very strong opposition to a particular tax—and there is a very strong opposition to this tax—amongst the very people who have contributed most to the additional taxation, it would be gracious on the part of the Chancellor of the Exchequer if he complied with their request, which is not made because the tax is going to hurt them, but with a sincere belief that the tax will do injury to the credit of the country and to the method of carrying on business. Under the circumstances, I think he might kindly consent to withdraw the tax.

Mr. J. MASON

The right hon. Gentleman does not pay a very fair compliment to the women of this country when he suggests that, instead of hiring a boy at 6s. a day, we should employ our wives running about to pay small bills.

Sir F. BANBURY

I did not mean that quite the reverse. What I said was that the wives are of a more economical turn of mind than their husbands, and they will say that they are not going to have these cheques written, but that they will go round and pay in cash.

Mr. MASON

I do not think I need labour the point as to whether the ladies should be forced to do this or whether they should do it voluntarily. The right hon. Gentleman bases his arguments on the assumption which has been the basis of a good many speeches, that the effect of this tax will be a very material reduction in the number of cheques. What is the difference in the actual cost in the use of cheques, even with the extra 1d., compared with other methods? It has been a rule that when a cheque is sent by post the receipt comes back by post. Under the new postal regulations which came into force yesterday, if a cheque is sent by post and the receipt comes back, the cost already, with the 1d. on the cheque, is 4d., so that the increased tax of 1d. on the cheque will only mean an increase from 4d. to 5d., or an increase of only 25 per cent. on paying a bill by cheque. What are the alternative suggestions? One hon. Member said it will lead to the payment of bills by Treasury notes. If you send Treasury notes you have to pay quite as much, and if you use postal orders we all know what the trouble is, as well as the cost. I do not think that anyone can seriously suggest that the method of paying the bills yourself, or sending boys or ladies to pay them, will be very largely adopted, and I cannot believe that people will abandon an easy method to which they are accustomed of paying their small bills by cheque simply because of an increase of 1d. I hope that the Chancellor of the Exchequer will not, for the sake of what seems to me to be a very exaggerated objection, give up a source of revenue, which, although it will only produce £1,000,000, can be got with very little trouble.

Mr. BONAR LAW

I have waited for a long time in order that the full views of the Committee might be given on this matter, and I am going to ask the Committee to support the Government in imposing this tax. I quite admit that there is a great deal to be said from the other point of view, and I can assure the Committee of this that it would be a much easier course for me simply to say that I will accede to the views which have been expressed by so many Members, and that I will drop the tax. That would certainly be a much easier course, but I am going to tell the Committee why I do not propose to take that course. It is perfectly true that I have received representations from a number of commercial bodies opposed to this tax, from the chambers of commerce in a number of towns, and the Associated Chambers of Commerce. I should be the last to undervalue the opinions of bodies of that kind, but what I wish the Committee to realise—and they must always do that in matters of this kind—is that it is the business of these bodies, in considering questions of taxaton, to look at the defects of the tax, and it is not their business to find a substitute. I have had deputations from bodies of this kind over and over again. I quite admit that there is not one of them influenced by any feeling that they wish to deprive the Government of money which is necessary to carry on the War; but they make all kinds of representations in regard to all kinds of taxes which have to be imposed, and the point of view which they look at is invariably the evil of the tax. I have to start from the point of view that all taxation is evil. I have to judge, taking everything as broadly as I can into account, whether the particular tax proposed is or is not one which is right in the conditions in which we are placed. Let us look at it from this point of view. T can assure my right hon. Friend the Member for Cleveland that there is no obstinacy in this matter, and there is no question of amour propre.

Mr. H. SAMUEL

I did not say so.

Mr. BONAR LAW

My right hon. Friend did not say so. I am saying this on my own account. I propose to ask the Committee to support this tax on two grounds. First of all, a great deal has been said about inflation. I was very glad to find that my right hon. Friend had taken the trouble, for which he deserves a great deal of credit, of examining the classic economists in order to arrive at a proper view of that subject. It is not the kind of reading which anyone would select for leisure moments. The feeling that I have experienced in making the same efforts in the past is that one is inclined to repeat the saying of Carlyle, What a man sees and cannot see over is as good as infinite. It is not easy to find exactly the clear lines we want from a study of those views. In this case there is not the smallest doubt, so far as I can judge, that the question of inflation does not arise in any way whatever in connection with this tax. I tried to prove that in the previous discussion on the tax but I happened to see a letter addressed to a friend by Professor Pigou which put the argument, that I have put much more crudely, so concisely, that perhaps the Committee will allow me to read the letter: In current discussion the probable effect of an increased duty on cheques has led to a good deal of contention. The main point in practice is whether the use of cheques is not likely to be diminished to any appreciable extent, and it is asked what kind of effect would follow if the use of cheques was seriously discouraged. The correct answer is perfectly simple; if the use of cheques is discouraged it means in the first instance that more currency notes will be drawn out into circulation to take the place of cheques. This means that the notes held in the tills and in reserve in the banks as a whole will be diminished. The normal result of this would be to force up the rate of discount and thereby directly to lessen bank loans and indirectly to lower prices. He goes on to say that of course the normal effect would be prevented by the artificial means which the Government take of keeping rates down and that the effect on inflation would be absolutely nil. Even if all the prophecies, which were put before us, were realised, at all events in my view—and the letter which I have read takes the same view—there would be no danger whatever of inflation.

I quite agree that there is another point of view to consider, and if I believed that the effect would be to diminish seriously the number of cheques used I would not think it worth while to proceed with the tax. But I do not believe that that will be the result, and I do not see how it can be the result. It is perfectly true that in the estimate which is given by the Inland Revenue authorities an allowance is made for a smaller revenue than we should have on the assumption that we had the same number of cheques as we have had. That is always done. They have got to make an estimate of some kind, but they are no more able to arrive at a correct estimate of this kind, which is psychological, than any other Member of this House. The real test of the question is, in what other way can anyone do the work which is now done by cheque more economically than by paying the increased tax? There is really no way whatever. If you desire to send the money by notes, as my hon. Friend has pointed out, even assuming that the amount falls into figures suitable for currency notes, you have either got to insure them or run the risk of their being stolen. On the other hand, if you wish to send the money by postal order, the saving is almost nil, and in some cases it is less than nil, and you have got to go to the post office to get the postal order. Does anyone believe that people who are accustomed to the use of cheques, are going to revert to the old custom of walking round themselves or sending somebody else round to pay their accounts rather than pay the extra duty? It has been said that people may revert to the custom, which was in vogue when I entered business, of having cash days, but that would not be done now. It would not pay. The desire not to pay the extra 1d. would not induce people to take that course.

It is all very well to say that this tax represents only £1,000,000, part of which we may never get. As my right hon. Friend has pointed out, if you carry that argument right along, it would apply to every tax that there is anything strong to be said against. We must not neglect the million, if it is a million, which can be got without inconveniencing the people of this country. In considering taxation a Chancellor of the Exchequer has to take into account the facility with which it can be collected, as well as other things. It is perfectly true that I should never have dreamt of putting on this additional tax if it meant an increase of cost or increased difficulty in collection. It means nothing of the kind. Suppose the worst happens, it does not mean inflation. It does mean inconvenience to a certain number of people, but there is something to be remembered in connection with that. Unfortunately—andthis is not in the least due entirely to currency notes or anything of that kind—inflation exists, and as the result of that there are higher prices. Money has not the same value as it had before the War. We find that in other directions. We find, for instance, that newspapers which used to be sold for 1d. are now sold for 2d. I took the trouble to ask some of those interested in them as to what has happened, and they told me that at first there a falling off, but that now the circulation was just back where it was, and that people pay the 2d. precisely as if they paid the 1d. I believe that that will happen here, and, if I believe that, am I not right in asking the House of Commons to support the Government in getting this additional revenue?

I would not feel justified in sticking to this if I found anything like the unanimity of hostility to it which existed to the tax which was proposed toy Sir Michael Hicks-Beach. But that is not the case now. The Committee ought to remember that the natural inclination of everyone who is accustomed to doing business is against the change. Therefore to my mind the fact that so large a number—I put it no higher than that—of the class which defeated Sir Michael Hicks-Beach's proposal, now offer no opposition and think that on the whole this is not a bad source of revenue is, in my opinion, much more important than the view of those who naturally take the line that this is going to be inconvenient and that they would far rather not see it done. If I seem to be obstinate in the matter, it is only because I am absolutely convinced that all these exaggerated descriptions of the evils that are going to happen will not be realised, that there will be no serious diminution of cheques, and that the Government will get the additional £1,000,000 of revenue. After all, I have a responsibility. I have got to be convinced either that it is not a proper source of raising revenue or I have got to ask the House of Commons to support me in this proposal. I have heard the Debates, and I have listened to every representation that has been made to me from outside, and I remain convinced that the views which have been expressed are entirely exaggerated, that after we have a year's experience of this tax we shall find that the use of cheques will go on as before, and that the Treasury will get the additional benefit.

Mr. LEIF JONES

There are some additional things to be said in justice to those who have opposed this tax and remain opposed to it. The right hon. Gentleman has shown that he has has not met with the unanimity of opposition to this tax which was shown when the change was proposed by Sir Michael Hicks-Beach. But the right hon. Gentleman forgets that he is proposing a Budget in the middle of a war, and when all of us are very unwilling to oppose any tax whatsoever which the Chancellor of the Exchequer may think desirable, in order to raise revenue, and I put it to him whether, if we were getting the unbiassed opinion of the business world, apart from the question of the necessity of this great revenue, he would have found similar unanimous opinion against this tax to-day as was expressed when it was proposed by Sir Michael Hicks-Beach. My hon. Friend the Member for Windsor said that he did not believe that any diminution in the use of cheques-would follow, and he attributed that argument to those who are opposing this tax. I do hold the view that this tax must tend to diminish the use of cheques, but the right hon. Gentleman must admit, in reference to what he said about the experts' opinion, that that estimate means, if it was realised, that there will be from 40,000,000 to 50,000,000 fewer cheques used in the coming year than were used last year. That is on the basis of his own figures. Therefore it must not be said that we who are opposing the tax have invented that argument.

It is not a small diminution which is estimated by the Inland Revenue experts; it is a reduction of 40,000,000 out of 320,000,000 cheques, or 12½ per cent. of the total number of cheques used. This is not a very small matter, but one which will produce a considerable effect on our business world. I do think that this tax is a reactionary tax. The whole tendency has been to substitute cheques for other forms of paying accounts, and my right hon. Friend the Member for Cleveland was thoroughly justified in saying that the cheque system is the most civilised system of dealing with accounts that has ever been devised. I think it a pity that for so small an amount the Chancellor of the Exchequer is going to set back the movement in the direction of small cheques, because it must have that effect. I have watched the growth of the small cheques. I remember quite well when many people would not draw cheques for less than £10; I remember that certain banks in this country looked very much askance at you if you drew a cheque for less than £3 or £4; and I remember the establishment of a cheque bank in order to provide cheques for small sums like 1s. 10d. and 2s. 1d. That cheque bank was set up, and found very useful by many people who did not like to draw for small sums on their own banks. When the cheque bank ceased I wrote to the manager of my bank to know what I ought to do about these small amounts, and he wrote back to say that he would be happy to cash my cheque for as small an amount as I chose. From that time I have drawn cheques for sums very often not exceeding 2s., and I find that a much more convenient principle. The majority of cheques drawn nowadays, I think, are for sums under £10. It is very difficult to get a figure, and, of course, an average would be useless, but the number of small amounts paid by cheque has been steadily increasing.

I greatly regret that the Chancellor of the Exchequer has not seen his way to yield to the almost unanimous wish of the Committee, so far as it has expressed itself, that this tax should not be adhered to. I will not go into the question, which has been fully dealt with, of the inflation of the currency, if it takes place, as the result of more currency notes. But my

right hon. Friend must surely realise how serious a matter these currency notes will be when peace comes and they come back to the Treasury, as they will; and anything which tends to increase them must in itself be an evil. I had hoped, up to the very last moment, that this Cheque Tax had only been put into the Budget in order that the Chancellor of the Exchequer might yield it up under pressure. It is not often that a great Budget goes through, without their being revision. The right hon. Gentleman is very skilful in his management of the Committee on this Budget, and I congratulate him in all sincerity. He has been perfectly open and straight. He has told us thoroughly the meaning and, as far as he knew, the effect of every tax, and he has dealt with the Committee with great straightness and with great skill. I regret that the Chancellor of the Exchequer has not seen his way to deal with what I feel sure is the wish of the great majority of the Committee. I do not grudge him the money, but he will forgive me for thinking that the matter is one of importance, and if it goes to a Division I shall feel constrained to go into the Lobby against the Motion.

