HC Deb 08 June 1920 vol 130 cc259-327
Mr. CLYNES

I beg to move, That this House, realising the serious effects upon trade and industry of the nation of the enormous financial burdens resulting from the War, regrets the decision of His Majesty's Government not to impose special taxation upon fortunes made as a result of the national emergency and declares that in order to meet the present financial burdens and assist in liquidating the National Debt, further measures should be adopted for raising revenue from accumulated wealth. This Motion results directly from the announcement made in the House yesterday by the Chancellor of the Exchequer. The importance of the subject raised may be measured by the statement made by the Committee which recently investigated this subject of war profits. In the earlier part of their Report the Committee state that they Commenced their investigations into the subject covered by the terms of reference by examining a carefully considered scheme prepared at the suggestion of the Chancellor of the Exchequer by the Board of Inland Revenue. The scheme was submitted to your Committee by means of a series of five memoranda which have been printed in a form of a Command Paper. Therefore, we begin the consideration of this Motion with the knowledge that long ago the Chancellor of the Exchequer thought the subject of sufficient importance to instruct his officials to prepare a scheme upon the question and submit it for the consideration and judgment of this particular Committee. The Committee, in the course of its labours, report that they found, leaving out of the question all persons whose post-war wealth does not exceed £5,000, that a sum of £2,846,000,000 is in the hands of some 340,000 persons, as the aggregate increase of their wealth during the period of the War. The Committee has had to deal with a very complex question, and one of the very highest national importance. I heard yesterday, as I am sure the House did, with a great deal of apprehension and disappointment, the announcement made on behalf of the Government of its intention not to take action on the lines of the views laid down in the Report of this Committee. What appeared to some of us as rather a promising effort, has ended in the announcement to the country offering no prospect of immediate relief from the financial strain felt by the great mass of the people. The right hon. Gentleman the Chancellor of the Exchequer almost from the first advocacy of the question of a levy upon capital has emphatically declared his hostility to the policy of such a levy, and hinted that should this House at any time require that policy to be carried out, another Chancellor of the Exchequer would have to be found. On that account, I regret all the more the policy, which he had to announce yesterday, because it seems to me that if we are not to pursue this path of revenue relief and obtain as much as possible of what we regard as ill-gotten wealth, either deliberately or automatically secured during years of artificial trade while the War was on, if we are not to seek financial relief on these lines, it would appear that, as far as the Chancellor of the Exchequer can, he has barred completely the path to redress in relation to the capital levy.

That drives me to the conclusion that the business men Members of this House, if I may use the term, will have to prepare themselves for not merely a continuance, but probably an increase of those hardships and limitations of which they complain in relation to the Excess Profits Tax. if we set aside the tax on War wealth as not defensible on grounds of policy, or, as the Chancellor of the Exchequer said yesterday, as having such disadvantages as to outweigh the advantages, and if we are not even to consider the question of a levy on the capital of the country, then we are driven back upon this third plan, which has been so strongly opposed by a large number of Members of this House—I refer to the plan of exacting large sums from what are termed excess profits. I speak perhaps little for business Members of this House, or for what I may term the direct trade or merchant interests, but I can assure hon. Members and the Chancellor of the Exchequer that we are as anxious as are other Members of this House to raise revenue in a way that will inflict the least possible loss or inconvenience upon the trade or business conditions of the country. Commerce depends upon confidence, upon foreknowledge, upon an absence of all that fear and apprehension aroused in the minds of business men as to what might befall them in matters of taxation and financial exaction, and therefore we are as anxious as any to inflict as little irritation as possible and no injustice whatever upon those who have the commercial and trading sides or the manufacturing interests of this country in their keeping.

4.0 P.M.

We do not press forward this question of a tax on war wealth without having the support of men in high quarters, who, as economists and as financiers, have some reputation. A good deal of the evidence presented to the Committee was in strong support of the policy approved by the Committee, and I would like to quote to the House two statements by Dr. Stamp. He gave evidence at length before the Committee, and as a statistician and economist he commands the respect of all who may hear him, and, speaking of the method and of the effect of this particular plan, Dr. Stamp said: Exaggerated views are held upon the extent to which payment of the tax will take money out of industry. Only a small proportion of the cases are those in which the wealth is not held in negotiable and transferable forms. It is, however, essential that the instalment system shall be so devised that the tax may be borne as lightly as possible. It will probably have the effect of increasing the real capital of the country considerably more than would be the case if there were no levy. As a tax its real personal effect is the curtailment of future annual receipts, but its intentions are to pay off substantial debt at a time when prices are high, and to form a decisive turning point in the ever upward trend of inflation. Speaking of the amount, Dr. Stamp gave a figure to the Committee which I would like to bring to the notice of the House. He said: I think that this tax is the best method of getting the money to reduce the floating debt. I would not like to undertake a scheme that would produce less than £500,000,000. I should prefer to see £750,000,000, but I would agree to the lower figure, feeling that the necessary turning point will be obtained. Yesterday, in spite of this evidence from this prominent quarter, and in spite of the embarrassments of the Chancellor of the Exchequer himself with regard to raising the necessary revenue to meet our enormous obligations, we had nothing but the announcement that this proposed plan is so beset with disadvantages that the Government cannot pursue it. It is claimed that the Government of this country represents the general opinion of the electorate. I venture to say that I do not think there is a single Member of this House who would allege that, if this direct and simple issue could be submitted to the popular will, it would not receive national approval. Nothing could be more popular, and I think nothing could be more profitable, than to strain every nerve that the Government can to bring back into the coffers of the State these millions which clearly accrued to individuals who were not engaged in the ordinary risks of the War, but who—at any rate, many of them—were able to remain at home engaged in other branches of war service, but, on account of the conditions prevailing in war time, were able, by the terms of their contracts and by the artificial nature of the conditions, to derive means altogether in excess of the profits in ordinary trade and business. If this question could be submitted to the country there would be almost a unanimous and enthusiastic approval of any step which the Government were prepared to take to bring back this wealth into the coffers of the State. Such a step would not merely bring to the country very great financial relief, but I am of the opinion that its moral and psychological effects would go very much further than I judge the Chancellor of the Exchequer yesterday thought when he made his announcement, for there is nothing tending more to create discontent and real anger in the minds of a large number of people in this country than the knowledge—not merely the thought or idea, but the definite knowledge—that while so many men have died for their country in foreign lands others have been able to remain at home and now find themselves possessed of fortunes as the result of the War. There is a quite natural desire that in our handling of the problem of finance, now that the War is over, there should be some levelling up as nearly as possible, and that what we talked of as "sacrifice" while the War was on should be made a real and actual thing now that the War is over. If the Chancellor of the Exchequer is not to pursue this line in spite of the testimony presented to what may be termed his Committee and in spite of the view of that Committee, then I think the House this afternoon is entitled to ask what other extraordinary line he proposes to follow in future to meet the extraordinary financial situation. I hope that he does not contemplate contenting himself with a continuance of ordinary methods of taxation. The financial problem is an extraordinary problem, it arose from extraordinary causes, and it must be met by extraordinary means. This is one of the extraordinary means which I say would have met with general national approval, and, incidentally, it would have effected the least disturbance and dislocation of trade and business interests, and would have inflicted the least injustice upon those who might have been called upon to hand over any considerable sums to the country. The Chancellor of the Exchequer is faced with a very formidable floating debt, amounting roundly to some £1,200,000,000. By what method does he propose to find the necessary funds to deal with that floating debt, if he is to discard the extraordinary opportunity which these large reserves of wealth afford him?

I should be the last in this House or anywhere else in any way to criticise, not to say impugn, the disinterestedness and purity of motive of the Chancellor of the Exchequer. His past personal proofs of disinterested public service fortify him against any suspicions of that kind. I would like, however, to ask for a little information. What was the effect on the mind of the Cabinet and of the Members of the Government collectively of the Memorial which we read was signed by a very large number of Members of this House protesting against any proposals to tax or requisition War wealth. I have read that about 124 Members signed some Memorial which was presented to the Government. I do not want to say anything which might appear improper to Members of the House, but I should have hoped that the richer Members of the House, at any rate, would have hesitated to sign a Memorial of that kind. They ought to have left the Government absolutely free from any kind of threat or from anything flavouring of intimidation if they cared to take the extraordinary step involved in this particular measure. Such a step at such a time was scarcely seemly on the part of Members of this House who might personally be involved in any action which the Government might be inclined to take. We on this side of the House are sometimes described as class representatives and as being here to serve some large yet class interest relating to a particular section of the community Nothing could more classify hon. Gentlemen who signed this Memorial as class representatives of the very worst kind than such representations at such a time. It was precisely the time when the Government should have felt the fullest sense of freedom, and, I should have hoped, a sense of confidence from having the knowledge of the backing of their supporters in taking a step which in the nation's interests it might have been of the highest importance to take. I hope, therefore, that the Chancellor of the Exchequer, who, as I say, could not personally be governed by such representations, will give us some information this afternoon as to what effect that formidable Memorial had on the Cabinet and on the heads of the Government in dealing with this question. I observe that the Committee, in presenting their conclusions, have admitted that the practical difficulties in the path of this plan could be overcome, and they put their views in these terms: After a close examination of these questions and consideration of the evidence, often of a conflicting character, the Committee have come to the following conclusion. They are of opinion that, although the administration of a tax of this character would involve many difficulties, yet those difficulties should not be insurmountable, and in its main features the scheme of the Board of Inland Revenue, as now amended, is practicable in an administrative sense, inasmuch as:—(a) The examination of taxpayers' returns, valuation of property, and assessment and collection of duty could be carried out in an effective and impartial manner; (b) The cost of administration and collection, having regard to the amount of the estimated yield, would be small. That evidence proves clearly that here was a large sum of wealth which could be easily acquired at no very great expense in the national interest, and which would involve few, if any, of those enormous practical difficulties sometimes incidental to the institution of new forms of taxation. Even if enormous difficulties stood in the part of this plan; we should still be of the opinion that the difficulties could be faced and overcome. We had to face enormous difficulties to win the War; we should now be not less concerned to win a real state of peace in the minds of the people, and we should not be deterred by administrative considerations or practical difficulties in approaching those who may have these reserves of wealth in their keeping. When the War was on no difficulty, however formidable, which had to be overcome as a contribution to winning the War was shirked. Men for various personal, or business, or conscience considerations gave reasons why they could not take part in the War. The country swept them aside. Tribunals were instituted, and all of us were called upon to serve in one way or another so far as we could give a contribution of service. No consideration of a personal character deterred the Government of the day from calling for every energy which every individual could contribute as part of the needs of his nation. We had a census of men. Many of them were not fit; many of them were physically unfit or temperamentally unfit. As a matter of training and conscience, they protested their unfitness. It did not matter; they were compelled to come forward and serve their country. The country first asked them to do it, and, when they refused and did not voluntarily respond, the country made them.

I want seriously to put to the House the view that we should look upon wealth in these days of peace in precisely the same way as we looked upon life during the late War. No matter what the consideration was, life, property, and conscience had to be swept aside if a contribution of physical service could be given to win the War. That was the primary consideration, and that service had to be given. I am not alleging that this war wealth is all the result of some pursuit of personal interest. I had to serve for a short time in a State Department during the War, and men came forward and told me that they could not help making huge profits owing to the conditions under which trade had to be conducted while the War was on. am not, therefore, altogether thinking of these men in a mind of censure when I refer to the fact that they gained inordinately as a result of the War. I am putting to the House the view very strongly that all this reserve of wealth is a reserve which quite properly and without injustice the country could now requisition as a financial contribution to the service of the country in times of peace in the same way that it requisitioned every form of personal ser- vice to win the War when the War was on. I do not think that any Member of the House can regard it as a just thing that we should look lightly upon the service of life in the War and look timidly or with great concern upon the service of wealth in these post-War days. I press the view that, as the highest possession which we had, that of life, was exacted as a war contribution, the highest possession that a man can have in these days of peace, namely, his wealth, should be reasonably placed at the disposal of the country to enable us to reach something like a pre-War condition of finance.

I have said that there is in the minds of a large mass of people a sense of very strong resentment at the great inequalities which the War revealed, and, indeed, which were incidental to a condition of war, not merely during the years of war, but also since its close. There could be no equality of sacrifice in the service of the War. Those who served at sea, those who served as mine sweepers, and those who served at points of danger did their duty beyond words of praise. That service was done by all classes. It is not too much to say that in that period of supreme service the poor man was at least equal to the rich in the sense that he gave his life for his country as the rich man did, and I for one, thinking especially of the first year or two of the War, remember with gratitude how the middle-aged men of the well-to-do part of our community responded to the call voluntarily to serve their country and faced the trials and sufferings of the soldier in those days. Just as they did that voluntarily, the poor men did it also voluntarily, and responded to the more pressing call as the years of the War advanced. These poor men are suffering. It is true we are trying to level up their means of subsistence by advances in wages, but the cost of living is high. It is true it has been done, but that is not the permanent condition of things which any Member of this House would care to contemplate. This condition of high prices, the disturbed rate of exchange, the low purchasing power of money, the high wages—these are not the permanent condition of things we desire. They have been the temporary makeshifts to which we have been driven as the result of the War, and our plea is to get back to something like the normal, and we shall not take one single step towards the normal so long as we have this heavy burden of taxation, so long as we have this great dead-weight debt as well as the floating debt.

Therefore it would be as a contribution towards something like a pre-War state of finance that we ask the Chancellor to support this plan of requisitioning a large part, if not all, of this improperly acquired wealth derived during the years of war. It is easy for any Member of this House to criticise any particular scheme. I hope the Chancellor will not limit himself to a criticism of the particular plan submitted from this Committee. This is a great question of principle rather than one of a particular method or a particular scheme. We can find fault with details. It is easy to show that this or any other plan could not be equitable, could not be just as between man and man, and that it would involve some people in very great inconvenience. Those are only the most elementary truths relating to any kind of taxation if applied to anything and at any time, and in face of this extraordinary financial situation it is unusual courage and daring that are required on the part of the Chancellor. I am certain that if the Chancellor sets aside completely this plan, he will be driven more and more to what even he will regard as the more extreme measure of relief, namely, the capital levy, which he has previously rejected.

As my last word, let me press the view that it is not right that the Chancellor of the Exchequer, as the financial head of the Government, should fail to use his power to secure these war fortunes which accrued to men, not as a result of their service, not as a result of any kind of personal sacrifice which they made in the national interest. He, I am certain, will agree if I say that the War, which gave a grave to so many hundreds of thousands of our men, ought not to give affluence and exceptional wealth to this considerable number of persons named in the Report of this particular Committee. They have this wealth as an incidental and inevitable condition of the War. It is the business of the Chancellor of the Exchequer to get all, or as much as possible of that £2,000,000,000 odd, and I cannot believe that any Member of this House, recognising the financial difficulties of his country, even though for a moment he might, on grounds of policy, sign a requisition against this plan, would fail to do his duty, and pay off as much as the Government thought it proper to call upon him to pay, as a necessary contribution towards bringing us nearer that state of peace of mind from which, unhappily, at the moment we are still far removed.

The CHANCELLOR of the EXCHEQUER (Mr. Chamberlain)

My right hon. Friend is a singularly fair controversialist, and we all recognise the serious way in which he approaches these great questions. I am glad that it is he who has opened this Debate this afternoon, and I hasten to reassure him against one anxiety which has been passing through his mind. My right hon. Friend is afraid that a memorial, signed by a certain number of Members in this House, of which I have read in the papers, but which I have not read otherwise, unduly affected the mind of His Majesty's Government. I think that the mind of His Majesty's Government was sufficiently indicated in our deliberations before that memorial reached anyone, but I do not wish to quarrel with any of my hon. Friends who have appended their signatures to that memorial, or any other memorial. But may I say that, while I have the profoundest respect for the judgment of this House or of Members of this House, given in the Lobby and in the House itself, after, or in the course of, public and informative debate, I do not attach unlimited importance to memorials signed even by great numbers of Members? I have found, in the course of my experience, that the purveyor of memorials is like the importunate suitor, who is apt to exact a signature which is given as the shortest way of getting rid of him. The fact that a Member in the Lobby, in deference to the cause of friendship or the desire for escape, has signed his name to a memorial, must not be taken as necessarily meaning that that is his considered and final opinion on a great question.

I never much like troubling the House with purely personal matters, but I hope that the House will forgive me if I say a word or two as to my own relation to this suggested tax. We are accustomed in these days to read in the papers all that has taken place in the Cabinet. One day I see my right hon. Friend the Secretary of State for War is maintaining garrisons, or pressing expeditions, in regions far removed from us, against the wishes of the whole Cabinet. Another day I read that the Chancellor of the Exchequer is vainly fighting for a cause which he has deeply at heart, but with which his colleagues have no sympathy. I am told it is said that, in the Cabinet decision rejecting the proposal for a levy on war wealth, I have received a great rebuff. May I advise hon. Members not to attach undue importance to rumours of this kind, bred of ignorance, impregnated by malice, which are ludicrous to those of us who sit in the Cabinet and know what proceeds there? I only dwell upon this matter in the present connection because I think the consistency, or, at any rate, the reasonableness of the course taken by the Chancellor of the Exchequer is not wholly his own affair, but is a matter of some public concern, considering the great interests with which he has to deal, and for which he is responsible to this House and to the country. Anybody who recalls, as my right hon. Friend the Member for Peebles (Sir D. Maclean) recalled, my first observations in the House on the subject of war-wealth, will know that I did not approach the question as a convinced or enthusiastic supporter of the idea of a levy. I dwelt upon the very great practical difficulties of imposing such a tax. I dwelt upon the extreme difficulties of reconciling the broad general lines of equity on which such a tax must proceed with justice in individual cases, and I hesitated a doubt as to the wisdom of extending to the sphere of taxation that retrospective legislation which the House generally views with great jealousy in all other cases. I was pressed to consider the matter further. I came to the conclusion, and the Government came to the conclusion, that no Debate in this House without inquiry, no answer given, as it were, ex cathedra from the Treasury Bench would carry conviction to the mind of the country or set this question at rest.

My right hon. Friend even now has spoken of the proposal which we are considering as a direct and simple issue, which, if laid before our countrymen, would receive their almost universal approval. Whether it received their approval would depend very much on how you stated the case, and whether they were informed upon all it involves, and if you attempt to state it in a direct and simple way, you can only attain that directness, or at least that simplicity, by the suppression of facts which are material to the judgment for which you ask. It is not a simple issue. It is a most complicated one, and a most difficult one, as the deliberations of the Committee have shown, and I think the Committee, if I may pay this compliment to them, have done a most useful work, both in elucidating what is involved in the imposition of any such levy, the fears and anxieties to which such a levy, even on the most restricted scale, would give rise, the large concessions and exceptions which must be an intrinsic part of it, and in reducing to something like a practical form those vast, vague millions of which my right hon. Friend opposite and others have spoken as the likely produce of the tax. We accordingly proposed that the matter should be referred. My attitude was one of entire neutrality. I refrained from expressing any opinion for or against. Let me say in this connection that it is really of importance that it should be understood that the Board of Inland Revenue did not appear as advocates of this proposal or any particular proposal. They appeared as servants of the State acting under the directions, first of the Chancellor of the Exchequer, and then of the Committee, to lay before the Committee all the information at their disposal, and to produce schemes on whatever lines the Chancellor of the Exchequer before the meeting of the Committee, or the Committee after its meeting, might desire to have laid before it.

I appeared before that Committee on three occasions, once as a witness giving evidence, and twice in conference with the Committee at their request. Hon. Gentlemen who were on the Committee know that at no one of these meetings did I appear as the advocate of the tax or an opposer of it. From first to last I have done my best to get the subject fully, fairly, and impartially investigated. If in the last speech I made in this House I seemed to dwell, and did dwell, much more upon the advantages of the tax than upon its disadvantages, it was because I thought that the proposal was in danger of not receiving from the general world of commerce and finance a fair consideration of its merits, that they were not looking at it in the light of the alternative which would be necessary if it were not adopted, and that they were giving an insufficient attention to what my right hon. Friend has well called the psychological aspect of a tax or levy upon increases of wealth occurring during the War. For myself, I have watched the inquiry and, especially on occasions when I have met the Committee, I have devoted my mind to the same subject to which they were devoting theirs; and the result has been to make me feel continuously and increasingly that the fiscal merits of the levy were less even than I should have anticipated, but that what my right hon. Friend has called the Psychological, or what you may call the broad political advantages of the levy in response to an ill-defined and often ill-informed public sentiment were far greater than were generally recognised.