Sir C. HENRY

May I ask my hon. Friend the Member for Manchester whether he cannot now see his way to withdraw his opposition, after the statement of the Chancellor of the Exchequer, though I do not altogether agree with the right hon. Gentleman. [HON. MEMBERS: "No!"]

Question put, "That the Clause, as amended, stand part of the Bill."

The Committee divided: Ayes, 205; Noes, 40.

Division No. 48.]	AYES.	[6.34 p. m.
Acland, Rt. Hon. Francis Dyke	Bigland, Alfred	Compton-Rickett, Rt. Hon. Sir J
Addison, Rt. Hon. Dr. Christopher	Blake, Sir Francis Douglas	Cornwall, Sir Edwin A.
Adkins, Sir W. Ryland D.	Boles, Lieut.-Col. Dennis Fortescue	Craig, Colonel Sir J. (Down, E.)
Agg-Gardner, Sir James Tynte	Booth, Frederick Handel	Craik, Rt. Hon. Sir Henry
Allen, Arthur A. (Dumbartonshire)	Boscawen, Sir Arthur S. T. Griffith-	Currie, George W.
Baird, John Lawrence	Bowerman, Rt. Hon. C. W.	Dairymple, Hon. H. H.
Baker, Rt. Hon. H. T. (Accrington)	Boyton, Sir James	Dalziel, Davison (Brixton)
Baker, Maj. Sir Randolf L. (Dorset, N.)	Brace, Rt. Hon. William	Davies, David (Montgomery Co.)
Baldwin, Stanley	Brassey, H. L. C.	Davies, Ellis William (Eiflon)
Balfour, Sir Robert (Lanark)	Bridgeman, William Clive	Davies, Sir W. Howell (Bristol, S.)
Barnes, Rt. Hon. George N.	Brunner, John F. L.	Denman, Hon. Richard Douglas
Barnett, Capt. R. W.	Carew, Charles R. S. (Tiverton)	Denniss, E. R. B.
Barnston, Major Harry	Carr-Gomm, H. W.	Dickinson, Rt. Hon. Sir W. H.
Barran, Sir Row. Hirst (Leeds. North)	Cator, John	Dixon, C. H.
Barton, Sir William	Cautley, H. S.	Dougherty, Rt. Hon. Sir J. B.
Bathurst, Col. Hon. A. B. (Glouc., E.)	Cecil, Rt. Hon. Evelyn (Aston Manor)	Duncan, C. (Barrow-in-Furness)
Beauchamp, Sir Edward	Clyde, James Avon	Du Pre, Major W. Baring
Beck, Arthur Cecil	Clynes, John R.	Falle, Sir Bertram Godfray
Beckett, Hon. Gervase	Coats, Sir Stuart A. (Wimbledon)	Fell, Sir Arthur
Bentham, George Jackson	Cochrane, Cecil Algernon	Ferens Rt. Hon. Thomas Robinson
Fisher, Rt. Hon. H. A. L. (Hallam)	Lindsay, William Arthur	Sanders, Col. Robert Arthur
Fisher, Rt. Hon. W. Hayes (Fulham)	Lloyd, George Butler (Shrewsbury)	Scott, Leslie (Liverpool, Exchange)
Fitzroy, Hon. Edward A.	Lonsdale, James R.	Sharman-Crawford, Colonel R. G.
Fletcher, John Samuel	Lowe, Sir F. W. (Birm., Edgbaston)	Shaw, Hon. A.
Foster, Philip Staveley	Loyd, Archie Kirkman	Smallwood, Edward
Gardner, Ernest	MacCaw, William J. MacGeagh	Smith, Capt. Albert (Lanes., Clitheree)
Gelder, Sir William Alfred	McMicking, Major Gilbert	Somervell, William Henry
Gibbs, Col. George Abraham	McNeill, Ronald (Kent, St. Augustine's)	Spear, Sir John Ward
Gilbert, J. D.	Maden, Sir John Henry	Stanier, Captain Sir Beville
Gilmour, Lieut.-Col. John	Mallalieu, Frederick William	Stewart, Gershom
Glanville, Harold James	Manfield, Harry	Stirling, Lieut-Col. Archibald
Goulding, Sir Edward Alfred	Money, Sir L. G. Chiozza	Strauss, Edward A. (Southwark, West)
Greenwood, Sir G. G. (Peterborough)	Morton, Sir Alpheus Cleophas	Sutton, John E.
Greenwood, Sir Hamar (Sunderland)	Mount, William Arthur	Taylor, John W. (Durham)
Greig, Col. J. W.	Munro, Rt. Hon. Robert	Terrell, George (Wilts, N.W.)
Gretton, Col. John	Neville, Reginald J. N.	Terrell, Major-Henry (Gloucester)
Gwynne, R. S. (Sussex, Eastbourne)	Newman, Sir Robert (Exeter)	Thomas-Stanford, Charles
Hambro, Angus Valdemar	Nicholson, William G. (Petersfield)	Tickler, T. G.
Hamersley, Lt.-Col. Alfred St. George	Nuttall, Harry	Toulmin, Sir George
Hamilton, Rt. Hon. Lord C. J. (Kens.)	O'Grady, James	Turton, Edmund Russborough
Hanson, Charles Augustin	Orde-Powlett, Hon. W. G. A.	Walker, Col. William Hall
Harcourt, Robert V. (Montrose)	Palmer, Godfrey Mark	Walsh, Stephen (Lanes., Ince)
Hardy, Rt. Hon. Laurence	Parker, James (Halifax)	Wardle, George J.
Harmood-Banner, Sir J. S.	Parkes, Sir Edward E.	Wason, Rt. Hon. E (Clackmannan)
Harmsworth, Cecil (Luton, Beds.)	Parrott, Sir James Edward	Weston, J. W.
Harris, percy A. (Leicester, s.)	Pearce, Sir Robert (Staffs, Leek)	Wheler, Major Granville C. H.
Henry, Denis S. (Londonderry, S.)	Pearce, Sir William (Limehouse)	Whiteley, Sir H. J.
Hewart, Rt. Hon. Sir Gordon	Pease, Rt. Hon. Hrbt. Pike (Darlington)	Whyte, Alexander F. (Perth)
Hewins, William Albert Samuel	Peel, Major Hon. G. (Spalding)	Williams, Aneurin (Durham, N. W.)
Hickman, Brig.-Gen. Thomas E.	Perkins, Walter Frank	Williams, Penry (Middlesbrough)
Hills, John Waller	Peto, Basil Edward	Williams, Col. Sir Robert (Dorset, W.)
Hodge, Rt. Hon. John	Philipps, Maj.-Gen. Sir Ivor (S'ampton)	Williams, Thomas J. (Swansea)
Hohler, Gerald Fitzroy	Philipps, Capt. Sir Owen (Chester)	Willoughby, Lieut.-Col. Hon. Claud
Holmes, Daniel Turner	Pollock, Sir Ernest Murray	Wilson, Rt. Hon. J. W. (Worcs., N.)
Hope, James Fitzalan (Sheffield)	Pratt, J. W.	Wilson, W. T (Westhoughton)
Hope, Lt.-Col. J. A. (Edin., Midlothian)	Pretyman, Rt. Hon. Ernest George	Wilson Fox, Henry (Tamworth)
Hughes, Spencer Leigh	Price, C. E. (Edinburgh, Central)	Winfrey, Sir Richard
Illingworth, Rt. Hon. Albert H.	Price, Sir Robert J. (Norfolk, E.)	Wing, Thomas Edward
Ingleby, Holcombe	Pryce-Jones, Col. E.	Winterton, Captain Earl
Jackson, Lieut.-Col. Hon. F. S. (York)	Rees, G. C. (Carnarvonshire, Arfon)	Wood, Hon. E F L. (Yorks, Ripon)
Jacobsen, Thomas Owen	Rees, Sir J. D. (Nottingham, E.)	Wood, Sir John (Stalybridge)
Jones, H. Haydn (Merioneth)	Roberts, Rt. Hon. George H. (Norwich)	Wright, Captain Henry Fitzherbert
Jones, J. Towyn (Carmarthen, East)	Roberts, Sir S. (Sheffield, Ecclesall)	Yeo, Sir Alfred William
Jones, W. Kennedy (Hornsey)	Robinson, Sidney	Young, William (Perthshire, East)
Kellaway, Frederick George	Royds, Major Edmund	Younger, Sir George
Kinloch-Cooke, Sir Clement	Runciman, Sir Walter (Hartlepool)	Yoxall, Sir James Henry
Lane-Fox, Major G. R.	Rutherford, Sir W. (L'pool, W. Derby)
Law, Rt. Hon. A. Bonar (Bootle)	Samuel, Samuel (Wandsworth)	TELLERS FOR THE AYES.—Lord E.
Levy, Sir Maurice	Samuels, Arthur W. (Dublin, U.)	Talbot and Mr. Dudley Ward.
Lewis, Rt. Hon. John Herbert
NOES.
Baker, Joseph Allen (Finsbury, E.)	Jardine, Ernest (Somerset, East)	Rowlands, James
Barlow, Sir John Emmott (Somerset)	Jones, Rt. Hon. Leif (Notts, Rushcliffe)	Samuel, Rt. Hon. H. L. (Cleveland)
Bathurst, Capt. Sir C. (Wilts., Wilton)	King, J.	Smith, H. B. Lees (Northampton)
Bryce, John Annan	Lambert, Richard (Wilts, Cricklade)	Spicer, Rt. Hon. Sir Albert
Chancellor, Henry George	M'Callum, Sir John M.	Taylor, Theodore C. Radcliffe)
Cowan, Sir W. H.	Macdonald, J. Ramsay (Leicester)	Tootill, Robert
Duncan, Sir J. Hastings (Yorks, Otley)	Mason, David M. (Coventry	Trevelyan, Charles Philips
Essex, Sir Richard Walter	Middlebrook, Sir William	White, J. Dundas (Glasgow, Tradeston)
Fleming, Sir J. (Aberdeen, S.)	Needham, Christopher T.	Whitehouse, John Howard
Henderson, Rt. Hon. A. (Durham)	Outhwaite, R. L.	Wiles, Rt. Hon. Thomas
Henderson, John M. (Aberdeen, W.)	Pringle, Wiliam M. R.	Wood, Rt. Hon. T. McKinnon (Glasgow)
Hogge, James Myles	Richardson, Albion (Peckham)
Holt, Richard Durning	Richardson, Thomas (Whitehaven)	TELLERS FOR THE NOES.—Sir F.
Horne, Edgar	Robertson, Rt. Hon. John M.	Banbury and Mr. Lough.
Hudson, Walter

Question put, and agreed to.

Clause 37 (Suspension of New Sinking Fund 50 &51 Vict., c. 16); Clause 38 (Amendment of s. 35 of 7 & 8 Geo. 5, c. 31); and Clause 39 (Amendment of s. 42 of 6 & 7 Geo. 5, c. 24), ordered to stand part of the Bill.

CLAUSE 40.—(Power to Extend Currency of War Saving Certificates.)

Notwithstanding anything in the War Loan Acts, 1914 to 1917, or in any Regulations made with respect to, or in any conditions relating to the issue of, war saving certificates, any such certificates issued under those Acts shall not, if the Treasury so direct, and subject to such conditions with respect to interest and otherwise, as they may impose, be required to be repaid or redeemed within five years after the date on which it was issued, in any case in which the holder of the certificate is at the date on which the certificate becomes repayable the holder of other war saving certificates which do not become repayable till a later date, and Section forty-two of the said Act shall apply with respect to any interest payable in respect of the certificate for the period after the expiration of five years from the date on which it was issued up to the date on which it is repaid or redeemed as it applies to the accumulated interest mentioned in that Section:

Provided that nothing in this Section shall prejudice any right of the holder of any War Savings Certificate, if he so desires, to have the amount payable under the certificate paid to him on or before the expiration of five years after the date on which the certificate was issued.

Amendment made: Leave out the words "said Act" ["said Act shall apply"], and insert instead thereof the words "Finance Act, 1916."—[Mr. Bonar Law.]

Clause, as amended, ordered to stand part of the Bill.

Clause 41 (Provision for Enabling the Post Office to Exercise Powers in Relation to Insurance Stamps) ordered to stand part of the Bill.

CLAUSE 42.—(Construction and Short Title.)

(l) Part I. of this Act so far as relates to duties of customs shall be construed as one with the Customs (Consolidation) Act, 1876, and any enactment amending that Act, and so far as it relates to duties of excise shall be construed together with the Acts relating to duties of excise and the management of those duties.

Part II. of this Act shall be construed with the Income Tax Acts, 1842 to 1853, and any other enactments relating to Income Tax, and those enactments and Part II. of this Act are in this Act referred to as the Income Tax Acts.

Part III. of this Act shall be construed with the Finance (No. 2) Act, 1915.

(2) The Acts specified in the Fourth Schedule to this Act are hereby repealed to the extent specified in the third column of that Schedule:

Provided that, notwithstanding the repeal by this Act of any enactment, the sum which under Sub-section (2) of Section seventeen of the Finance Act, 1907, would have been paid into any local taxation account in respect of the local taxation (customs and excise) duties if this Act had not passed, shall continue to be so paid.

(3) This Act may be cited as the Finance Act, 1918.

Amendment made: Leave out the words, Provided that, notwithstanding the repeal by this Act of any enactment, the sum which under Sub-section (2) of Section seventeen of the Finance Act, 1907, would have been paid into any local taxation account in respect of the local taxation (Customs and Excise) duties if this Act had not passed, shall continue to be so paid."—[Mr. Bonar Law.]

Clause, as amended, ordered to stand part of the Bill.

NEW CLAUSE.—(Reduction in Certain Cases of Entertainment Tax.)

On and after the first day of October, nineteen hundred and eighteen, Section one of The Finance (New Duties) Act, 1916, as amended by Section three of The Finance Act, 1917, shall have effect as if for the words—

"does not exceed 2d	…	½d.
exceeds 2d. and does not exceed	4d.	ld.
exceeds 4d. and does not exceed	6d.	2d.
exceeds 6d. and does not exceed 1s	0d.	3d.,"

there were substituted the words—

"does not exceed 2½d.	…	½d.
exceeds 2½d. and does not exceed	4d.	1d.
exceeds 4d. and does not exceed	7d.	2d.
exceeds 7d. and does not exceed 1s	0d.	3d."
—[Mr. Bonar Law.]

Brought up, and read the first time.

Motion made, and Question proposed,

"That the Clause be read a second time."

Sir J. D. REES

I understand—in fact I see from the new Clause of the Chancellor of the Exchequer—that it will be unnecessary for myself and others to put forward our Amendments or to proceed any further with them. The ½d. tax of the Chancellor of the Exchequer covers the 2½d. seats and the 2d. tax covers the 7d. seats. By so doing he not only meets the wishes of the cinema trade, but he is entitled to their gratitude for the courteous hearing which he gave to their deputation, and for the arrangements he has now made. He has also earned the gratitude of those who frequent these exhibitions in their thousands. The concession not only improves the position of the weak theatres, but it is also greatly valued as a recognition of the educational and propagandist work of the cinema, and is a most useful counter-blast to the strictures of clerical and other bigots who seem to think that in anything amusing there must lurk something improper. The fact is that this form of entertainment provides most welcome rest to the weary, and the House will understand what it is to be in a place where no one need pretend to listen, where no one is allowed to speak, and where no one is allowed to seek, or at any rate ought not to try, to catch anybody else's eye. I hope the Chancellor of the Exchequer will understand that my attitude is one of gratitude, and I am only venturing to ask him this: It is a fact that the Amendments on the Paper all ask him to make this concession from the 1st October? That date arose in this way, that when the tax was newly introduced the postponement to the 1st October was a concession, but now that the Chancellor of the Exchequer is making a concession to-day I would ask whether it will not fall within the spirit of the arrangement made, and also suit him equally well, if the concession takes effect from the commencement of the Act instead of waiting until the 1st October. There is one practical way in which all of us interested in the cinema industry can show our gratitude to the Chancellor, and that is by not delaying him for one moment that can be avoided in getting through a Budget of which we all approve in general, and which I particularly approve in this respect. But will the Chancellor of the Exchequer very kindly let us know whether under the circumstances he can make his welcome concession thrice welcome by allowing it to take effect from the commencement of the Act?

Mr. O'GRADY

I also want to thank the Chancellor of the Exchequer for the concession he has made. I had the great privilege and honour of leading the deputation to the Chancellor on this point, and the case was made out to him by the trade itself. My only interest in the matter is the fact that the concession does not limit the amenities of our own people particularly in the munitions area. I want to thank the right hon. Gentleman for what he has done, and at the same time to appeal with my hon. Friend that he should make the concession more gracious still by altering the date from the 1st October to June. Having stated that, I want finally to thank the Chancellor of the Exchequer for what he has done in the matter.

Mr. BONAR LAW

This is one of the opportunities which a Chancellor of the Exchequer is glad to have. I received a deputation representing the cinema people; they put their views to me with great moderation and with strong arguments, and in the end they were able to convince me that I could make a concession which would be of value to them, and which would at the same time cost the Revenue very little. That is precisely the kind of concession one likes to make. As regards the time at which it should come into operation, it was, I believe, arranged by the experts of the Department that it should be on the 1st October, but that is no part of the arrangement made by me. I made a promise to do this, and I had not in mind at what time it should take effect. I shall be quite ready, therefore, to make it earlier than the 1st October, although I cannot fix the date now. I will consider it before the Report stage, and then put in some date a little earlier than the 1st October.

Clause accordingly read a second time, and added to the Bill.

NEW CLAUSE.—(Amendment of s. 34 of 7 and 8 Geo. 5, c. 31.)

Section thirty-four of the Finance Act, 1917, shall have effect as though there were inserted therein after the words "price of issue," in Sub-section (3) and Sub-section (4) thereof, the words "or such other price as was specified in the conditions subject to which the stock or bonds were issued as the price at which the stock or bonds were to be valued for the purposes of this Section."—[Mr. Bonar Law.]

Brought up and read the first and second time, and added to the Bill.

NEW CLAUSE.—(Cessation of Land Value Duties.)

Increment Value Duty, Undeveloped Land Duty, and Reverion Duty imposed by Part I. of The Finance (1909–10) Act, 1910, shall not be charged, assessed, or collected after the passing of this Act.—[Colonel Royds.]

Brought up, and read the first time.

Colonel ROYDS

I beg to move, "That the Clause be read a second time."

I think it will be generally admitted that anticipations have not been realised with respect to the scheme of land taxation of which these three taxes dealt with in my Clause form a part. The scheme has has not been a fiscal success, and it has not facilitated, but has rather retarded the development of building land and the provision of houses, and in particular of workmen's houses. We are now confronting a very serious housing problem, and it is with the sole object of removing the difficulties in front of us in the solution of that problem that I move this Clause. I think I had better prove as shortly as I can the two propositions which I have made, the first of which is that this land taxation is not a fiscal instrument at all. The scheme has now been in operation, including the estimate for 1918, for nine years, and the total proceeds of these three taxes, including £135,000 estimated for the current year, amount to £1,092,000. That is an average of £120,000 a year, and that is all. The cost of the valuation, including the estimated cost for the current year, amounts in the nine years, to £4,200,000, or an average of about £465,000 a year—about four times the amount which the taxes have yielded. These are the plain figures, and they were elicited by question and answer from the Chancellor of the Ex- chequer a little while ago. I do not want to make the worst of the figures at all, and I am ready to admit that the War must have affected them considerably. For instance, from the Undeveloped Land Duty there is now no estimated yield at all, and we know that neither the Increment Duty nor the Reversion Duty has been collected to the full extent, but I have given the figures showing what has been collected and estimated for, and the net result is that the produce of the taxes is about one-fourth of the cost of valuation.

7.0 P.M.

I know that the Inland Revenue authorities at Somerset House think—and perhaps rightly think so—that the Estate Duty receipts and those from Death Duties have to some extent increased by reason of the existence of the valuation, and there is no doubt that is so. But that question is not affected by my Clause, because I am not suggesting that the valuation should be dealt with at all. If these taxes are abolished in the way I propose there will be a very large reduction in the cost of the valuation, which largely consists in making an inquiry for valuation on every "occasion," so-called, on a lease of over fourteen years on transfer or on a death taking place, and there must be some hundreds of thousands of such "occasions" each year. If there is no need for making these valuations, it will be seen what a large saving there will be. Besides that, it sets men all over the country free for national work on which they will be very much better employed in times like these than in assessing or attempting to assess and collect these duties. I would call to mind the words of the right hon. Gentleman the Member for East Fife (Mr. Asquith) on the 10th August, 1909, when these taxes were under discussion here. He said: I defend this tax and all the taxes contained in this Finance Bill as fiscal instruments, and if anyone can demonstrate to me that they are not, I shall agree they ought to be excised from the Bill. I shall agree that they should be excised if anyone can show that they will not be useful, profitable, and fruit-bearing for fiscal purposes."—[OFFICIAL REPORT, 10th August, 1909, cols. 318 and 319, Vol. 9.] Nine years' experience has shown us amply and abundantly that they are not useful, profitable, or fruit-bearing for fiscal purposes at all. The next point I made, and the one to which I attach the most importance, is in reference to the housing question, and it is on this ground solely that I move this Clause now, because I should not refer to land taxes in war-time unless it were necessary to do so for war purposes. But this building scheme is really the first problem of the reconstruction measures which we shall have to take after the War. It cannot be satisfactorily dealt with or disposed of until this difficulty of these land taxes is out of the way, and it is on this ground alone that I approach the matter. I feel that as the building question is coming on and is so acute I must ask the House to consider this matter most seriously. I said just now that the effect of these taxes was that building was retarded instead of being helped. It does not much matter what I think about that or what hon. Members of this House think, or, indeed, what the Government think. What we have got to ask is the opinion of those who build houses and those who will build them in the future. I may think these taxes are a bar to building and other hon. Members may think I exaggerate. Possibly I do, but our opinion is worth nothing whatever unless it is founded on the opinion of those experts and persons to whom we looked to build houses in the past and who we expect to build them in the future. I wish to give the House the opinion of those people. It is a little odd, I must admit, that with such a low produce from the taxes builders and land developers should be so frightened at what is apparently such a small tax, and I can quite understand hon. Members thinking that their alarm could possibly be disposed of. But I can assure hon. Members that this fear has existed ever since the scheme was evolved. It is the uncertainty, the irritation, the unfairness, as they think, of this method of taxation, and the utter inability to procure money for building purposes, and also the great fear that these taxes may be largely increased, and I should say that the amount of the yield has only been kept down to the present small total by litigation at very great cost on the part of private individuals, and if anybody thinks he can get money to put into a scheme in which there is certain to be early litigation, he cannot have very much experience of business transactions. This whole scheme is beset with difficulties, and no one understands them. All they know is that every move they make a valuation has to be made, which they do not understand, and a claim may or may not be made. As it has been shown that this is not a fiscal instrument, cannot we accept, on this point, the opinion of those people to whom we have to look to provide houses in the future—that they cannot get the money, and they cannot build until these obstacles are removed? It seems to me that we are bound to act on their opinion. You may ask me for some evidence as to who holds this opinion. I have here a list of resolutions passed by practically everybody in the country connected with building and land development, including the Surveyors' Institute, the Auctioneers, National Housing Conference, National Federation of Building Trades Employers—consisting of 6,000 members —Houseowners' Association, Association of Trade Protection Societies, Edinburgh Merchant Company, Ratepayers' Associations practically throughout the country, Auctioneers' and Estate Agents' Institute; numerous resolutions by corporations and rural and urban councils —fifty of them; and I have letters from 500 private builders, whose opinion I asked, and who have replied practically unanimously. Some say that these taxes are the sole cause; others say they are the main contributory cause; but they all agree they are very important, and that they contribute to the shortage of houses.

I believe the evidence given before the Building Committees set up by the President of the Local Government Board is absolutely overwhelming. Witness after witness testifies to the same effect that private enterprise cannot start, and will not start, simply because they cannot get the money, because of these taxes, which, they say, hit the credit and security of land; and, if credit is not there, capital is not available, and, of course, land and the value of land, is a very small affair in connection with the cost of building. The whole point in connection with houses is, can you get the capital, and at what rate can you get it? If credit is hit, of course that is not forthcoming. I think we ought to consider who has provided the houses in the past, because the Government have now a very considerable proposal for the provision of houses by municipal authorities. It is to be hoped that a satisfactory scheme may be evolved, because the municipal authorities would certainly have to take part in the solution of the housing problem. In the past private enterprise has housed 97 per cent. of the population. The right hon. Member for Battersea (Mr. Burns), when President of the Local Government Board in 1914–15, calculated that out of 5,528,000 dwelling-houses in England and Wales, as shown in the Return of Inhabited House Duty, not more than 15,000 had been erected by local authorities under the Housing Act of 1890. That means that private enterprise had built5,500,000 of the houses in the country at that time, and the local authorities had only built 15,000, with all the Acts passed and all the assistance given to them.