I come to the Committee's Report. As I said, my own feelings were that the more you considered the proposal the less were its fiscal advantages manifest, and the greater seemed to me its psychological disadvantages. What was the Committee's Report? My right hon. Friend (Mr. Clynes) spoke yesterday of the Government declining to adopt the Committee's recommendation. He used almost similar, but slightly more guarded, language to-day. Let us at least have clearly in our minds what the Committee say. In the first place, they turned down absolutely the first scheme which had been prepared, by my instructions, by the Inland Revenue. I indicated to the Inland Revenue, as a preliminary to the inquiry, that they should seek to obtain by the levy no less than £1,000,000,000. The Committee found that no sum approaching £1,000,000,000 could be levied without disastrous inequity and injustice. In the second place, the Committee declared that the scheme for £500,000,000 was practicable on a number of conditions, the chief of which, for my present purpose, is that War securities should be accepted in payment of the duty at not less than the issue price. Lastly, the Committee deliberately refrained from expressing any opinion as to whether a tax of this description was desirable or expedient as an alternative to the Excess Profits Duty, or the taxation of profits in any other form, and said that that was a question which they must leave to the Government and to the House of Commons.

That is not a recommendation! That is not approval of the tax! Reading the Report, and using such sources of information as are open to all, I am led to suppose that, if the draft report of my hon. Friend the Chairman (Sir W. Pearce)—to whom I am particularly indebted for the heavy and responsible task he undertook, and the ability with which he discharged it—had been a direct approval of the levy, the Committee would have decided otherwise than they did.

At this stage, having called the attention of the House to the exact scope of the Committee's Report, let me ask the House to pause and consider what were the arguments with which the War levy was originally supported and the principal objects which those who advocated it had in view. I think the objects were twofold. The arguments were naturally connected with the two objects. The first object was to get at those who had made money out of the War. That is the direct and simple issue which my right hon. Friend would put to the country. I have no doubt that he would find for the abstract proposal a very widespread measure of support. But then the Committee has shown that you cannot make that distinction. You cannot draw the line between those who made money out of the War and those who increased their wealth during the War, but not out of the War. They have shown that it is impossible so to frame your tax that it will hit the improper or exorbitant profits which my right hon. Friend described as the suitable object for the tax, so as to hit them and let other wealth escape. They have shown that no clear distinction is possible in such a levy between increased wealth due to increased earnings and increased wealth due to rigid economy and patriotic saving. They have shown that there are no means by which you can get an equal contribution from those who made money, but spent it freely during the War, and those who made money as freely, but, in deference to appeals made to them, saved it, and invested it during the War.

Sir F. BANBURY

Hear, hear!

Mr. CHAMBERLAIN

In not one of these matters can you do precisely or with anything approaching precision what it is your object to do. In not one of these matters can you, with anything like accuracy, satisfy the test of the direct and simple issue of which my right hon. Friend spoke. The most you can do in respect to anyone is to attain to some rough approximation, which, by means of wide exemptions and abatements—often with large injustice to the particular individuals—will yet save a proportion of what you want to save, though not the whole of it.

What is the second object of the advocates of the tax? It is to reduce the floating debt. The two objects were referred to in my right hon. Friend's speech to-day. The Committee have shown that as an expedient for the reduction of the floating debt a War levy is a broken reed. The total sum which the scheme which they think we might present to the House is calculated to yield is £500,000,000. In passing, I ask how much it would actually yield after it had stood the fire and test of debate and criticism of the passage of such a Bill through this House. My right hon. Friend the Member for Paisley appeared the other day as the chief mourner at the obsequies of the Land Values Duties.

Mr. ASQUITH

No, no! I lamented the absence of the chief mourner.

Mr. CHAMBERLAIN

I thought that my right hon. Friend offered himself as a substitute, and that he discharged the functions admirably, though with somewhat of a Hibernian tinge of merriment, as if at a wake. These taxes, as introduced, would have produced money, but after they had stood the fire and criticism of all the hard cases which the House could not stomach, and which the Government could not justify, issued in a costly valuation which has never paid for itself. [HON. MEMBERS: "Hear, hear."] I hope I am not unduly anxious, but I have some ambitions, as Chancellor of the Exchequer, and one of them is to avoid a very contentious measure resulting in a very costly valuation, and yielding at the end no revenue or comparatively little revenue. Suppose you get the whole £500,000,000. Suppose I took the scheme as it stands and filled in the details in such a way that there would be no danger of the yield falling below £500,000,000. How is that going to help me with the floating debt? In the first place, I must receive in payment of the duty any Government war issue at the price of issue. That is the condition laid down by the Committee, and, I think, a very proper condition. Of course, it will be to the interest of everyone to pay in existing stocks rather than in cash. The greater part of the money which will be received will be received not in cash, but in Government securities. It would go to the reduction of debt, but not to the reduction of the floating debt. How long would it be before I received the £500,000,000? It would take a year to get a provisional valuation, and it will not be final then, but still at the end of the year occupied in legislation on the first provisional assessment you might begin to collect the tax. In the course of the next two years, in three altogether from now, you might collect £350,000,000 out of the £500,000,000. The remaining £150,000,000 has to be spread in instalments over a period of perhaps ten years in order to avoid financial disaster to particular individuals who could not meet the capital obligation in a shorter time. To put that forward as a royal road for paying off the floating debt is really to show an utter lack of appreciation of the competency of the means for the end which is proposed.

As a fiscal expedient the levy is a failure. It is shown to be a failure. £350,000,000 in three years from now. Why, Sir, the Excess Profits Duty in the same period will produce nearly twice as much if profits continue at anything like the present rate. Observe that the two are alternatives. I never suggested that you could collect both the levy and the Excess Profits Duty at the rate of 60 per cent. this year, or at a high rate for the next two or three years. The Committee expressly treated the War levy as an alternative to either the present Excess Profits Duty or to any other form of taxation which might take its place. Accordingly the Exchequer would be a loser by the exchange. We do better with the Excess Profits Duty than we do with the War Levy. I beg the House to observe that it is not as if in the main the two taxes fall upon wholly different classes of the community, or as if one tax was paid by the poor and the other by the wealthy. The two taxes in the main, and, broading speaking, fall upon the same classes, and largely upon the same individuals.

As one of the many deputations with which I have discussed this problem said to me, if you decide that the patient is to take his medicine, surely he may be allowed to express some preference as to the form in which he will take it. Assuming there is a certain amount to be paid, and that is common ground, and assuming that the same people have got to pay it, I, at any rate, as Chancellor of the Exchequer, am not ashamed to say that I would sooner take the money from the individual to be taxed in the way that is least painful to that individual. As to the opinion of the people who have to pay the one tax or the other there can be no doubt. I do not say there are not exceptions. Of course there are. I have never known a case where you have consulted experts where you could not find some experts to take the contrary view, but as to the general consensus of opinion there can be no doubt. The whole world of banking, commerce, finance, and industry, much as they dislike the Excess Profits Duty, much of my time as they have taken up in denouncing it and insisting on its intolerable character, prefer the evil that they know to the more vague and less precise, and therefore the more terrible evils of a War levy. Is there no reason for it? I have done my best to bring home the dangers which lurk in the solution which they have chosen, so that they should not take it with their eyes closed.

Now I think I am free to say—Is there nothing to be said on their side? Is there no reason for their fears? The world of finance and commerce, not only our own world here, is not in a profoundly stable condition. Troubles have arisen in Japan which had their repercussion in America, and were again re-echoed here. For the first time there have been signs of a check in the great prosperity which has prevailed since industry was re-established after the War. Every business needs much more capital to conduct the same trade to-day than it needed before the War. The State and local authorities have need of capital and are making great demands upon the money market. Traders have stretched their credit to the uttermost. Bankers have lent as much as they ought to lend, and indeed have exceeded the proportion which is proper in respect of their resources and commit- ments. That is not a situation with which you can lightly play hazardous experiments. One false step producing one serious bankruptcy might bring a whole train of evils in its wake, the extent and duration of which not one of us can measure.

I am not altogether surprised at the fears which were expressed, though I confess I was surprised at their depth and at their universality. They were fears amounting almost to a panic, and bear in mind that fear is itself an element, and a most important element, in producing the very dangers which we dread. If there be enough in the general conditions to make men anxious lest there should be some great financial or commercial disturbance, if you then take some measure which they think is likely to precipitate that disturbance, then each of them will run about trying to save himself in time, and the result of their combined fears will be that the very catastrophe will be upon you which you are trying to avert. That is the position. I think that there is need for caution in such circumstances, and the fact that this is, as my right hon. Friend said, an extraordinary tax is not to my mind a commendation for it.

Why are these fears felt in industry? My right hon. Friend said that employment depended upon capital feeling confidence, and having foreknowledge of its liabilities. It is the feeling that this levy strikes at the confidence which capitalists have hitherto felt, and prevents foreknowledge of a man's liabilities or fore-planning to meet them that is the gravest objection to the tax. There is no precedent for a levy of this kind, or indeed for any levy on capital in any civilised country. The only levies on capital that I know of at all are one in Germany before the War, and another in Italy. They were assessed upon capital, but they are not as severe a strain upon revenue as our own Income Tax. The so-called German levy was, I think, £50,000,000 all told spread over five years, and it does not compare with our Income Tax, in fact, it does not begin to compare with it, and it is deceiving ourselves to talk of that and the Italian tax as being in the nature of what we are discussing as a capital levy. When we do these things we do them thoroughly. Our Income Tax is a real tax. Our capital levy would be intended to be something that you could not meet out of income, but which demanded a sacrifice of capital. There is no precedent for that. If you once do it under whatever pressure, what guarantee can I give to those who pay that it will have no successor. What guarantee can my right hon. Friend offer that if he does it now and for war wealth only, under the peculiar circumstances under which that war wealth was accumulated, he will be no party, or his friends will be no party, to repeating the tax without his excuse and without the same justification. It is the insecurity which the idea of the tax brings, which is the first objection.