What I want to ask the Government is this: Here are those persons who built those 5,500,000houses, or those representing them, one and all telling the Government that they cannot build houses in the future unless the credit of land is restored by the repeal of these land taxes. On the other hand, the Government are setting up a scheme for the erection of houses by municipal authorities, who, in the past, notwithstanding all the assistance they have had, have only built 15,000 houses. The right hon. Gentleman the Member for Battersea went on to say: We recognise that in England and Wales private enterprise has always been, and, so far as can be foreseen, will continue to be, the main source of the provision of houses for the working classes. Every Member representing a constituency must know what the views of the builders in his constituency are, and not only the builders, but the local authority, district council, and so forth. Opinion, I think, is practically unanimous that if private enterprise is to be encouraged, this step ought to be taken. I think I may say confidently that I do not believe there is a single Member in this House who will get up and say that he has not gained that experience in his own constituency. I only want to impress upon the Government the seriousness of the situation, and how absolutely necessary it is that they should understand that these people are anxious to go forward. It is quite true this is not the only cause of the failure. But they say it is the main contributory cause, and if there are other causes, is not that all the more reason why we should remove the main cause? [An HON. MEMBER: "The main cause is the rates!"] They do not think so. I have no doubt rates have a good deal to do with it, but every builder in the country is of opinion either that these are the main contributory causes or that they have a very detrimental effect on credit and the provision of capital. I rather gather the Government, for some reason I do not understand, are not prepared to accede to this proposal. I cannot help thinking it would meet with general acceptance in the Committee. I should like to know from what body of Members any opposition can come to a proposal of this sort to repeal a tax which produces nothing, which costs a great deal, and which is preventing people from getting houses! I am utterly at a loss to understand it. I may be exceedingly ignorant and stupid, and out of touch with the House, but it never occurred to me for a moment when I put down this Clause that it would not meet with the general acceptance of the Committee. I put it down in sheer honesty, and, I suppose, stupidity, as it seems. In any case, the matter is so exceedingly serious that if the Government do not see their way to accept this Clause now, I would ask the right hon. Gentleman the Chancellor of the Exchequer to tell me why the Clause cannot be accepted now, and whether he could give me some definite assurance, on which I could rely, to satisfy these people more or less that the matter will be dealt with shortly, that it will receive the careful consideration of the Government, that they are alive to the situation, and that we may hope that the matter will be satisfactorily dealt with? I am sure a statement of that sort from the Chancellor of the Exchequer would give general satisfaction.

Mr. C. PRICE

I listened to the speech of the hon. and gallant Member with a considerable amount of interest, because it so happens that since the War began this subject has been raised several times in this House. Though a party truce has existed since the War began, the right hon. Member for the City of London put down a Clause on a former Finance Bill asking for this tax to be suspended. The Chancellor of the Exchequer said he would not press landlords engaged in the War to make these returns, with the result that this Act has been a dead letter in many respects. Further, the Act has been fought in courts of law. The hon. and gallant Member who has just spoken has spoken more or less as a Simple Simon, but, if I remember aright, he has raised this before, and therefore when he comes with such an air of simplicity—

Colonel ROYDS

I fought this tax tooth and nail before the War.

Mr. PRICE

Yes, but the hon. and gallant Member has also raised it since the War.

Colonel ROYDS

I deny it. I make a statement which is absolutely and strictly true, that I made no reference whatever to this Land Tax in or out of this House since the War began.

Mr. PRICE

I think my point is perfectly clear, which is, that when he now says he is raising this question he has been a very old fighter against this tax from the very beginning, and, therefore, inasmuch as we agreed at the beginning of the War that no question of party difference of opinion should be raised in this House, I say it is scarcely fair that he should raise it at this time—[An HON. MEMBER: "What about Home Rule?"]— more particularly as he was an opponent at the early stages. The right hon. Member for the City of London, of course, raised it very shortly after the War began, and a pledge, which I very much regret, was given by the present Prime Minister, who was then Chancellor of the Exchequer, that, inasmuch as many landlords or proprietors were engaged in the War, they should not be called upon to make a return. Accordingly the House of Commons and the country have never had the full benefit of the Act which was passed. The hon. Member has given us some figures showing the cost of valuation. He said that we had only raised one-fourth of the cost of valuation. None of us ever expected that the cost of this valuation would be repaid immediately or within a few years of the passing of this Act. As has been pointed out, the Chancellor of the Exchequer has derived enormous benefit from this valuation through the Death Duties. [HON. MEMBERS: "Oh!"] Oh yes, he has. I will give hon. Members a case if they like. I know one estate where the Government valuers returned the value of the estate at 7,100,000 odd pounds. The agent of the estate returned it at 5,800,000 and odd pounds. There was a difference—I am speaking from memory—in the amount claimed by the Chancellor of the Exchequer of something like £38,000. The men who returned the valuation for the Government had been discharged, and so the Government had nobody to go into the Court of Law and defend their own valuation.

There has been—and I am speaking with authority—an enormous increase in the amount which the Chancellor of the Exchequer has derived from Death Duties entirely as a result of the passing of this Act. Therefore, it is scarcely fair to say, in view of the fact of the War, that the amount which has been yielded to the Chancellor of the Exchequer from the most important of these duties is a fair test of what it would have been had the War not intervened. My main contention, however, is this: Inasmuch as this valuation which was in the Budget of 1909–10, and which caused the greatest amount of acute difference of opinion in the country, which led to the great conflict with the House of Lords—to bring up this just now and to reopen this controversy at this time would, in my judgment, be a gross breach of the truce which was entered into at that time. It would be grossly unfair. I accordingly sincerely trust that the Chancellor of the Exchequer will in no sense listen to this proposal, and that the Government, at all events, will have clean hands in this matter.

Mr. BONAR LAW

Now that the Committee has had the advantage of listening to the protagonists on both sides, I hope they will not think it necessary for any lengthy discussion on this subject to take place. Listening, as I did again, to my hon. and gallant Friend on this subject, it is very difficult for me to realise that I used to hear his speeches on the same lines before the War, and supported him as well as I could at that time—it is, I say, very difficult to realise that far three years, or nearly, I have been the colleague of the right hon. Gentleman, who was then Chancellor of the Exchequer, and who is responsible for these dirties. The hon. Gentleman behind me spoke of my hon. and gallant Friend opposite as a Simple Simon; of one who was trying to make out he was not so simple as he looked—[Laughter]—I beg my hon. and gallant Friend's pardon, not so simple as his speech would seem to imply. I can assure my hon. Friend he is doing my hon. and gallant Friend an injustice. My hon. and gallant Friend came to see me on this subject two or three days ago. It was with the greatest difficulty I was able to persuade him that it was not possible for me to take the view that it was my duty immediately to have these taxes repealed. That really was his view. He has asked me now to say why I am acting in that spirit. It is rather difficult for me to say this. I took part in the Debates on these taxes at the time. I do not think that my views have in any way changed. Though I have a memorandum prepared in the Department on these taxes, I do not think the arguments are very strong, and in any case I should not be prepared to use them. The Committee will feel, therefore, that in refusing to have any part in upsetting these taxes now it is not from any love of them, ox from any feeling, speaking generally, that I am now really in a position to defend them. I am not. But I do think that a subject which aroused such active controversy, which has not altogether died down in spite of the appeal of my hon. Friend—really, it would not be possible at this crisis in the War even to contemplate upsetting this arrangement in the House of Commons. At all events, I could not do it. At the same time, I am sure that even my hon. and gallant Friend opposite will hesitate to say other than that, as housing is to be one of the very first problems of reconstruction which will have to be undertaken by the Government when the War is over, that as in any case it will be extremely difficult—whether my hon. and gallant Friend's views as to the effect of these taxes be correct or not—that this, as I think, is one of the questions which should seriously, and must be seriously— whatever Government is in power—be taken into review in connection with these war problems when we begin to deal with them. I hope I am not saying or doing anything on behalf of the Government that I should not, or against the view of my right hon. Friend the Prime Minister. I do not think I am. But I am sure that he, and, I believe, every Member of the House, will feel that, though these old controversies have left memories, though in many respects we still retain the same views, yet the War had made this difference, that many of the problems with which we have to deal will have to be dealt with apart altogether from the old lines. First of all, what we have to do is to consider such problems as that of housing on its merits, and without any regard to old controversies.

Mr. D. WHITE

I paid considerable attention to what fell from the lips of my hon. and gallant Friend on this side, but it seemed to me that he failed to make out even a primâ facie case. He referred to certain Resolutions, and to some who have taken certain action. I fancy, from what I know of workers in certain societies, that probably they did so because they were moved thereto. That certain papers were put before them conveys very little conviction to the mind of anyone. My hon. and gallant Friend has not attempted to make his points or to prove his allegations that these taxes have a bad effect upon building. As a matter of fact, and if he will recollect, if he goes back to the state of things before these taxes were introduced, building was at that time in a very bad state In fact, the President of the Local Government Board had expressed the opinion that building practically was at an end. The conditions have been made very much worse by the enormous difficulty of obtaining money for building, or, indeed, for any other purpose. He could have made out his case if he had shown that these taxes were taxes on houses. They are not. They are taxes on land pure and simple, and that was the part he omitted to deal with. As to the cost of collection, my hon. Friend the Member for Central Edinburgh has pointed out that the cost and the revenue are set off one against the other. We ought also to take into account the indirect advantage in getting a truer valuation for purposes of the Death Duties and other things. After all, however, the main answer to the objection that was taken by the Mover of this Clause is that the expenditure on the valuation is an expenditure in the nature of a capital character, whereas the revenue is a revenue of an annual character. That accounts for a very great deal. The question of housing is, of course, one of the most important that we have to face. There are two fundamental difficulties in solving this problem. They are, first, the difficulty of getting land to build upon at anything like a fair price; and, secondly, the fact that when houses are put up they are rated and taxed. If my hon. and gallant Friend wants really to attract capital to building, and will put forward any proposition which will lead to the untaxing and un-rating of houses, I should be perfectly prepared to consider it on its merits, and he will probably have my support. One of the great advantages of these taxes is that they have shown us something as to what is really the nature and the value of the land.

I have said that one of the great difficulties of housing is to get land on fair terms. Take the case of Glasgow, which I know well. We have found a great deal of land which is required for building. That land is being rated at about 35s. or 40s. per acre on its agricultural value. If, however, you want to build houses for a needy population who, being overcrowded, require houses, you have to pay, not something like 35s. a year Feu Duty, but something like £35 a year Feu Duty. There was one matter of reconstruction to which my hon. and gallant Friend did not refer. Again I take the case of Scotland. Let me show one of the uses of this valuation which he wants to scrap. Turn to the Report of the Royal Commission on Housing in Scotland—a Report only a few months old. What do we find? We find that the Commissioners recognised the difficulty of obtaining land for building on anything like fair terms. Their proposition is that where the authorities require land for public purposes they should be entitled to purchase on a basis of the Finance Act valuation—the very valuation that my hon. and gallant Friend wants to scrap. The whole of his attack was because these taxes were not producing revenue to the Government. I maintain that this Report of the Royal Commission on Housing in Scotland shows the need for having something like a true valuation of the land where the land is to be obtained for public purposes. That matter does not stand alone.

We have had other Reports of Committees of this House. We have a Report of one of the Sub-committees of the Reconstruction Committee itself, which has shown to the public in a way that they had possibly never realised before how the public are "done" over land purchase. Those difficulties will never be fairly met until we have a true valuation of land. The great good of these taxes is not merely what they themselves have brought in. That to my mind is a secondary matter as compared with the fact that they set on foot a valuation which some of us hope to see still further developed. The Chancellor of the Exchequer suggested that we were not enamoured of these particular taxes. Those of my colleagues whose views I have the honour to share are not particularly enamoured of these taxes. We look on them as affording a valuation. That was the great thing they did. They had certain merits in themselves. But what we wanted—we said it all along—was that there should be taxes on the value of land payable whether the land was used or not. We maintain that that is what is wanted to-day. My hon. and gallant Friend is for going back. We are for going forward. We want to develop these things along that line. What we maintain is that we shall never have land obtainable at fair prices and at fair rents until the present land monopoly is broken down, and that the way to break down that monopoly is to tax those who hold the land according to the value of the land they hold, whether they use it or whether they do not. The hon. Member spoke of these taxes diminishing the credit and security of the land, but they cannot do that. They do to a certain extent diminish the credit and security of landlordism, and that is why those who are interested in land are against them. If these valuations were developed and made the basis of direct taxation land monopoly would suffer very severely, and the land would be open to I the people on far more satisfactory terms than it is now. Although the valuations were carried out at the expense of the tax payers, the results in the aggregate have. I not been disclosed, and I want them disclosed. Take the Section which deals with definitions. I will take three out of the. four. There is a full site value which we have in view, and there is the gross value which includes the improvements

Colonel ROYDS

My new Clause only deals with taxes, and it leaves the valuation as it was before. Is the hon. Member in order in dealing with valuations which are not touched at all?

Mr. WHITE

The hon. Member's Clause deals with charging and assessment; and what about the staff for valuation? It is all very well for the hon. and learned Member to throw up his hands, but his whole argument was that those connected with the valuation should be released to fight in the War. That is what he said, and he cannot now turn round and say that he did not mean to touch the question of valuation.

Colonel ROYDS

I said that the valuation had to be made on each occasion when these taxes were assessed.

Mr. WHITE

These occasional valuations are necessary to keep it up to date. The only value of which we get the aggregate figure in the Reports of the Commissioners of Inland Revenue is what is called the total value of the land. That, broadly speaking, according to the Finance Act definition, is the gross value, less rent charges, few duties, and various other deductions which amount to a very consider- able sum. Making all these deductions, the aggregate total value amounts to more than £5,000,000,000. That figure is to be found in the Report of the Commissioners for Inland Revenue for 1916, and the last Report for March 1917, did not contain any similar figures. I understand that the reason was war economy. My right hon. Friend the Chancellor of the Exchequer was asked if there was any further information, and he said for practical purposes these valuations had been completed, and there was no substantial addition to the figures given to the report of the previous year. If we take that £5,000,000,000, what I would like to get at is what is the aggregate amount for Great Britain of the gross value of land, and also of the full site values. We have not had these figures. The materials are all available, because the valuations have been made, and I appeal to the Chancellor of the Exchequer to have these figures brought out as soon as they can be.

Judging from all the surrounding circumstances, and taking the aggregated amount at £5,000,000,000 full site value of land in Great Britain, there is reason to believe that the gross value amounts to something like £7,000,000, and the full site value to something like £3,000,000. Those are enormous figures, with enormous possibilities of taxation. These are some of the values we want to get at. Those valuations, in our opinion, do not go far enough. There is a special provision in Clause 25 of the Finance Act that mineral rights are not to be included. The value of minerals is excluded from these valuations with few exceptions, and in some cases it actually happens that land having minerals below it leads to it being valued lower because of the possibility of the minerals being worked and depreciating the value of the surface.

The CHAIRMAN

The hon. Member is now going a little wider, and he had better confine himself to the question raised in the Clause as proposed.

Mr. WHITE

I shall not pursue those points any further. I want to impress upon the Committee that we have it on the authority of the Inland Revenue Commissioners themselves that in the United Kingdom alone the aggregate total value of land, exclusive of mineral rights, amounts to more than £5,000,000,000. We hear a good deal of what the Colonies are doing as precedents for what we should do. What have the Colonies done in this respect? You have there the very kind of tax that we want these valuations to lead up to, namely, a tax on the full site value, or, as they call it in Australia and New Zealand and various other places, a tax on the unimproved value of the land. Before the War they had taxes on the unimproved value of the land in Australia. During the War those taxes have been increased, and they have been increased with the assent of practically the whole Australian population, and this, I believe I am right in saying, is the most popular tax in Australia, and it was originally settled by Mr. Hughes so far as the Federal tax in Australia is concerned. Take New Zealand. In the year 1916, which are the latest figures available, the amount raised by taxation on the unimproved value of land was rather more than £1,000,000, and as the population is rather more than 1,000,000 persons it was equivalent to about £l per head on the unimproved value. It was made up of two taxes— a uniform tax and a graduated tax.

So well has this system been found to work that last year, by an Act of 1917, they have consolidated these two taxes into one; they have made no reduction, and so far as any change has taken place it has been in the direction of grading upwards; and in addition to this consolidation they have put on an additional War Tax of 50 per cent. as a special war-time tax, because they wanted to get more revenue from that source and to make the land more available for the people. I take that precedent from New Zealand, and I suggest it to my hon. Friends who are interested in what the Colonies have been doing in taxation. Our present Land Value Taxes are not all that we want, but we should go forward. I can assure my hon. and gallant Friend that those taxes deal not with land, but with the value that attaches to the land owing to the demand of the community for land. That is the subject of taxation in these taxes. They do not press upon houses or any other improvements. We want to make the land more available to the people and to stop all the taxes on houses and improvements, so as to encourage capital to building. There is no use in attempting to attract capital to building unless land can be got on fair terms, and that is only to be done here by the same methods as are adopted in Australia, New Zealand, and various other parts of the Dominions.

Colonel ROYDS

I ask leave to withdraw my Motion.

Motion and Clause, by leave, withdrawn.

NEW CLAUSE.—(Agents not Liable for Income Tax on N on-Resident's Profits.)

A broker, general commission agent, or agent, not being an authorised agent carrying on a. non-resident's regular agency, shall not be liable for Income Tax on any profits made by the non-resident.—[Sir F. Banbury.]

Brought up, and read the first time.

Sir F. BANBURY

I beg to move, "That the Clause be read a second time."

About three years ago an alteration was made in the incidence of taxation on manufacturers resident abroad. There was considerable discussion upon it, and the then Chancellor of the Exchequer (Mr. McKenna) stated that bonâ-fide agents would not be liable for Income Tax on profits which were presumed to be made outside the United Kingdom, and he undertook that if the Clause did not carry out that intention to insert words later on to ensure that that should be the effect of the Clause. I am informed that the Inland Revenue have taken a different view of the Clause to what the right hon. Gentleman took, and to what I understand the then Chancellor of the Exchequer took at that time, and that they have made demands upon bonâ-fide agents that they shall return the amount on which they considered their principle ought to be assessed, and they have made assessments and charged the agents upon that basis. I have had communications from the Manufacturers' Agents' Association, and I should be very much obliged if my hon. Friend would tell me whether there is any foundation for this and whether the Inland Revenue will be careful to administer the law as we always understood that it would be administered when this Clause was passed. I understand that there are legal proceedings going on at the present moment, and perhaps the Financial Secretary will give me some information upon the matter.

Mr. BALDWIN

I quite appreciate the point that the right hon. Baronet has raised, and I have been at some pains to ascertain the exact position of the law in this respect. I can assure the right hon. Baronet that the law as it stands is quite sufficient to protect the class of men which he desires to protect, and that there is no necessity for him to press his Clause further. I would remind him that Section 31 of the Finance Act, 1915, was passed to strengthen the machinery dealing with the non-resident traders and certain collusive arrangements made between them and other persons in this country by which they were able to evade taxation. He will find that Sub-section (6), which is intended to meet the point that he has in mind, provides against a non-resident person being chargeable to Income Tax (these are the words of the Sub-section): in the name of a broker or general commission agent or in the name of an agent, not being an authorised person carrying on the non-resident's regular agency or a person chargeable as if he were an agent in pursuance of this Section, in respect of profits or gains arising from sales Or transactions carried out through such a broker or agent. I am sure my right hon. Friend will recognise the necessity for keeping some hold over the non-resident trader, and that hold is kept over him through the medium of the regular agent; but under that Sub-section it is not possible for Income Tax purposes to get at any broker, agent, commission agent, or agent who is not an authorised agent. I do not believe for one moment that the officials of the Board of Inland Revenue would strain an Act any further than it ought to be strained, and I hope that with that brief explanation the right hon. Baronet will be satisfied and will not press the Clause.

Sir F. BANBURY

I understand that the only cases where the Inland Revenue officials press is where the agent is a regular authorised agent, and that the Treasury would not in any kind of way waive it, but would insist upon the provision remaining.

Mr. BALDWIN

assented.

Sir F. BANBURY

I understand that representations will be made by my hon. Friend to the officials of the Inland Revenue that they are loyally to carry out the provision.

Mr. BALDWIN

indicated assent.

Motion and Clause, by leave, with drawn.

NEW CLAUSE.—(Amendment of s. 5 of Finance Act, 1897, and s. 32 of Finance Act, 1916, in Certain Cases.)

In cases where a husband and wife, or one of them, would be entitled to claim the benefit of separate assessment under Section five of The Finance Act, 1897, if their joint income did not exceed five hundred pounds, and their joint income does not in fact exceed six hundred pounds, the amount of Income Tax payable in respect of such joint income under Section thirty-two of The Finance Act, 1916, shall be further reduced (if necessary) so as not to exceed the amount which would have been payable if they were assessed separately, together with Income Tax on the excess of the joint income over five hundred pounds at the standard rate for the year."—[Mr. Currie.]

Brought up, and read the first time.

Mr. CURRIE

I beg to move, "That the Clause be read a second time."

My object is to draw the attention of the Chancellor of the Exchequer to the fact that there is a small stretch of Income Tax territory where rather hard treatment is meted out to married women who endeavour to add to the joint family income. As matters stand, if the husband earns £400 and the wife £100, the joint assessment comes to £28 odd, but if the woman earns £40 extra it comes to £33 more. I think that is rather hard treatment. If the figure were carried past the £600 point, the injustice would disappear. On the other hand, if the husband earned the extra £40, the hardship would not arise. I admit, like many things, this Clause would cut both ways. If the whole question of the treatment of women under the Income Tax is raised, they must be prepared to have the question of their treatment under the Death Duties reopened. On the whole, I think the woman who works herself in these times and adds to the joint income, which at the best is small, is rather hardly dealt with, and, if the Chancellor of the Exchequer cannot see his way to accept the Clause, I would be glad to hear whether, when he comes to prepare his next Budget, he would make an attempt to deal with this class of married woman rather more leniently.

Mr. BONAR LAW

I have looked into the Amendment, and my hon. Friend must recognise that we cannot contemplate dealing with it now. In all these cases there comes a line where there is hardship, but on the whole I do not think that married couples are badly treated compared with other people. My hon. Friend, I am sure, knows the provision that was made for them in the Act of 1916, and, though he can select a particular point at which there is hardship, on the whole I do not think they can feel that they are treated unfairly as compared with the man whose wife is not assisting him in adding to his income. At the same time I will look into the point and consider whether there is anything further that ought to be done in the matter.

Motion and Clause, by leave, withdrawn.

NEW CLAUSE.—(Valuation of Stocks.)

At the end of each and every accounting period the stock of a manufacturer in any trade or business then on hand shall be brought into the accounts for such period as to any quantity not exceeding that brought into account at the commencement of the first accounting period ending after the fourth day of August, nineteen hundred and fourteen (hereinafter referred to as "normal stock"), at the same prices as those at which the latter was so brought into account. —[Sir B. Barran.]

Brought up, and read the first time.

Sir R. BARRAN

I beg to move, "That the Clause be read a second time."

I have endeavoured to adopt a principle that has been enunciated by the Chancellor of the Exchequer and which will alone gain his assent. He has told us that he has adopted a proposal because it was put before him in moderation and with sound argument.

Mr. BONAR LAW

Especially because of the sound argument.

8.0 P.M.

Sir R. BARRAN

I shall deal with this in moderation, because I appreciate the willingness of the Chancellor of the Exchequer to meet the great manufacturing industries of this country on some of these very difficult problems that have arisen since the beginning of the War in a very fair spirit and with a desire to leave behind some of the old red-tape and give them terms which will be an encouragement of trade. Appreciating that, I will use the argument of the Chancellor of the Exchequer himself. In dealing with the Budget a year ago the right hon. Gentleman issued a White Paper as to the valuation of what are described as base stocks. In that White Paper it was stated: Certain classes of industry require to keep stocks of raw or semi-manufactured goods for the purpose of manufacturing processes, and these goods are frequently of such an imperishable character that a minimum quantity required for a business could be held untouched for a long period. Accordingly, in any class of trade—

1. (a) which requires for its manufacturing processes to keep such stocks; and
2. (b) in which a recognised practice has obtained of taking a constant quantity at a constant price, the Government are prepared to accept the practice."

This is merely the application of that sound argument of the Chancellor of the Exchequer over rather a wider area. There is a very wide interest in this question throughout the whole of the manufacturing trades of this country. Practically every large industry that you can think of in the country has by means of its association dealt with this question of the valuation of the stock at the beginning of the period and the valuation at which the stock has to be taken during the period and at the end of the period. It does not matter whether it is taken during the period or at the end. Every industry has dealt with this question, and in one way or another has communicated to the Government their view that something ought to be done in the interests of the manufacturing industries of this country to alter the position on the lines of what has been done for the trades where they have admitted a base stock. The whole of these industries have taken the same view There is a very remarkable consensus of opinion. I want to ask the Chancellor of the Exchequer whether he cannot apply this principle, to which he has already agreed in the case of certain trades, very much more widely? Last night, speaking on another Amendment in which I was interested, the Chancellor of the Exchequer rather complained that the manufacturing industries of this country and Members who represent them were not treating him very fairly when they made the concessions that he had made merely the basis for asking for further concessions. I do not think, on reflection, he will consider that is altogether a fair way of putting it. The manufacturers of the country asked him originally to go a great deal further than he has seen his way to go. They asked him to adopt certain sound principles. He has not seen his way to go very far. He has done something, and if the short distance that he has travelled has been successful, surely there is nothing unreasonable in asking him to follow the same lines and to give us the whole of those alterations which were originally put before him and which the manufacturing industries of this country have tried to prove, and I think have succeeded in proving, to him were sound! There is going to be a very wide difference between the base price of stocks at the beginning and at the end of this period. The alteration in this price has been paid for during the period of the Excess Profits Tax —80 per cent. of the increase in the value has been paid in excess profits. That is all past. When you come to the end of the excess profits period, there will be a series of years in which these prices will gradually fall. It is quite certain they will not fall as rapidly, immediately after the War at any rate, as was at first supposed, and, therefore, the concession which the Chancellor of the Exchequer made last year to give some advantage as against the fall in these prices in the first two years will be of very little value. It amounts to this, that while the Exchequer has taken 80 per cent. of the increased value of these stocks, the manufacturers will have to bear in the years after the War is over the whole brunt of the gradual decrease in these prices. I think the right hon. Gentleman should admit that to the manufacturing business it is absolutely essential to hold large stocks. I would remind him of a speech made by Sir Henry Holden, in which he advised the manufacturers to buy and hold all stocks of raw materials, or semi-manufactured materials they can secure regardless of the price, because at the end of the War it will be to the interest of the country that its manufacturers should hold the largest amount of stock in the world. I believe the commercial world has approved this advice from the banking world. I want to draw attention, however, to the expense of holding stocks at such high value, and at the high rate of interest which has to be paid at the present time. In my opinion the Government should facilitate manufacturers in every possible way and not penalise them. They should facilitate them in holding, for manufacturing purposes, the largest stocks they can hold, under the circumstances, from now to the end of the War.