5.0 P.M.

The second objection is that, at a time when every business needs more capital, and every business is strained to find resources sufficient to take advantage of the opportunities which are open to it, and which we want to see developed, you will withdraw capital from business by your levy. The extent of that withdrawal I know is disputed. My right hon. Friend quoted Dr. Stamp in this and in another connection. I have had the advantage of seeing Dr. Stamp since he gave his evidence, and I think he will not object to me saying what he said to me, that if he were going before the Committee again to-day he would modify his evidence, at any rate, in two particulars. In the first place he saw that the tax would be less effective than he had supposed as a remedy for the Floating Debt. In the second place he saw that the alarm amongst all concerned in industry and finance was infinitely greater than he had expected. After all, businesses do not have much idle capital. Almost every business in the course of a year is living in part on an overdraft or a credit allowed by the banks. You cannot take the resources of the partners without affecting the credit of the business in which they are partners, for the credit of the business in the eyes of the banker is the credit, not only of the business, but of the partners whose resources are behind it. Another and greater difficulty is this. In levying a tax on the basis proposed you are going to levy a tax on values which have already partly fallen off or on capital which, although made during the War, has since been lost. I heard a case stated by one of my colleagues. It was in his own personal knowledge. A man had actually extended his works at the invitation of and under the pressure of the Government during the War, and he found that his extended works were a white elephant to him when War ceased. In the course of the first year after the cessation of War he had lost one-third of the whole capital which he had accumulated during the War. All values are uncertain. Prospects are uncertain, and, if you cannot say what they will be, you may be quite certain that the taxation as on the value of June, 1919, will be on values which have already partly disappeared and may further disappear at any moment. I doubt profoundly whether anybody in this House could get a Bill through which did not allow you to substitute the value at the date of assessment for the value at the close of the War, or some date between those times.

But last and most important of all is the uncertainty in which the tax would involve every business man for a period of one year as a minimum, and very likely two years, before his assessment was definitely regulated and agreed to. A year for your machinery and for your first provisions; another year—and it may be more than a year in many cases—before the final assessment can be made—and through all that period the man himself would not know what proportion of the capital which was nominally his own, really was his own, and nobody to whom he applied for credit, no bank or any other institution, would know what was the amount of the security against which they were lending. I think that is the gravest of all the objections to the tax.

I submit that you cannot obtain the particular moral or psychological object which the advocates of the tax profess to seek in a levy on war wealth. As a mere revenue resource it is far inferior to the Excess Profits Duty. No one can pretend, even though he be a strenuous advocate, that it is not an expedient of a novel character which might be made the precedent for much worse proposals, which, in a rather difficult and delicate situation might cause an amount of panic and disturbance which the general conditions of the world, and of our country in particular, do not allow us lightly to go through. It is for these reasons that we have decided that we will not make any proposal in this sense to the House of Commons. It would not obtain the moral effect which its advocates have thought it would. It would not obtain the fiscal advantage; it would not materially help us in the reduction of the Floating Debt. The Excess Profits Duty is more remunerative to the Exchequer. It is preferred, with their eyes open, by the classes who have to pay. That being so, they have had their choice and I shall now ask the House to maintain the Excess Profits Duty for this year at 60 per cent. I shall have to ask the House to maintain the Excess Profits Duty, or its equivalent, which I have not yet found. [An HON. MEMBER: "You will have to increase it!"] I make no pledge, but I do not contemplate increasing it. It is, however, in my contemplation that it shall remain at 60 per cent. for this year and continue for a longer period than it otherwise would have needed to do. Lastly, since that is the choice, the Excess Profits Duty must be paid by the people from whom it is due and they must not come to me and ask me to allow them to hold over the tax which is due to the State for an indefinite period.

In saying this, let me say also that I desire to recognise, and I hope my right hon. Friend the Member for Miles Platting does recognise, the spirit in which the well-to-do and the rich have borne the immense financial sacrifices which have been asked of them during the War. They have been borne as patriotically as any sacrifices called for from any class of the community. An hon. Member opposite sneers. I do not know why. The greatest sacrifice of all—the sacrifice of blood—was made in equal measure by all. The financial sacrifice was made, as it rightly should be, in far larger measure by the well-to-do. It has been made by them almost without a murmur, to their credit be it said. Do hon. Gentlemen realise what they have done, and what the contribution of wealth has been? I do not speak of the Excess Profits Duty, which was first 50 per cent., then 60 per cent., and then 80 per cent. I do not talk of the special levy on controlled firms. But look at what has happened? In 1913–14, the last peace year, indirect taxation was 42.5 of the whole. To-day it has sunk to 33.25. Direct taxation in 1913–14 was 57.5; to-day it is 66.75. Of the indirect taxation in 1913–14, the sumptuary taxes—the taxes on luxuries, on beer, tobacco and wine—were 35 per cent. of the whole. To-day they are only 26.19 per cent. The other taxes on tea, coffee and the like were 7.5 of the whole indirect taxation in 1913–14. They are only 6.3 to-day. Meanwhile, look at the progress of direct taxation. Income Tax has risen from 1s. 2d. to 6s. in the £. There have been large abatements, but the abatements have not been for the well-to-do. Super-tax has risen from a maximum of 6d. to a maximum of 6s. Death Duties have been raised at every point of the scale on estates above £15,000 and have been doubled at the maximum.

I gave an illustration in an earlier Debate of a rich man whose income was invested in gilt-edged securities, and showed what he paid in various forms of taxation. Will the House pardon me if I give three illustrations of men whose wealth is mainly in business, which is subject to Excess Profits Duty—one of those gentlemen whom my right hon. Friend is so anxious to get at? Assume that man has a quarter of his income coming from investments outside his business, yielding him 6 per cent. on his capital, and none of it subject to Excess Profits Duty. Assume that the other three-quarters comes from his business, the yield on his capital being 20 per cent. after allowing for Excess Profits Duty. Assume, too, that half the business profits that he is making are Excess Profits in the terms of the tax. His total gross income is £6,436; the Excess Profits Duty reduces it at once to £5,000, of which Income Tax and Super Tax will take 6s. 11d. in the £, leaving him less than £3,300, out of which he will have to make by annual payments any insurance which he wishes to create for payment of Death Duties on his death. If his gross income were £13,043, the Excess Profits Duty would reduce it at one swoop to £10,000, and Income Tax and Super Tax would take 8s. 8d. in the £ out of that £10,000, leaving him a net income of £5,700, against a gross income of £13,000. Again, out of that reduced sum he would have to make provision for Death Duties. If his gross income were £131,970, or say £132,000, the Excess Profits Duty would reduce it to £100,000. Income Tax and Super Tax would take 11s. 6d. in the £ of that sum, leaving him with a net income of £42,500 to go into his private account and to make provision for Death Duties. Only at the lowest point which I have mentioned does as much as 10s. in the £ remain to the taxpayer. At the highest point of the scale which I have given he retain only 32 per cent. of his original gross income—about 6s. 5d. in the £ on what he has earned, and there is no allowance made in that circulation for Death Duties. If there were, it would reduce it to 5s. 7d. in the £. There is no country in the world which has attempted an effort comparable to ours, or in which the well-to-do are taxed so heavily.

I will not speak about the nations of the Continent, although it is pertinent to observe that, if they sometimes envy our quicker recovery, and think that because of it we ought to afford larger assistance to them, that quicker recovery is due to the immense sacrifices which we have borne, to the great height to which our taxation has been carried, and to the accuracy and the closeness with which the taxation is levied upon the citizens subject to it. Let me compare our position with that of America. The graduated scale of Income Tax, including Surtax, in the United States gives a smaller effective rate in the pound than in the United Kingdom on all incomes that do not exceed £72,000. Up to £72,000 our rate is higher than theirs. At £72,000 our rate becomes the same. If you omit to take count of the privileges enjoyed by certain War stocks in the United States, which have the privilege of exemption or partial exemption from Income Tax, the taxation in that country, on incomes exceeding £72,000, is imposed at a higher rate than in this country; but there are vast United States issues which are wholly or partially tax-free, and accordingly I think I am right in saying that the Income Tax as effectively levied is higher on incomes on this side than in the United States. Our Excess Profits Duty is more onerous. Death Duties in the United States rise gradually to 25 per cent. on the amount by which the value of the estate exceeds £2,000,000. The effective rate of Death Duties on an estate of £2,000,000 is barely 17 per cent., or less than half the rate which is chargeable in this country. If that be the result of the comparison with the United States of America, the House will know that my statement that there is no other country in which a comparable weight of taxation falls on the average of well-to-do and rich people is amply borne out by the facts. We have not made these sacrifices in vain. We are reaping the advantages of them, and those who are impatient and wish to see everything done in a moment, I would ask, at any rate, to take count of what we have already accomplished. We saw the dollar exchange as low as 3.18. To-day it is in the neighbourhood of 3.90, and is showing strength, and has shown strength for some time. We have bought well over half our share of the Anglo-French loans already, and we have in New York, in sight or on the way, sufficient to cover the remainder of our half of the loan. The French have undertaken, of course, to provide for their half. We have enough to meet the remainder of our share, to meet all other market obligations of the Treasury in the United States up to the end of 1920, and to leave a satisfactory margin over. Of a debt of $100,000,000 to the Argentine, we have, although not technically, yet in substance, paid off $50,000,000 this year, and we have made arrangements for the redemption of the remainder in the course of the next two or three years. In the course of a month or so we shall pay back a loan of 20,000,000 yen contracted in Japan.

So much for the foreign loans. At home we have made provision for the redemption of £230,000,000 of debt this year, and we have made provision by taxes which should enable us to reduce debt by a further £300,000,000 next year without additional taxation. It is quite true that the floating debt remains at a very high figure, and it is true that, if you cannot raise a limited levy of £500,000,000 with safety on war wealth, you cannot rely, as an expedient for dealing with your floating debt, or your debt at all, on a general capital levy, which would have a far more disturbing effect and would create much greater insecurity for capital and credit. If you cannot deal with it by a direct levy on capital, whether on capital generally or on war wealth, neither is anything gained by calling a capital levy by another name, and levying it as a forced loan, or as a surcharge on income at a rate which nobody can afford to pay out of income, and which has to be paid out of capital resources. The result of the Committee's Report is to show that there is no short cut or royal road to the recovery of our position. Capital must be conserved for public and for business needs; speculation must be discouraged, and a better response must be given than has hitherto been made to the new Treasury issues and the Treasury Bills, but particularly to the new Treasury issues. The bank reserve is low, and the currency note issue is higher than any of us would wish to see. To-morrow's Return will show Ways and Means advances largely increased in consequence of the payment of June dividends. That is all right if it is a purely temporary phenomenon, and in that case Ways and Means are being applied to the very purpose for which they were intended. The whole question is, will it be temporary? If it is more than temporary, it is a danger.

I say that there is no room for speculation, and that there is no room for rashness. Money is dear. Is it going to be dearer? The remedy is in the hands of the possessors of money. If they will conserve it, if they will follow a cautious policy, if they will not inflate credit or over-lend for trade, if they will encourage investors and themselves help to meet the public need, then we may avert the peril, and I hope we shall. What is my conclusion on the matter? It is one that I have often preached to the House, and I am afraid I can only repeat it. It is that the remedy for this situation is not to be sought by extraordinary and dangerous expedients; it is to be sought by a steady, continued course of effort over a series of years. The way may look long; it may be very rough. There may be times when, looking forward, we may be inclined to be discouraged. But when we feel like that, let us cast our eyes backward, let us measure the road we have traversed since this time a year ago, and, strong in the confidence given by the evidence of our own power to deal effectively with the situation, let us proceed to tackle the difficulties that are to come in the same spirit of courage and of endurance which has enabled us to overcome the difficulties of the past.

Sir WILLIAM PEARCE

I think the House recognises that the task which was laid upon the War Wealth Committee was so difficult and so complex that, unless under special circumstances, it is almost a matter of surprise that the situation was not dealt with by a committee of experts, rather than a committee of Members of this House. The Committee, perforce, was composed of all section of the House, and I think that the Report, with which I was glad to hear the Chancellor of the Exchequer express satisfaction, represents the greatest measure of common agreement that it was possible to arrive at in this com- mittee. If we had attempted to proceed further, I think it would have become perfectly clear that, as the Chancellor has stated, the differences of opinion in the Committee were very decided, and it was not possible to get either a positive or a negative Report from them. I think the first good work the Committee did was to decide to sit in public. The Press were kind enough to take a good deal of notice of the proceedings, and the public, and I think the country at large, understand very much more about the difficulties and the pros and cons of the problem than they would have understood if the Committee had sat in private. I think that that decision met with general approval.

I should like to say a few words about some of the difficulties which presented themselves to the Committee. First, there was the difficulty, to which the Chancellor has referred, of distinguishing between fortunes made as a result of the War and fortunes made during the War. That was a difficulty inherent in the inquiry, and one which could not be surmounted. The Committee spent a great deal of time and ingenuity in trying to devise some plan which would get as nearly as possible to fortunes made out of the War. The scheme they suggested may have been open to great objection, but at the same time I think it did go a long way towards distinguishing between wealth possessed before the War and wealth made during the War. It provides, as is absolutely necessary, a very large allowance for savings. I remember one instance being brought to my notice of a very rich man, with an income of £100,000, who, by carefully saving everything possible, had put by a very large amount indeed during the War. He told me himself that by economy he saved over £50,000 a year right through the War, and invested that money in War Loan. It was pointed out, and I think with enormous force, that to suggest that that kind of saving should be subject to another tax was really a grave injustice. To accept that view forces anyone who attempts a practical application to make very large allowances on pre-War wealth. After a good deal of hesitation, the Committee adopted that view as being the nearest to giving some sort of rough justice, and I think it does. If you allow, as the Report suggests, an abatement of 100 per cent. up to £25,000, and in other cases not less than 30 per cent. of the pre-War wealth, before you begin to tax, it does cover any claim that will be made for ordinary saving, and does make some allowance for the decrease in the value of money. But still even then it is open to very grave objection. A millionaire before the War who during the War has added another £1,000,000, under the scale suggested would have £700,000 of his £2,000,000 subject to the purview of the tax, and the scale proposed to take 80 per cent. of that, that is, £560,000. It is obvious that the money has probably been invested in other industrial enterprises and to take such a large sum as that away from any individual might have a very considerable industrial effect and perhaps in ways which were not anticipated. On the other hand if this taxation is ever instituted, you cannot have an omelette without breaking eggs, and these heavy lumps of taxation, if you want to provide for £500,000,000, will have to be abstracted from the pockets of the more fortunate people whose wealth has accrued to them as their good fortune and not as their fault, and many persons have had riches thrust upon them. But none the less when the money has been reinvested and replaced, if you take such large quantities as that from one individual it is obvious that disturbance may be created perhaps of more consequence than one would imagine. If you go to a lower part of the scale, a man who has only made £10,000 during the War would be taxed under the scheme put forward by the Committee to the extent of about £2,000. He might say, "'This is very unjust; I only made £10,000, but a friend of mine made £25,000 and because he had £25,000 before the War he is not taxed at all." That again is open to grave attack, but after all I hold that the scheme as put forward by the Committee was a rough and rather successful attempt to equalise losses.

The problem altered a good deal during the sitting of the Committee. The first phase was with regard to the reduction of a floating debt. It was pointed out with great force that a floating debt of £1,200,000,000, which the Government could not be quite certain of renewing from time to time as bills became due, was a source of danger to the country. When the Committee examined the problem, to my surprise it was not presented as an attempt which ought to be made to get rid of the whole of the floating debt at once, but the Treasury witnesses pointed out that if a larger revaluation than some £300,000,000 a year were made, the rapid fall in prices might be a great danger, and therefore instead of it being necessary to raise £1,000,000,000 or even £500,000,000 at once, probably £200,000,000 in one year would be quite sufficient to wipe off as much of the floating debt as it would be safe to do in that period of time. But when the Committee were half through, then came the Budget, with the enormous burden of the industrial taxes which the Chancellor of Exchequer felt it necessary to impose at this present time, and it came to me with irresistible force that trade and industry could not afford to have any additional burden put on to it beyond the taxes that the Government were proposing. Indeed, I think the House feels, and I think the right hon. Gentleman will know before the end of his Finance Bill, how great the fear of the country is that taxation at present cannot be supported without a serious check to the development and progress of the industrial position. This country has an unexampled opportunity to extend its business and its trade and its industrial prosperity, and it is a very serious question whether the country would be wise to support these enormous taxes on industry. At any rate, I feel strongly, and I think nearly everyone will agree, that anything in addition to the taxes indicated in the Budget would have been a disaster to the industrial and commercial position, and therefore the problem of the Committee, instead of becoming a question of additional taxation, became a question of alternative taxation.

Here I am not altogether satisfied that the commercial and the industrial classes of the country really appreciated what the alternative might be. It was indicated, but it was never stated in set terms, which I understand would have been the proposition of the Exchequer, that the Excess Profits Duty should this year be 40 per cent., and next year 20 per cent., and then disappear, and at the same time there would be no increased Corporation Tax. As a financial bargain—I am talking of it now simply as a financial bargain—that seems to me a very bad one for the Government and a very good one for industry, and I do not think commerce and industry really appreciated how good that bargain was, and I cannot help thinking that if that had been put forward in set terms, industrial and commercial opinion might perhaps have been reconciled to further treaty with the Chancellor of Exchequer and a further inquiry. The right hon. Gentleman, I am quite sure, is right to this extent, that you cannot impose this tax against the opinion of the commercial and industrial classes. You cannot do that without having a panic. If industry had had a definite offer in set terms I think the war levy proposition might have received very much more consideration. After all, if a statement of that sort had been made, eliminating the Excess Profits Duty in two years, and undertaking not to increase the Corporation Tax, there is then a settled and fixed financial policy for the next two or three years, and I am quite sure that is one of the greatest advantages this House can give to trade and industry, and now that the Government has made its decision, I hope in no sense will the problem be re-opened, because a fixed and decided policy to my mind is one of the surest means of remedying the difficult financial position in which we are at present.

There is another reason why industry might have listened to these proposals if they had been made in set terms. I recognise the disadvantage of the Excess Profits Duty at present. My own experience, and I think it is confirmed by nearly everyone who has had to manage industry, is that it tends all the time to increase prices, and to my mind one of the chief aims of financial policy at present should be to do something to check increasing prices and to do nothing to add to them, and I feel that the Excess Profits Duty is open to that attack at present. The nation requires lower prices, but they will not be brought about so long as a heavy Excess Profits Duty remains. It seems to me that the two things almost follow one another. I do not think you will ever get a large fall in prices unless it is accompanied by a reduction in the Excess Profits Duty. If there is sufficient revenue from it to make it worth the while of the Government to maintain it, I believe it must follow that you will get very heavy prices and a very light fall on the present scale. Then, again, Excess Profits Duty, it must be quite manifest, not only leads to extravagance but checks enterprise and checks the extension of business. I think, therefore, having looked at the problem carefully for the last two or three months simply as a question of how much industry was going to pay, if they had taken the war-wealth taxation as proposed in this Report in return for the elimination of the Excess Profits Duty, and the undertaking not to increase the Corporation Tax, it would have been a bad bargain for the Treasury and a good bargain for industry, and I understand the Chancellor of the Exchequer has come to the same opinion. But I do not want it to be taken that I am arguing in order to persuade the Government to alter their decision, because the greatest service they can render to industry is a settled financial policy, and I understand now that the Government will not change and it will be a settled financial policy. This is the greatest advantage the Government can give to industry so that industry may know where it is. After all, the salvation of the country does not depend upon taxation. It depends on the extension of work and industry, and I feel sure that a settled financial policy is one of the principal factors in bringing that about. Unless the nation at large realises that work is our only salvation we are in danger of losing in peace the great victory we have obtained in the War.