I know of one reply which the right hon. Gentleman may be expected to make to any proposition of this kind. He will tell us that it would cost him a very large amount of revenue. May I point out, first of all, it is only current revenue, and that he will only lose the revenue on the difference between the base price and the final price? He can only lose it once, and it is spread over all the years during which the Excess Profits Tax has been charged. I would point out further that the stocks will necessarily be very much lighter at the end of this period than, they were at the beginning. The Clause proposes to limit the amount of stock held to that which was held in the first year, but as a matter of fact the stock that will be held at the end will be very much lighter, and therefore the amount the right hon. Gentleman will lose in revenue will not be nearly as serious as it might have been one or two years ago. These are circumstances which the Chancellor of the Exchequer ought to take into consideration. He ought not to deal with this matter purely from the point of view of loss of revenue. It is a much more important thing that the Government should endeavour to put the traders of this country in the best position they can possibly be put in to deal with the markets of the world after the War. The difficulties that will arise from the shortage of capital will be considerable, and by doing this the right hon. Gentleman could materially facilitate our regaining our hold on the export trade of this country. If he can see his way to assist the manufacturing interest of this country by some limitation of the Finance Act at the present time we shall be very glad.

I do not think the right hon. Gentleman is on sound ground when he thus distinguishes between those people who have been accustomed to have base stocks, and to whom, therefore, he has granted this concession, and those who have not. He has excluded from this concession the rest of the trading community because it has not been the custom of the trade, or he has excluded individuals who, because co-traders have not followed the custom, have adopted the same course. I hope the right hon. Gentleman will consider very carefully whether he cannot meet us in this and take a view which will be equally fair and equally advantageous to all the manufacturing industries of the country. There are a good many other point I might mention. I have only touched on the principal ones, and I do not want to delay the Committee too long. The right hon. Gentleman is aware, for he has had this matter put before him by a deputation from important trade combination, of the deep interest which manufacturers take in he question which the Committee had before it last night. The Division taken last night was an indication of the deep and strong interest which the manufacturing industries of this country are taking in certain questions raised by the Finance Act, and with regard to which they feel the Government might be of material assistance to them. We do not want to raise a long Debate, or to press this matter to a Division to-night. If the right hon. Gentleman can see his way to give us some assurance that between now and the Report stage this matter shall have his consideration, if he is willing to hear something further, not necessarily in the House but outside, of the arguments we have to put before him, and if he will give us his promise to consider whether he cannot do, not perhaps all that we ask for, but something on the lines laid down in this Clause, in order to facilitate the work of the manufacturing industries of this country at the end of the War, then there will be no need to press this matter to a Division.

Mr. CURRIE

The manufacturing interest of this country is of course very important, but there are other interests to be considered, and I think the general taxpayer would have a grievance against the Chancellor of the Exchequer if he gave the assurance which the hon. Baronet has asked for. I have listened very closely to the arguments which have been advanced, and I am bound to say that, while sympathising with the difficulty with which the manufacturers are undoubtedly faced, there are two fallacies underlying those arguments. The mover of the Clause appeared to take it for granted that when peace arrives the values of all stocks will fall. Very likely the values of some stocks will fall, but I do not think the conclusion that all will probably fall is really warranted, and I see no reason why the Chancellor of the Exchequer should give away his position on that point just now. If subsequently any fall takes place, then the matter can be reconsidered, but I do protest against its being taken for granted that the movement in stock values will only be in one direction.

Sir R. BARRAN

Does the hon. Member doubt that raw material or semi-manufactured goods which are now standing at five or six times their original value are certain to fall within four or five years after the War?

Mr. CURRIE

I am not prepared to take it for granted that without exception all forms of trading stock will fall. My hon. Friend asked the Chancellor of the Exchequer to commit himself wholesale to the suggestion that the movement in values must be in one direction, and I see no reason why the right hon. Gentleman should adopt any position of that kind just now. He may do it later on, but I protest against its being done now, and I protest because it would be unfair to the general body of taxpayers. Then the second fallacy which rather takes away from the value of the argument submitted by the hon. Baronet is this. The hon. Gentleman said that manufacturers must hold stocks. We all agree that it is partly the business of manufacturers to hold stocks. The process of holding stocks involves, of course, a certain amount of risk, and I think that we who are not manufacturers are entitled to say that while the manufacturer takes all the profits of the trade, he must take all the risks. I do not speak as one who has no sympathy with the difficulties of the manufacturer. They are great, but I do not think that the Treasury would be warranted in saying that this principle is to apply to nothing else than the manufacturer's risks in regard to certain movements in stock values. The whole question ought not to be settled now. It would not be fair to the ordinary taxpayer to foreclose the matter at the present stage.

Sir J. HARMOOD-BANNER

This question was discussed pretty fully last year, and during the intervening period there has been a great deal of consideration given, not only by the Chancellor of the Exchequer, but also by hon. Members of this House, to this question of the value of stocks. I am sure I would be the last man to withhold any need of praise from Somerset House for the excellent manner in which they have taken this point up. It is a very big matter indeed. I am told it means £100,000,000 to the Chancellor of the Exchequer, but if it is a question of an unjust tax, I do not think even £100,000,000 would be sufficient to justify the Chancellor of this Exchequer or Somerset House in attempting to enforce it. It is a very important question, and the manufacturers want to minimise it as much as possible. They really want the base stock referred to to be merely the stock demanded by the absolute necessities of the case, and they do not want the matter treated as if they were attempting in any way to defraud the Revenue. Many of the points on the question of the basis stock have been settled already by Somerset House, but there are a great many still outstanding, and they are giving their very best consideration to them. The points are extremely difficult, but if the Chancellor of the Exchequer considers the question between now and Report, and with his officials sees if, by any suggestions that are made, a settlement of this matter of the basis stock can be brought about, I am sure it would be doing a good deal both to facilitate the action of his collectors of taxes—because there is a vast sum of money outstanding on account of this which would be brought into the Exchequer—and to meet the wants of the manufacturers, who only desire to do the fair thing.

Mr. BALDWIN

I shall follow the example of my hon. Friends who have spoken before me, and be as brief as I can on this subject, bearing in mind at what length it was discussed last year, and knowing that the arguments are as familiar to my hon. Friends as they are to myself. I think I may say at once that it is quite impossible for us to accept this Clause, and I do not know whether my hon. Friend (Sir R. Barran) expected us to do so. The hon. Member for Liverpool (Sir J. Harmood-Banner) who spoke last alluded to the enormous sum of revenue that was involved. It is perfectly clear that we cannot afford to run any risks of losing that. He said that we might be prepared to face the loss of it if the revenue in itself were immoral in its origin, but my contention is that it is not. I will just remind the Committee and my hon. Friend in a word or two what the position really is in regard to these stocks as we left it last year. We left a period at the conclusion of the War of two years, during which time manufacturers would have the liberty of writing back any losses that might be made on their stocks, and during that same time they would be at liberty in case the value of their stocks rose, to keep the profits themselves. It was an arrangement very favourable to them on the whole, and, as I tried to show last year, and as I myself am firmly convinced, it is a period ample in time in nearly every industry in this country to realise any stocks that may be in the firm's possession at the expiration of the War. The hon. Member for Leeds (Sir R. Barran) spoke about the inevitable losses which face the manufacturers when prices fall—assuming, indeed, that they do fall— after the War. I never can see myself the necessity for that. My own experience has always convinced me that in the long run, and over a long term of years, the man who is temperamentally a "bear"— I use the word in its technical sense—will make a steadier and more assured income than the man who is temperamentally a "bull." And I must say again that in my own experience I think it is an easier matter in manufacturing to make sure of a profit when raw materials are falling than when raw materials are rising, because there is no constant ratio between the price of raw materials and the price of the finished article. There is nothing that is so upsetting, when you are trying to sell and nothing so liable to catch you out when you are trying to buy, as sudden and unexpected jumps in the price of your raw materials.

Here I would come for one moment to a very fair point which was raised by my hon. and learned Friend the Member for Leith (Mr. Currie), and I would point out this to my hon. Friend the Member for Leeds. Even if it were thought desirable to make any concession in this matter, the present is not the time for it. It is quite impossible for us to see what the position will be at the end of the War, as we cannot possibly judge now what the trend of prices may be then. If this matter is to be looked into by the Government that is in power, with a view to doing anything, the time for that examination will be at the end of the period and not at present. As far as we can see to it, we believe that we have amply and fully met me particular classes of difficulty that will arise and to which my hon. Friend has alluded.

I would like to make one remark on what my hon. Friend said, and on a subject which was referred to by my hon. Friend the Member for Lime-house (Sir W. Pearce) earlier in the day. There is a cry we very often hear—we see it in letters to the Press, and sometimes in newspapers—to this effect, "What a terrible mistake we are committing in taxing industry in this country to the extent we are taxing it, because when the War is over, our manufacturers will be in a much worse position to compete with manufacturers abroad." My hon. Friend the Member for Limehouse gave an illustration of the position of certain German firms of whom he spoke, who, he said, were massing enormous reserves, and would be in a most favourable position for competition after the War. I would say two things in reference to that, and I hope hon. Members will take the same comfort in them that I do. In the first place, in my opinion, the competitive strength of any particular industry in the country is no greater than the financial strength of that country, and when the War is over I do not think our financial strength will be worse than that of Germany. If we win the War, it will be incomparably greater. If we lose the War, the happiest industries will be those which have the least money. Therefore, from that point of view, I do not think anyone has any cause to complain. But when my hon. Friend the Member for Limehouse speaks as he did of the enormous reserves that German manufacturing firms are piling up, I want to point out two things.

It is impossible by a sight of a balance-sheet in this country to discover what the incidence of taxation is on the balance-sheet at which you are looking. If that be the case, as it is, it is still more impossible to discover the incidence of taxation in a foreign balance-sheet. If a firm in Germany has large reserves, we know actually where those reserves are. They are in German war loan, and when the war is over I would like to ask my hon. Friend the Member for Limehouse, or my hon. Friend the Member for Leeds, whether he would rather have such assets as our taxation may leave him, or a larger reserve locked up in German war loan? I do not think any danger will arise there to our industries. The one danger, and the one danger that cannot be avoided, incidental to all belligerents, is that a belligerent must at the close of the War be in a financially inferior position to that of a neutral, and nothing that we can do can avoid that. It is no use pretending that a country can endure a long war, struggle through it, and be in the same position in regard to industry at the end of the war as it was at the beginning. I do not wish to say anything more on this subject at present. I have no doubt that it will be raised again, but I must ask my hon. Friends to accept my assurance that this year at any rate we are not prepared to go any further in this matter of the question of stocks than we went last year. We believe that we met the question fairly, that what we did, as far as we are at present advised, will meet the most urgent difficulties of the situation at the close of the War, and we can go no further.

Question put, and negatived.

NEW CLAUSE.—(Allowance for Non-user of Machinery or Plant.)

The deduction authorised by Section twelve of The Customs and Inland Revenue Act, 1878, as amended by Section twenty-six of The Finance Act, 1907, shall be extended to cover a deduction representing the diminished value' by reason of non-user during the year of any machinery or plant as well as diminished value by reason of wear and tear thereof."—[Colonel Gretton]

Brought up, and read the first time.

Colonel GRETTON

I bog to move, "That the Clause be read a second time."