Lieut.-Commander HILTON YOUNG

I agree that the salvation of the country depends on its being restored to the path of complete commercial prosperity, but increased production can be of no avail if accompanied by a muddling and mistaken financial policy. We can work as hard as we like, but if the system of taxation is bad, we shall not enjoy the benefit of our labours. I was inclined at the beginning of the Debate to be very heartily in favour of the War levy proposition, subject to one condition, about which I hope to hear more in the course of the Debate. One could not but think it a just proposal. I recognise, of course, those imperfections which have been so carefully analysed by the Chancellor of the Exchequer—imperfections by which the levy would not have discriminated between increments of wealth immediately due to War conditions, and those not so immediately due. The Committee's proposal was substan- tially just, because a margin was allowed for increments due to normal saving. It would have been impossible having regard to the absolutely widespread effect of war conditions throughout industry to say that any of the residue was not directly due to war conditions. I recognise fully the difficulties which were so accurately described by the right hon. Gentleman as regards the actual assessment of the tax, but nevertheless I was prepared to think that those difficulties might have been overcome by careful administration. The one condition which certainly was essential if it was to be worth while to impose this levy was that it should secure the amount desired for funding the floating debt within a reasonably short time. It was apparent that time was of the essence of the whole undertaking. The right hon. Gentleman has told us, speaking as I understand ex cathedra and with the accumulated authority and knowledge which is not available to those who are not in the inside of things, that idle war levy as proposed would not accumulate sums for the redemption of the floating debt worth having within the necessary time. When he summarised that matter by saying that it would actually put the Treasury in a worse position than the continuation of the Excess Profits Duty I confess that that is conclusive to my mind against the Committee's proposal as a practical measure of taxation.

That by no means disposes of the matter, and I should like with all deference to strike a note of interrogation. The war levy having gone, what are we going to do? We are all agreed that the position cannot go on as it is at the present time. We are all agreed that the floating debt cannot be allowed to remain unfunded. We are all agreed that the voluntary scheme of reservoir bonds is not at present a conspicuous success. The subscriptions to these bonds so far are insignificant What then are we going to do? On the whole I welcome the abandonment of the war levy because I believe it opens the way to what is an essential measure, the simpler and more inclusive scheme of a general levy on capital. Against that the arguments of the right hon. Gentleman did not in general apply. In general most of what he dealt with in regard to the war levy scheme was the difficulties of that specific scheme, and not attached to the more general and the more simple scheme of a levy on capital. Against the levy on capital he advanced only one general argument. Of course he was not addressing himself to the general idea of a levy on capital, but as far as I could follow his line of argument he advances against that as the principal argument that if the levy on war wealth would create lack of confidence and an undesirable state of insecurity, a general capital levy would create even more It would be undesirable if that were so, but it need not be so if the capital-owning classes could be persuaded that the security of capital itself depends upon their consenting in the near future to some large and general measure of a levy on capital. If that were a condition of their security, then certainly the imposition of such a levy need cause no lack of confidence.

The reasons surely are well-known. I will not dwell upon the insurance argument, and I will not dwell upon the argument that it is necessary to throw something to the wolves. I do not think those are good arguments. This is not in reality a question between the rich and the poor. A capital levy would effect no substantial re-distribution of wealth. What the capital-owning classes would lose on the swings they would gain on the roundabouts. What they lost on capital they would gain in reduced taxation. What they are gaining, for instance, by the rejection of the war levy they are losing in the continuation of the very undesirable, the mischief working Excess Profits Duty.

It is not there that the importance of the capital levy lies. Its importance lies, unless I am much mistaken, in the urgent necessity for stabilising the whole economic system of the country and rendering the capital system safe on its own basis. How does that come about? It comes through the medium of prices. Prices are the practical point of application for all these considerations. What is going to bring the present system of capital down if it ever comes down? It will be this, that prices may rise so high as to cause a revolution, just as they have caused revolutions in foreign countries. What is the most urgent necessity, therefore, for the safety of capital is to prevent prices rising to that dangerous level. Why are prices so high at the present time? The analysis is so well known that I should be ashamed to repeat it in detail to the House. We know that the cause of the rise of prices is the decrease of production due to the War and the increase in purchasing power owing to our methods of inflation in financing the War. We have inflated the purchasing power of the country by the manufacture of credit for the floating of Government loans, and especially by the creation of floating debt, Treasury bills, etc. That has been the cause of high prices, together with reduced production. If the rising prices are to stop rising and we are to induce a fall, what has to be done? We must invert the process by deflating credit, through the reduction of Government debt and the funding of the floating part of it. That is precisely what would, be directly effected by a capital levy. There is a tendency to speak and think of a capital levy as if it would effect the destruction of wealth. That is a very elementary error which will not of course be found within the walls of this House. So far from doing so, what is the actual nature of a capital levy? What would have been the effect of the war levy which we have rejected? The right hon. Gentleman would have taken £500,000,000 in the form of securities representing true wealth, and he would have written off against those securities, representing true wealth, £500,000,000 of Floating Debt, which does not represent true wealth, but only gas and air, only so much paper. It would have effected a total reduction of £500,000,000 in the Floating Debt, a reduction in purchasing power, and therefore a reduction in prices. That is the kind of benefit which is to be obtained from a levy on capital, and it is a benefit which is most essential for the maintenance of economic and industrial order. It is the only way in which we can break the vicious circle of rising prices and wages. Is that a benefit which capital can afford to disregard? If that is the only way to prevent prices and wages chasing each other towards social disorder, is that a benefit which capital can afford to disregard? There are other incidental benefits of no less importance to capital to be obtained by this break in the inflation of prices By the reduction of the structure of credit which we have built on our reserves, we should enormously increase the reputation of the pound sterling, the paper pound, and that would have its effect upon the exchanges. It is the only thing that finally can stabilise the exchanges and restore the pound sterling to its former reputation. How would that work? It would work through prices. Low prices would discourage imports and encourage exports, thereby stabilising the exchange. Is that a benefit which capital can afford to disregard?

Finally, the benefit of a capital levy would be felt in its effect upon our national credit, and the consequent improvement in our position in any loan transaction which we may have to negotiate in the future. These are all essential changes in the present unsatisfactory position which are necessary to our future prosperity; rising prices are what we have to deal with in order to prevent the rake's progress towards social disruption. If that is so, surely those who have a stake in the country and who are interested in the maintenance of things on their present general basis will be well advised not to hesitate in taking the only course effectual to reduce prices.

6.0 P.M.

It is in the interests of capital itself, and to prevent disruption, that we should realise the practical importance of this question of a capital levy. But it is even more. It is essential in order to mitigate the hardships and to alleviate some of the injustices which have been imposed by our system of war finance upon those members of the great middle-class who live upon small fixed incomes. Those who have any affection for abstract justice and the equal distribution of the burdens of the War should find something to inspire their enthusiasm in this idea. Though the value of their incomes has been seriously reduced by our war finance, these unfortunate members of the middle class have no economic weapon by which they can restore the balance. All the great classes, those who live on salaries and pensions, soldiers and sailors, all those with a fixed income, have got no economic weapon with which they can defend themselves in the economic struggle for existence. The wage earner has the strike, industrial combination. The owner of property has his article, capital, to sell and to make his price for it. As against those this great section of the middle classes is powerless, and in consequence has suffered. It has been made the victim of this indirect form of taxation by the inflation of credit and the raising of prices against it.

The only way to re-adjust the burden, to remove from those heavily laden shoulders this incredible burden, is by measures of taxation which will tend towards reduction of prices, and if there is anything in the argument which I have ventured to advance, the only way in which that can be done is by a capital levy. I believe most sincerely that the idea of deflation of credit, the redemption of debt and the funding of the floating loan being done simply out of revenue is no more than an idle dream. Under our present system of finance, expenditure rises to meet revenue. We put aside a sinking fund this year. The sinking fund will be raided next year by one section or other for some new scheme of expenditure. The talk about redemption of £300,000,000 next year and no more than a vision. Next year we shall have fresh expenditure coming along. Sinking funds have been raided ever since the word was first invented. They will be raided as long as they exist. The only way to break the circle is to make a special and a big effort. Therefore, I finish my observations as I began, with an interrogative, and I ask the Government what are they going to do?

Mr. STEPHEN WALSH

I am exceedingly glad to have been in the House listening to the speech of the hon. and gallant Member. He has struck a note which was required in this discussion. Up to the present it has seemed that the main idea was that the people most affected by the imposition of a war wealth levy, or even a general levy, upon capital were the people who had command of big organisations or possessed large fortunes. The truth is very far from that. The truth is as has been stated by the hon. and gallant Gentleman who has just spoken. This House finds itself in a very curious position after the work of the Committee. The Committee was set up about five months ago to inquire into the practicability of imposing a levy on fortunes made as a result of the War, not a levy on fortunes made before the War. Our terms of reference were very limited and we made close inquiry into the case. I am in agreement with the hon. and gallant Member that the War was so all-pervading that it would be impossible to say that fortunes acquired during that period were not made largely as a result of the War, and I think that everybody will admit that while the nation was in the most extreme trial it would be morally right to take the increased fortunes that came to people during the hour of the nation's agony. Morally, therefore, the thing is right.

That it is desirable, I think, has also, been proved by the hon. and gallant Gentleman. Our present funded debt I suppose is £7,000,000,000. Our floating debt is well over £1,000,000,000. We talk about a sinking fund. We are prepared Lu set aside admit half per cent. of a sinking fund. I remember in the old days that seem so far away now, when we set aside £28,000,000 and there was a slight raid reducing the £28,000,000 to, £26,000,000, but the £26,000,000 was comparable to a funded debt of less than £700,000,000 or was, roughly speaking, about 4 per cent. of the debt, and we are now proposing to set aside about one-eighth of the proportion which we set aside before the War for sinking fund purposes.

Sir F. BANBURY

We never set aside £28,000,000. That amount was set aside for the service of the debt. Out of that £28,000,000 something like £24,000,000 was taken to pay interest. What was set aside to pay into the sinking fund was the difference between the two sums, which varied, perhaps, from £3,500,000 to £5,000,000.

Mr. WALSH

I think that the right hon. Gentleman is a little out in his facts, but I will not debate that. But surely out of a debt of £8,000,000,000 it cannot be held to be anything except a mere trifling with a payment of a debt of that kind, having regard to the future, to set aside one-half per cent. as a sinking fund. We cannot budget for many years ahead for less than £1,000,000,000 per year. The figure is positively staggering. There is no arithmetician, however competent, who can convey even faintly what it means. If, in the meantime, there are large bodies of men who have amassed huge fortunes, is it right or desirable that those fortunes should be brought within the mesh of the National Exchequer, in order to reduce the huge debt under which any nation would be bound to stagger? I cannot imagine any nation holding out against the tremendous burden that such figures involve. It is morally right, we agree. It is desirable—everybody must agree—not to fleece those people, but to let them retain, if you like, every penny that they held before the War, and all that would result from the normal process of saving to which a good citizen directs himself. In those conditions one cannot see any hardship or any wrong committed by the State against the citizen. The point is, is it practicable? The best experts that the State contains say that it is practicable. By making large allowances, by doubling, in the case of the comparatively small men, the amount of the fortune they possessed before the War, and giving generous allowances in addition, and, in the case of the owners of very large fortunes, giving to them a considerable allowance before the process of levying commenced, you could so arrange it that it became practicable, and would bring in a fairly considerable sum. The Committee agreed unanimously that it was practicable. Therefore those three points are sustained. First, it is morally right. There was not a single witness who came before us who said that it would be an immoral thing to do. Every banker, trader and representative agreed as to that. They admitted that if it could be done without inflicting individual hardship or conveying a sense of individual wrong it was morally right to do it. Even the bankers admitted that. They admitted also that it was desirable if it could be done, but the dangers, they said, exceeded the advantages. Then the Committee agreed that it was practicable.