The Customs and Inland Revenue Act and various Finance Acts already deal with deterioration through wear and tear. There is another case which has been accentuated during the War; that is the deterioration of plant owing to non-user and obsolescence. Many classes of machinery and plant lose in value more from want of use than they would lose in the ordinary course if they were worked in a normal business. A notorious and very obvious case is that of wooden vessels. Such vessels, used in connection with liquids, have their normal wear and tear which, distributed over a period of years, proves a proper ratio of deterioration, but when these vessels are thrown out of use and become dry they shrink, the wood tears off, the materials are wrenched and give way, and, so far from their being available for ordinary wear and tear, they often require entire renewal as the result of being out of use for a considerable period. That applies to casks and wooden vessels which are largely used for liquids. It also applies very largely to certain classes of machinery. Normally there should be some allowance made in assessing the deterioration of plant of that kind in addition to the ordinary allowance for wear and tear. It cannot be contended that the allowance for fair wear and tear will meet the case. That explains the Clause I have put before the Chancellor of the Exchequer. I understand he is not altogether unsympathetic towards the arguments in its favour. I should be very glad to pursue the matter and advance further arguments, but an intimation has been given to me that, though the Clause as drafted is not acceptable to the Government, the substance of it is recognised to be of great importance, and they will provide their own words. I therefore formally move this Motion in order to give the right hon. Gentleman an opportunity of replying.

Mr. BONAR LAW

I have gone into this matter carefully with my advisers, and I think there is some case to be met. The ground on which I am inclined to think that something of this kind ought to be done is that the non-user of this material is sometimes caused directly by the Government. That creates a new set of circumstances which would make it right for us to reconsider the basis on which the allowance is made. I cannot accept exactly my hon. and gallant Friend's words, but I am prepared to accept the principle of the new Clause, and I shall have other words drafted. I therefore hope that my hon. and gallant Friend will withdraw his proposal. I may add that we have examined with equal care the next two Clauses standing in his name, and it is impossible for us to accept them. I therefore hope he will not move them.

Sir C. KINLOCH-COOKE

The Chancellor of the Exchequer will remember that I moved an Amendment last night and withdrew it on the understanding that a new Clause would be moved by the hon. and gallant Member (Colonel Gretton), and that the point I raised would be included in the new Clause. The Chancellor of the Exchequer said that could be done. Do I understand that the answer he has given to the hon. and gallant Member is equally an answer to my own Amendment?

Mr. BONAR LAW

Yes.

Mr. THEODORE TAYLOR

The Chancellor of the Exchequer qualified what he said by saying that in many cases this disuse arose in consequence of Government action. May I point out to him that the effect on the value of the asset is just the same whether it is ordinary trade disuse or Government disuse, so that I hope he will not confine it to Government disuse. I know that in another branch of trade, dyeing, wooden plant does depreciate much more readily when standing than running. It is really a wasting asset and should be so regarded.

Mr. BOOTH

There is a danger of lawful Revenue escaping. A good deal of machinery does not deteriorate very much by standing still. It is quite true that where wood enters largely into the composition it does, but there is a good deal of machinery standing still, which, if well oiled, would keep in good condition. Directly the War is over, and these firms are able to resume normal business, they may have their plant fully going. Although a number of firms have allowed their plant to become obsolete at the request of the Government, in many cases it has suited their own ends as well. It is very often convenient to manufacturers— I am speaking in this respect somewhat against the interests of my pocket—to give certain portions of the plant a complete rest. If it is perpetually moving, there is no chance of overhauling it, and it deteriorates fairly quickly. Many firms have been only too glad to allow a portion of their machinery to lie quiet, in order to turn it to a very profitable form of investment at the request of the Government, and that has also suited them. The last speaker was quite right when he said that where wood enters largely into the composition of plant or machinery, disuse is a very serious matter, and it is hopeless to expect in those cases that at the end of the War they will be worth much more than scrap.

Colonel GRETTON

Inconsequence of the statement of the Chancellor of the Exchequer, for which I thank him, I ask leave to withdraw the Motion. I know that he is always most reasonable when any proper criticism is offered. I accept his undertaking in the spirit in which it is made.

Motion and Clause, by leave, withdrawn.

NEW CLAUSE.—(Deduction for Postponed Repairs or Alterations.)

Notwithstanding Rule 3 of Class 1 of Section one hundred of The Income Tax Act, 1842, where repairs of premises or supply, or repairs or alterations of implements, utensils, or articles occupied or employed for the purpose of a trade manufacture, adventure, or concern, have been postponed or suspended as a consequence of the War, the amount actually expended thereon subsequently shall be allowed as a deduction from profits or gains in the year in which such sum is so expended, although such sum may exceed the sum usually expended for such purposes according to the average of the three preceding years.—[Colonel Gretton.]

Brought up, and read the first time.

Colonel GRETTON

I beg to move, "That the Clause be read a second time." With all respect to the Chancellor of the Exchequer, I must make a short statement on this Clause. The allowance for postponed repairs is made under a rule. Unfortunately, I have not a copy of the entire rule in my hands, but I have a quotation from a part of it, and it appears to be to this effect: that no deductions shall be made from the profits which are charged to Income Tax on account of repairs to premises or supply, or repairs or alterations of implements, beyond the sum usually expended for such purposes according to the average for the three years preceding the year of assessment. That is a very different thing from allowing the sum which has been spent on the three years' average to be carried forward from year to year to accumulate against the postponed repairs.

It means in practice, as many of us have found out, that during this war time labour has not been available, and it has not been possible in many cases to carry out repairs, and there has been a distinct deterioration of premises and postponement of the ordinary repairs and upkeep. In practice we have been allowed in these cases to deduct from the profits chargeable for Income Tax or Excess Profits Duty the amount actually expended. Apparently it is thought in some cases, though it is not carried out so in practice, that the amount which has been expended on the average of three years may be deducted from year to year. That is not done, and therefore there is no such accumulation of a reserve fund as is apparently thought in some quarters. But even if that were allowed it would really not meet the case. Repairs and upkeep now are a very much more expensive business than they were in the years preceding the War. If we were allowed to deduct a sum on the three years' average a larger proportion of it would be spent than in normal years in keeping up the premises and the repairs which are actually carried out, and the amount carried forward would therefore be less and less adequate to carry out the balance of repairs which were not carried out but postponed until a later period. The Clause asks that an allowance, not extravagant or improper, but an adequate allowance should be made for the pontponement of repairs having some regard to the increased price of the real charge which has been postponed. In practice we do not get the sum on a three years' average, which even so would be a diminishing sum from year to year as the War proceeds, but we get an allowance only for repairs which have been carried out and nothing for the postponement of repairs.

Mr. BONAR LAW

I am sorry I cannot accept the Clause. I think my hon. Friend's fears are due to an erroneous understanding as to how it works. After the War the three years' average will be allowed just the same, and the difficulty which he anticipates will not arise at all. That, at all events, is the advice I am given.

Colonel GRETTON

If the Government cannot meet me, I cannot pursue the matter any further in a House of this size, nor do I wish to take action which would be futile, but I am afraid my right hon. Friend's answer does not meet the case. Owing to the difficulty of getting work done, the amount spent on repairs is a steadily diminishing quantity in almost every case during the period of the War. So that the amount spent on repairs before the War was a larger amount in the three years' average than has been spent actually during the War on a three years' average.

Mr. BONAR LAW

It will right itself.

Colonel GRETTON

It cannot right itself, because at the end of the War postponed repairs will have to be done at a much higher cost, and we shall only be allowed the three years' average on the diminished expenditure for the period of the War.

Mr. BONAR LAW

You will get the whole cost in the long run.

Colonel GRETTON

That will be an amount which we shall have to postpone for years, and until we get another three years' average at a much higher rate. Meanwhile the Government have the tax in their pocket, and the unfortunate business will be mulcted in money which really belongs to the owner, because the Government has anticipated the taxation and taken moneys out of the taxpayer's pocket years before it was due to the Government. However, I cannot pursue the matter further at this stage, but I think my right hon. Friend will see that it requires a little more attention, and I shall probably have to put the Clause down again for reconsideration on Report stage.

Motion and Clause, by leave, withdrawn.

NEW CLAUSE.—(Profits on Goods Compulsorily Acquired by the Crown.)

Where any goods of a taxpayer, the profit on sale of which, if sold in the ordinary course of business, would form an addition to the gross profits of such taxpayer, are compulsorily acquired by the Crown the sum paid by the Crown there for to the taxpayer shall not be treated as an addition to his profits for the purpose of computing Excess Profits Duty beyond the sum which would have been so paid if the Crown had only acquired goods of each class of a quantity equal to the average quantity of each class of such goods sold by such taxpayer during the previous three years calculated on the basis of the price paid by the Crown for such goods.—[Colonel Gretton.]

Brought up, and read the first time,

Colonel GRETTON

I beg to move, "That the Clause be read a second time."

This is the case of stocks of goods in possession of the manufacturer taken over by the Government. Stocks which may represent two or three years' business are taken over at one operation. They are valued and paid for by the Government. I am not raising a question of the price which the Government pay. That has nothing to do with it. But the profit on these goods, though they may represent two or three years' normal trading, is all brought into the tax for one year, and the trader is then taxed on excess profits on the culmulative profit of Ms business for one and a half, two, or three years, or even more. That, clearly, is not a just proceeding. The Government, for the purposes of the War and the benefit of the nation, take over certain goods which would have been realised, and would have yielded their profit in the normal course in three years. If the trader is a company they pay him a three years' dividend, or two years, or one and a half, at one operation, and that amount is brought into Excess Profits Tax, and he pays it, so that there is no possibility of spreading the dividend over three years, because the Government has taken the larger part of the revenue of the company in Excess Profits Tax. In many cases these businesses are not able to renew their stocks. They cannot import the materials, and they are prevented from manufacturing them. Therefore, the whole business is brought to a standstill, and the unfortunate owner, whether he be a trader or a company, is mulcted in this Excess Profits Tax, and has no power whatever to equalise his profit, to spread his dividends, or to make any operation of that kind. Clearly, this is not a just proceeding, and it is one which ought to receive attention. I believe the Government is afraid that if it meets this case it will open the door much wider than is intended by the Clause. If the words go too far, I do not want to stand by the words. They are immaterial. Justice is the substance of my case, and that is all I care for. To cite a particular case, an ordinary trader cannot use his stocks of rum. The Government has taken over a great deal of this rum, practically all of it, in many cases stocks representing several years supply, and the trader is charged Excess Profits Tax on the price which the Government is paying for these three years' stocks of rum. That clearly is a case which cannot be supported on the justice or merits of the case. I ask the Exchequer to give further consideration to this matter and put in such safeguards as they think fit to meet the substance of the Clause which I now move.

Mr. BONAR LAW

I am sorry the Government cannot accept this Amendment. My hon. Friend said, quite correctly, that he was afraid it would introduce a principle the end of which we cannot see. So it would. The question of Excess Profits Duty in relation to Income Tax must be dealt with upon the basis of what are the profits. You cannot begin to ask, "Are they caused by the Government taking possession of something or are they not?" The question is, Are they profits If a hardship is caused such as the hon. Member suggests, then the price to be paid should be sufficient to meet a case of that kind. My hon. Friend must see that there are many others in the same position. Businesses are stopped as the result of Government action, and if we once admit the principle that you are to judge, not on what the profits are, but on the principle laid down by the hon. Member, there would be no end of difficulties with which the Government would be faced.

Colonel GRETTON

I am afraid the right hon. Gentleman has not met my argument. The case I have put is limited simply to the case of goods which may be acquired by the Government. I did not deal with any other case.

Mr. BONAR LAW

I quite understand that. My hon. Friend put it on those grounds, but people who had had their business taken by the direct action of the Government would have, in my opinion, precisely the same claim.

Colonel GRETTON

I must not delay the Committee longer. I am afraid I shall have to raise this question at a later stage of the Bill. On this occasion I beg leave to withdraw.

Motion and Clause, by leave, withdrawn.

NEW CLAUSE.—(Amendment of 4 and 5 Geo. 5, c. 76, s. 1, to Include Collaterals.)

Section one of The Death Duties (Killed in War) Act, 1914, shall apply to property passing to collaterals as well as to lineal ancestors or lineal descendants, and shall be read as if the words "or collaterals" were inserted therein after the words "lineal ancestors" wherever the said words occur in the said Section, and the same shall be construed accordingly.—[Sir E. Pollock.]

Brought up, and read the first time.

Sir E. POLLOCK

I beg to move, "That the Clause be read a second time."

This is an Amendment for the purpose of enlarging the scope of the Death Duties (Killed in War) Act, 1914. When the War broke out we passed an Act very early to give relief from Death Duties in certain cases. We adopted the principle which was enshrined in the Finance Act of 1900, which was passed during the Boer War. The Act which was passed in 1914 received the Royal Assent on the 3lst August, 1914, thereby indicating the general feeling that relief from Death Duties ought to be granted in respect of those who had given their lives for the country and who probably, if they had not been killed in war, would not have had their lives shortened in the manner caused by their patriotism. My attention has been called to the narrow effect of this Act by the circumstances of a case which I referred to on the Second Reading of the Bill. It so happens that Lord Clive, eldest son of Lord Powys, received wounds in the Battle of the Somme in 1916 and died in hospital on 13th October of that year. Before he went out to the War he had taken the precaution to enter into a disentailing assurance which was necessary for the safeguarding of the interests of members of his family if it should happen that he was detained a long time in the War, or even if he succeeded to the property of which he was heir as the eldest son of Lord Powys. As a matter of fact he died from wounds without ever succeeding to any property, and without this disentailing assurance being of any specific value to those who were primarily concerned. He dealt in that deed with property which would be his in reversion if it should have hap- pened that he had succeeded. He did not succeed, and in the circumstances, therefore, no relief was obtainable under the Killed in War Act, because it only refers to the case of lineal ancestors or lineal descendants. The Act, which gives relief in quick succession, does not apply in this case because there was no succession, but inasmuch as under the Death Duties Act there was a certain interest in reversion passing under this deed his estate became liable to pay Death Duties to the amount of £37,000. Therefore, in addition to the sorrow caused to the family by the loss of the heir, the estate was asked to pay £37,000, although no property had passed to the deceased, who had inherited nothing and who had succeeded to nothing. All that he had done was to enter into a deed for safeguarding certain interests, if the event had happened that the succession had taken place. I have only to state these facts to indicate that this is a hard case.

I do not desire to say more because the Treasury have to collect the duties in accordance with the state of the law as they find it. When one looks round to see whether there is any relief granted by any Acts I came across the point to which my Clause is directed, namely, that relief given under the Act of 1914 is closely confined to lineal ancestors or lineal descendants. The effect of this deed would be that it would become operative if and when Lord Clive's brother, who now becomes the heir, succeeds to the property. But the brother is not a lineal ancestor or a lineal descendant; he is a collateral. There may be other eases of a similar nature which arise, and without dwelling upon the particular circumstances of the case which brought the matter to my attention I desire to move the Clause for the purpose of enlarging the scope of this Act, as it seems to me quite impossible to leave the relief given to the narrow lineal succession indicated in the Act of 1914. it would be right and proper that a larger scope should be given in order to cover a number of cases which must occur, more particularly as one finds in regard to those who have suffered through the War that in a number of cases where the families are extremely small—very often it is the case of an only son—there must be succession not by any direct passing, but by the property passing to collaterals. My Clause does not adopt a new principle, and it does-not make any direct alteration in the law except so far as to widen the scope in order that the Act at present in force may apply to the larger number of cases, which I am sure hon. Members could illustrate. There are cases which deserve clemency from the Treasury and which ought to be given, because they are quite as deserving of relief as those at present included in the Act, which was passed perhaps too hurriedly in the early stages of the War.

Mr. BONAR LAW

This is a case where I think a concession might be rightly given. In such a case as the hon. and learned Member has described I am sure the same feelings of sympathy go out as was originally felt in regard to the original enactment in the Act of 1914. I am not sure that the hon. Member's Clause does not go too far. While one has that sympathy as regards a brother, I am not sure that it would apply regarding some more distant relation. What I propose is to put down a Clause showing the extent to which we will go on the Export stage. and perhaps the hon. and learned Member will now withdraw his Clause.

Sir E. POLLOCK

I accept the assurance of the Chancellor of the Exchequer, for which I thank him, and beg to withdraw the Clause.

Motion and Clause, by leave, withdrawn.

The following new Clause stood on the Paper in the name of Mr. ADAMSON:

NEW CLAUSE.—(Increase of Exemption from Income Tax.)

Section twenty-one, Sub-section (1), of The Finance (No. 2) Act, 1915, is hereby repealed.

The DEPUTY-CHAIRMAN (Sir Donald Maclean)

I think that this matter was discussed on Clause 20 and a decision arrived at, and if that is so we cannot have it. discussed again.

Mr. ADAMSON

The Amendment which I moved on Clause 20 provided for a lower rate of Income Tax for small wage earners. It dealt with a particular phase of this question, but this is a new Clause which deals with a larger matter.

The DEPUTY-CHAIRMAN

If the right hon. Gentleman desires to move it I cannot prevent him, but I am sure that he will not desire to make a speech on it because it has already been covered in the previous Debate.

Clause brought up, and read the first time.

Mr. ADAMSON

I beg to move, "That the Clause be read a second time."

My object is to restore the old Income Tax limit of £160. In making this proposal I am perfectly well aware that the Chancellor of the Exchequer has provided a certain amount of relief to persons earning small incomes. I am also well aware that he protested against the pressure that has been applied in the Debate last night, notwithstanding the relief which he had granted in certain points, and, but for the fact that I feel very strongly as to the position of the people who would be assisted by the new Clause, I would not take up the time of the House in moving it. I do feel strongly that persons earning less than £160 a year are not able to meet the present high cost of living and provide the necessaries of life, and this can at least be said for the pressure which I am putting on the Chancellor, that those on whose behalf it is exercised include the poorest section of the people, though he complains of it as coming from those who could well afford to pay, and for that reason I will continue to exercise pressure in this House with a view to getting this abatement, and I hope that the matter will receive the sympathetic consideration of the Chancellor.

Colonel Sir C. SEELY

I would press on the Chancellor to consider this matter as sympathetically as possible, as the old £160 which is proposed in this Clause is really now only the equivalent of the £120 to which it was reduced when the reduction was made.

9.0 P.M.

Mr. BONAR LAW

What my hon. Friend said is true. But we have to take all the factors into account. What my right hon. Friend who moves the Amendment really asks is that we should remove existing taxation which affects only the bachelor, without children, and no one else. The position is that a man is not taxed until he earns above £130. Then he is only taxed on what is above £120. Even if he has no children, a married man is not taxed until his income is above £145. If he has one child he does not pay anything until it is above £170, and if he has a wife and two children he pays nothing practically until he reaches £200. I think that my right hon. Friend would do great service, when this subject is discussed amongst those who are affected by it, if he would make them realise that, apart from the rise in the cost of living, they are in a better position than they were before the War, because the sum given for children originally was only £10 and it is now £25; and, in addition, we have given an allowance for the wife and also for dependent relatives, so that, so far as this Government and the last Government are concerned, we have gone a very long way to meet the cases of those who have the greatest claim for relief.

Motion and Clause negatived.

NEW CLAUSE.—(Income Tax Assessment on Married Persons.)

Any individual who claims and proves in manner provided by this Act that he is married shall be entitled to be assessed for Income Tax purposes under this Act in the following manner:

1. (1)if such individual is living with his wife and with his children who may be under the age of twenty-one years at the date of the passing of this Act, then his income shall be divided into equal shares, each share being deemed to be the income of the husband, wife, or child;
2. (2)if such individual is living apart from his wife then the party having the custody of the children as aforesaid, and who is liable for their maintenance, shall be entitled to have his income treated for the purposes of assessment to Income Tax, as set out in Sub section one of this Section;
• and the amount of Income Tax payable shall be arrived at as though such incomes were separately assessed for the purposes of this Act, and the amount payable by the said individual shall be assessed accordingly.
• The provisions of this Section shall apply to a widower or widow with children dependant as aforesaid.—[Colonel Sir H. Greenwood.]

Brought up, and read the first time.

Colonel Sir H. GREENWOOD

I beg to move, "That the Clause be read a second time."

I believe I am in order in moving this new Clause, which should have been moved a little earlier in the Debate. I am sure that the Leader of the House would be the last Member of this House to curtail the rights of private Members. Further, I must apologise to the Committee and to the Chair for not being in my place when the Clause was called. But the Bill was got through with such rapidity, which is the greatest compliment which could be paid to the Leader of the House, that I am sure the Committee will not deny me the privilege of explaining in a very short speech what I consider one of the most important Clauses on the Paper. This Clause continues logically the principle already admitted by the Chancellor of the Exchequer, that is the giving of a preference to married persons as against bachelors and spinsters in the assessment of Income Tax. The Clause standing in my name, if adopted, would mean that if there were father, mother, and three children in a family, making five units, and the total income of that household was £1,000, under the Clause the assessment would be per capita £200 for each member of the family, instead of £1,000 as it is now. This would be a direct encouragement to the family man, and the family man is unquestionably the man who has maintained the race, and who, above all, in my mind, should have preference in the levying of Income Tax. Let me give a case or two that have happened. First of all, remember that the underlying principle of the Clause I am now moving is that it is an endeavour to assess the Income Tax according to ability of the Income Tax payers to pay. It deals with those who pay Income Tax, and these taxpayers now include a large percentage of energetic, thrifty, and ambitious persons of all classes and of both sexes. It is vital that they should be encouraged to marry and have children. As the law stands at present, there is a direct discouragement of marriage and of parenthood, and a direct encouragement to bachelordom and spinsterhood. I have a case which I should like to bring to the attention of the Committee, a case sent to me a couple of days ago. In. a certain community where there are six doctors, one doctor has eight children, and the other doctors are childless or bachelors. This doctor's income is about equal to the average. One of his boys has gone to the front and has been killed, another is in an officers' training corps; and a third (seventeen) will certainly be in this War. The other five children are youngsters.

I put it to the Committee whether a man in this position should pay Income Tax at the same rate as his fellow-practitioners in the same locality. You put this burden upon one member of the profession in that community who has done his duty by the State, who has supplied one soldier, and is giving two others from his family, while preference is given to bachelors and childless men as against the family man. I might remind the Committee that this is not the first time this question has been raised. It was a favourite topic of discussion in ancient days, both in Sparta and in Rome. I will merely give a quotation, that may impress the Chancellor of the Exchequer, from the "Daily Telegraph": Males in the ancient city of Sparta who remained unmarried, after a certain age, were regarded as poor citizens, and various penalties were inflicted upon them. While they were still young they were debarred from watching the games of the maidens; and they had periodically to march in the depth of winter, with the scantiest of clothing or none at all, round the market place, chanting a song directed against themselves, and confessing the justice of their punishment. I should have all those men who are unmarried go through exactly a similar punishment unless they are serving in the Navy or Army. As the law stands now, and I wish to emphasise this, you are discouraging the continuance of the race. I admit that there would be a loss of revenue if there were not a readjustment of the Income Tax in regard to the bachelor and the spinster, and that it is but justice that what you lose by this per capita system of taxing the family should be made up by increased taxation of the bachelor and spinster. The Chancellor of the Exchequer could increase his revenue by lightening the unfair burden which is now on fathers and mothers, and replacing the deficit by taxing bachelors and spinsters. The present system of Income Tax undoubtedly makes for restriction of families. There is no use denying the fact that constant economic pressure is leading to a decline of the birth-rate, and drying up the sources of the race to which we belong. The Income Tax system particularly affects all classes, who fix a high standard of education for their children, and who deny themselves of everything, work hard, and make every sacrifice for the well-being of their boys and girls. The present burden of Income Tax hits them hard, because they want their children to be well educated and well started in life. I will not for a moment say anything against the bachelor and the spinster, who in many cases are to be commiserated; certainly I am not one to condemn them, but they do not maintain the race, for the family is essential to the progress of civilised races. The greater the burden and the difficulty in bringing up a family, the heavier the penalty on the father and mother. Not only do families suffer through Income Tax assessment as at present levied, but they also suffer through the payment of indirect taxes by every member of the family. The family constantly acts as a drag downwards in economic life as it grows larger, unless the income is very great indeed. The frightful havoc of the War has compelled every person, every thoughtful person, to think of the future of our race. This Clause is a practical suggestion of a way to encourage marriage and parenthood. At present the Income Tax is a heavy penalty on parenthood. It is really cruel to think that the birth of an innocent babe is at present treated by the State as an economic crime in tens of thousands of houses. The future of our race is in the cradle. It is the first duty of the Government to encourage healthy men and women to marry and multiply. The adoption of this Clause would have that effect, and would also relieve parents of the present day of an unjust burden. I commend the Clause to the sympathetic consideration of the Chancellor of the Exchequer, and of the Committee.

Mr. BONAR LAW

I have great sympathy with this Amendment, but I cannot hold out any hope of being able to accept it now. One effect of it would be that a man with an income of £1,000, and a wife and six children, would pay nothing.

Sir H. GREENWOOD

Quite right!

Mr. BONAR LAW

He will realise what a serious blow that would be to taxation. As Chancellor of the Exchequer I have great sympathy with the object which the hon. and gallant Gentleman has in view, but I am inclined for this year to recommend the adoption of the other method suggested, namely, that in Sparta. It would cost the Treasury less, and might have a better effect. As it is, I quite admit that this is one of the aspects of taxation that ought to be considered. We have begun that already, but what we are doing is done in a haphazard manner, but I do quite realise that it is one of the elements in the consideration of putting the Income Tax on a proper basis. I hope that with this expression of sympathy my hon. and gallant Friend will be satisfied.

Motion and Clause, by leave, withdrawn.