When we are talking on this kind of matter, we are very apt to let our minds be obsessed by the thought of the rich man. The calculation was that altogether there were not more than about 340,000 people who among them had amassed about £4,000,000,000—I will not say wealth£it is so very difficult to define it, but of credit or values, nominal or otherwise, there had been an increase in the wealth of the nation during the period from August, 1914, to June, 1919, of a little over £4,000,000,000. There were 340,000 people who accumulated that sum, but about a third of them were not fortunes that would come within the operation of the levy. In other words, £1,300,000,000 went out of the account, leaving £2,800,000,000. Altogether, in the earlier proposals about 200,000 people would be affected. I think the Chancellor of the Exchequer is quite right in saying that no nation pays so heavy a rate of taxation, right up to the possessors of very large incomes, but the comparatively poor must pay a very heavy rate of taxation, and it leaves me entirely cold when the Chancellor of the Exchequer draws our attention to the case of the rich man who pays so much and has only about £42,000 a year left. The man with £42,000 a year is not the sort of man that the nation ought to consider at this moment. Those whom we have to consider are the poor and the middle classes. It is they who really are the mainstay of the nation, the folks who actually do the work in the mine or in the mill, those who do brainwork at the desk and in the factories and are organising industry In a very real sense they are the people we ought to have in our mind, and not the people who, with one year's income alone, could endow themselves and their posterity for ever. There is a moral obligation upon the Government to make it clear to the vast masses of the people, the middle class and the working class, that this great burden of debt shall not be saddled upon them and theirs for generations to come. If we went out, and told the poor middle class man or woman with £300 or £400 a year that their Income Tax was still to be 6s., or possibly more, in the pound, they would wonder what proportion would be left of their income.

Mr. CHAMBERLAIN

The rate is not 6s. in the £.

Mr. WALSH

A good portion of it will be taxed at the rate of 6s. on the proposals made by the right hon. Gentleman. Suppose a man has an income of £500. He has an allowance of £150, but as to the remainder he is charged 3s. in the £ on some and 6s. in the £ on the rest. Those are the proposals of the present Budget. Is not that a far heavier burden than the burden about which the right hon. Gentleman speaks with so much eloquence—the burden of a man who, when he has paid Income Tax and Super- tax, has still £42,000 a year left? We ought to bring our minds more within the region of reality. The people who bear the burden now are the vast masses of the working people, the brain workers, the clerks, the inventors, the men and women who day by day are doing their best in the constructive work of the nation. It is our duty to ease that burden. Do we not know of shipping, of textiles, of oil and of the thousand and one things which do not depend in any way upon the skill or brain or constructive enterprise of the men who have amassed large fortunes and who simply depend upon a scarcity value which creates those vast fortunes for them? Such thoughts are burning in the minds of hundreds of thousands outside this House—small men and poor women with their £6 or £7 a week, people who have been brought up in conditions of decency to which they had a right to look forward, but are now finding the burden greater than they can bear. What has to be considered is not so much what is taken from a fortune as what is left. £42,000 even at 5 per cent. is well over £40 a week. I have followed with very great care the whole progress of the public debt from the outbreak of the War. The right hon. Gentleman, or at least his predecessor, got many millions of money at 3½ per cent. We fought the War with varying degrees of success, but our credit was still good, and the next loan was floated at 4½ per cent. I do not know how many hundreds of millions additional money we then got. A further loan was floated at 5 per cent., and the then Chancellor of the Exchequer came forward and raised the value of Exchequer Bonds to 6 per cent. But another followed and got £1,000,000,000 at 5 per cent. From that time to this we have gone from bad to worse. In February last, when this Committee was set up, Treasury Bonds for five years were issued at 5¾ per cent. It is all very well for the Chancellor of the Exchequer to say that those who have money should put it into public securities and not speculate; that bankers should be more secretive and keep a tighter hold upon the funds. That is true, but at the very time when these Bonds were issued in February last up to this month there has been more money put into trading issues, apart from State issues, and with this month—that is, from January to June—it is probable that more money has been put into trading concerns, although the Chancellor of the Exchequer is wanting money worse than ever, than was put in during the whole of 1919. That is where the State is not being properly treated. The State was wanting money in February last. The Bonds have been a very real failure—

Mr. CHAMBERLAIN

They were a very unexpected success.

Mr. WALSH

I wish I could join hands heartily with the Chancellor of the Exchequer in saying that the Bonds were successful.

Mr. CHAMBERLAIN

That really is so. The issue in February went extremely well.

Mr. WALSH

It is certainly dead against the idea of the public. if they went extremely well, how is it that we are compelled to resort to the sorry expedient of giving 7 per cent. now for similar Bonds? It is wholly unfair to people who, like myself and thousands more, did their best, because the needs of the nation were overwhelming. If that 5¾ per cent. Bond was an unexpected success as far back as February, how is it that we were compelled to issue a 7 per cent. or 6½ per cent. Bond?

Mr. CHAMBERLAIN

They go down to 5 per cent.

Mr. WALSH

Yes, in the last few years. It is rather late now, in view of the fact that the Committee was sitting during the whole period of five months, to urge upon the House this process that ought to have been urged at least six months earlier. Always with the process of the reduction of the debt the credit of the nation has increased. If we can reduce debt substantially by availing ourselves of money that could not have been obtained by anybody under normal conditions, availing ourselves of great fortunes due entirely to the scarcity values that the owners did nothing to create, we at once concurrently increase the credit of the nation. There is no robbery involved, and even the most pronounced antagonist of a War levy admits that it is morally right and desirable if it can be done. The Treasury experts, who pass their lives in the region of finance, agree that it is practicable, and I cannot myself understand how the Chancellor has not adopted it. Everybody knows that the Chancellor is one of those men who would not be deflected from a decision by any body of people when once he felt convinced he was right. I do wish to bear my testimony, small though it may be, to the fact that the Chancellor never said a word in Committee to interfere with our work, but only to help it. He came to give the benefit of such advice and knowledge of the inner circumstances as only he could possess, and he in no way interfered with our findings. The morality and the overwhelming necessity and practicability being admitted, I am sorry he should have arrived at such a decision. I am certain that either by himself as Chancellor—and we would all like it to be in his time—or by someone else this House will be driven to the one great moral alternative of reducing the horrible burden of debt of this nation by taking from those who, although they have not immorally acquired it, because nobody wishes to charge them with immorality or unfairness, yet have acquired it in consequence of the War, and have something that they have no right to retain. Fortunes such as those ought to go to the benefit of the nation now and for the future.

Sir FREDERICK BANBURY

The hon. Gentleman who has just spoken has been an old friend of mine for a great many years, and I have always listened with interest to him. I am sure he believes every word he says, but I was extremely sorry to find that he had got hold of such very wrong notions upon this particular question. The hon. Gentleman says that everybody admits the practicability and desirability of a levy on war wealth. I deny that altogether, and, on the contrary, I should have said that nobody admits that it is either practicable or desirable. It is not practicable because you cannot distinguish between ordinarily acquired wealth and war wealth, and it is not desirable because it is not advisable at the present moment to take away capital which is required in order to carry on the industries of the country. The hon. Gentleman spoke a good deal about some suppositious case of someone who having paid his taxes had £42,000 per year which, he said, at 5 per cent. would give him £40 per week. That is all very true; but is the hon. Gentleman going to lay down the proposition that a man is not to have more than a certain amount? That has got nothing to do with the question before the House. If he does lay down that proposition, how does he think anybody will invest money in industry or use his brains to promote and encourage industry? When a man puts capital into an undertaking and uses his brains to increase the value of that undertaking he hopes that what he saves will be available for himself and his children. If you say nobody is to have more than a certain amount all that will disappear, and the result will be ruin to the country. I should like to congratulate the Chancellor of the Exchequer upon one of the most excellent speeches I have ever heard him make, and I have heard him make a great many good ones. There is only one thing about which I am a little sorrowful, and that is that he did not make the speech three months ago instead of committing this inquiry to a Committee; because I am perfectly certain that the result of the raising of this question of a levy on capital, whether on war wealth or any other form of capital, has been to destroy confidence in the City and depress values, and to make it extremely difficult to obtain the money on loan which the nation will require. People in the City are extremely glad that the Government have arrived at this decision, but in the meantime while they have been waiting for it incalculable mischief has been done in having this matter discussed and even allowing people to think that there was a probability that this sort of thing might take place.

I am sorry the right hon. Gentleman who moved is not at the moment in his place, because I should like to say a word in answer to what he said about the action of a certain Committee which met last Thursday. The right hon. Gentleman said that the Government should be left free, and that Members ought not to put pressure on it on this question. I ask, what is the right hon. Gentleman doing to-day? Is he not endeavouring to put pressure on the Government to bring in a capital levy, and if he is right in doing so, surely it is right for other hon. Members to put pressure on them not to do so? The right hon. Gentleman insinuated that hon. Members who were present at a meeting of that Committee were actuated by personal motives. If he were here, I should tell him that the five or six Members who signed the notice asking Members to attend would not, I think, suffer in the slightest degree if there had been a levy on capital. I was in the chair, and I am sorry to say that since 1906 my capital has diminished, and therefore I should not be affected in any kind of way. The only reason which induced me to take part in the meeting was the strong expression which was conveyed to me by all sections of the people who understand these matters in the City, by Chambers of Commerce, and, in fact, by anyone who had experience, as to what would result if such a step were taken. We had a very interesting theoretical speech from the hon. Member for Norwich (Lieut.-Commander Young). He began by saying that what was required was increased production. I thought that extremely sensible remark would be followed by other remarks in the same direction. The hon. and gallant Member then went into the realm of theory, and told us that in his opinion a capital levy would decrease prices. It would have no effect of that sort at all, but, on the contrary, it would increase prices, because the first thing it would do would be to diminish production. A manufacturer who was engaged in production and had expended so much on plant and so much on material might, say, be called upon to find a sum of £25,000. The first question he would have to answer, would be, "How am I going to get it," and it is extremely likely he would have to try and borrow the money, and he might find extremely difficult to get it, and when he did it would be at a high rate of interest. The hon. Gentleman (Mr. Walsh) talks about it being wrong to pay the high rate of interest which the Government are paying.

Mr. WALSH

I said that so much money had been allowed to go into trading speculations that the State was compelled to pay higher interest.

Sir F. BANBURY

If a number of people desire to buy a certain article, which in this case happens to be money, and if there is a small number who have that article, its value rises and that is what is taking place at present. The hon. and gallant Gentleman, the Member for Norwich, said he did not believe in a war wealth levy, but that he believes in a capital levy which is far the worse of the two. There is something from the ordinary man's point of view to be said as to a man who has made money during the War that he ought not to have done so and that he has done so at the expense of the country. But that is the fault of the Government as one must not forget. If he has done so at the expense of the country and acquired a large sum of money, then since my capital has decreased I might feel why should we not have a little of it. That appeals to human nature, but it is not a sound business argument—quite the reverse. What we want to do is to encourage people to save and produce and to let people know when they have money that it will not be taken away from them. The hon. and gallant Gentleman said, "What is the alternative?" I think there are two alternatives. I agree that a floating debt of £1,100,000,000 is a danger to the State because eventually the State might have to pay eight or nine or ten per cent. for the renewal of the bills. It is, I think, very necessary that we should do something to fund the floating debt, and I think it is possible to do so, but it is not necessary to fund the whole of it. Treasury bills as long as they are kept within a reasonable amount are useful to the trading and commercial community. They serve a useful purpose, and provided they are kept within a limited amount ther are an advantage and not a disadvantage. The question then arises, What should you do to reduce the excessive amount which is in existence at the present moment? My right hon. Friend did make a proposal two or three months ago to ask for subscriptions for five to 15 year bonds. If I may say so, that was bound to be a failure from the very first.

Mr. CHAMBERLAIN

It was done on the best expert advice.

Sir F. BANBURY

I do not know whom my right hon. Friend consulted. I presume he would not call me a City expert, but I sat on this seat at that time, and I said to myself that it would be a failure. An hon. Member who was sitting next to me asked my opinion, and my reply was "It is many years since I was in the City, but in my time it would have been quite impossible to expect a loan of that sort to meet with any success at all." As it happens, I went the next day into the City, and I asked a certain number of people who do know about these things, and they all agreed with me, and the result has proved that we were right. The reasons are these. The loan was too long for the money market. The money market likes something which has six, nine, or at the most twelve months to run. Anything with over a year to run the money market, or Lombard Street, does not like; but while it was too long for the money market it was too short for the investor, who does not like a security which is constantly maturing and which gives him a certain amount of trouble when he has to re-invest. He has to see his lawyer, or his banker, or his stockbroker, and he has to pay most of them for doing that which he does not like, and it takes up a considerable amount of his time, and he has got to decide and make up his mind whether or not he will renew or whether he will buy something else. He asks several of his friends about it, and they all give different replies, and the consequence is that the investor likes a long loan, while the money market likes a short loan. My right hon. Friend unfortunately produces a scheme which does not appeal to anybody, and I venture to say that if he will go into the discount market—I will give him privately the names of the people whom he ought to have asked—

Mr. CHAMBERLAIN

If my right hon. Friend is a prophet, will he prophesy for me what is the rate of interest at which I should offer a long-dated loan in order to make it a success?

Sir F. BANBURY

I will. I am coming to that. I am going to tell my right hon. Friend what I should do if I were in his place. I should do two things; first, I should issue a loan for about £700,000,000 or perhaps £800,000,000, and I should issue it in the form of a four and a half per cent. loan at 80, redeemable at par in 40 years by annual drawings of half per cent., the first drawing to commence next year.

Mr. CHAMBERLAIN

Would it be cheap?

Sir F. BANBURY

I have not worked it out in pen and ink, but I believe I am right in saying that £6 2s., including redemption, is what it would yield, and that is about what the present Government securities yield at the present moment. If the right hon. Gentleman had done that a year ago, he would have got it at 4 per cent., and not 4½ per cent., at 80. He asked if it would be cheap, but you are not going to have things cheap, you are going to have things dear, and the longer you wait the more difficult it will be to fund this loan. Everybody knows you have got to fund it, and people are waiting until the matter is settled, and you will never get a revival of confidence or investment in Government securities as long as this matter is left doubtful and people do not know whether there is going to be a capital levy, or a forced loan, or what there is going to be.

Mr. CHAMBERLAIN

A year ago I did consult my right hon. Friend and offered the terms he suggested, and I did not get anything like what he said I should.

Sir F. BANBURY

That is exactly what the right hon. Gentleman did not do. I well remember that I advised him privately before he did bring out his loan as to what he should do, but he disregarded my advice. What I recommended was a 4 per cent. loan, at 80, redeemable at par in 40 years, by an annual sinking fund, by drawings, the first drawing to take place within a year, but my right hon. Friend did not do that. He brought out a 4 per cent. loan at 80 which was redeemable at 50 years, and not by drawings in the meantime, which ought to have been done. I hope the House will excuse me, but these are details which are perhaps only understandable by people whose business it has been to see how loans ought to be issued. That was my business for a great number of years, and I was always consulted on all the issues of loans by people in the City, and it is because I happen to have some knowledge of what does appeal to investors that I have ventured to address the House at some considerable length on this subject. That is the first thing I should do, and I believe it would be a success if it was accompanied by my second plan, which is economy. I have taken the trouble to compare the Civil Service Estimates of this year with those of 1910–11. In 1910–11 the Civil Service Estimates, including the Irish Civil Service Estimates, amounted to £47,000,000. This year they amount to £493,000,000. We will start by presuming the £47,000,000 to be £50,000,000, and we will double it, on account of the rise in prices and the various increases in salaries which have been given, on the basis that what would have cost £50,000,000 in 1911 would now cost £100,000,000. I think that is a very excessive estimate, but I have taken it on that basis. I then find that in the Civil Service Estimates this year there is £123,000,000 included for war pensions, which, added to the £100,000,000, makes £223,000,000. I find that the Old Age Pensions have increased by £13,000,000. They are now £25,000,000, and my recollection is that in 1910–11 they were about £12,000,000. I add that £13,000,000 to the £223,000,000, and that makes £236,000,000. I put in another £14,000,000 for contingencies, and I come to £250,000,000. The Civil Service Estimates this year on the existing basis of taxation are in round figures £500,000,000, and I say they ought to be down to £250,000,000.

Mr. CHAMBERLAIN

My right hon. Friend has omitted war pensions.

Sir F. BANBURY

No, I have not. I took great pains to add the £123,000,000 for war pensions and the increased cost of old age pensions, and adding those and doubling the amount which was spent on the Civil Services in 1910–11, I arrive at £250,000,000, and in that I have given my right hon. Friend £14,000,000 to play with. The present estimate is £500,000,000. Take away from that £250,000,000, and you have £250,000,000 to devote to the service of debt£far and away a better plan than talking about capital levy, or war-time levy, or things of that sort. I venture to say that if the Government were to take their courage in both hands and cut down this enormous expenditure on the Civil Service Estimates, and if they were to devote the saving to the paying off of debt or the reduction of floating debt they would see at once, provided, of course, there was no question of a capital levy, a rise in all Government securities, and they would find investors coming to take whatever form of security was offered, provided it was offered in a proper form, for the investment of money to pay off floating debt. Do not forget this. The suggestions which I have ven- tured to lay before the House are suggestions which require a certain amount of what I will call privation, for want of a better word, on the part of everybody. Everybody has got to deny themselves of something, and that is the first thing which we have all got to do. Unless we do that, unless some form of denial is instituted, what is going to happen? If you are going to get money in an easy way by a levy on capital and things of that sort, inevitably the result will be that there will be no saving, and money will be used for further extensions of schemes in the direction of social betterment, whether they be good or not. What the Government have got to make people understand is this. They have not got the money to go into all these new schemes, however good they may be, and until the public realise that we have got to make sacrifices and that the Government are going to set them the example, we shall never get our finances in a proper condition.

7.0 P.M.

Sir D. MACLEAN

We have listened to a very interesting and valuable speech from my right hon. Friend the Member for the City of London who has just sat down. He has addressed himself as a practical man to the suggestion of alternatives. I am no judge of the first of the alternatives which he suggested, but, with regard to the second, he knows without my emphasising it that I am in hearty agreement with what he said. I notice that his plea for national economy was received with hearty applause from all Members of the House present. If they would only transmute that enthusiasm into the practical work of this House in attending the dreary, dull routine of Estimates, and give some practical assistance to my right hon. Friend, and to others of us who are endeavouring, in the consideration of these Estimates, to force economy upon the Government, there would be much more weight in their applause, and much more practical effect than I fear is at all likely to happen. It is because I feel that the Government is hopeless in regard to the question of economy that I turn from that to the consideration of the main purpose of the Motion now before the House. I do not deny—it would be foolish to deny—that the question is one, not only of great complexity, but one which raises genuine doubts in the minds of men whose patriotism and public services nobody can deny. It is a very cheap way of supporting a proposal of this kind by suggesting that anybody who opposes it is tainted with some personal interest; but those who followed the evidence given before the Committee, and have taken any interest at all in the public discussions both on the platform and in the Press, cannot come to a conclusion other than that there is a serious division in the minds of men who have no personal interests to serve.

I start with that assumption, but I look, as I am bound to look, at the Report of the Committee, and there are three points in the Report of the Committee which are, I think, of very great importance by way of support of the proposal. Shortly put, they are these: The Committee came to the conclusion that the valuation could be carried on in an effective and impartial manner; secondly, that the cost of administration and collection would be small; thirdly, that the burden of taxation would only be cast upon those individuals who could most justly be called upon to make the sacrifice, and that the tax would discriminate against those who had made exceptional profits out of the War. The Committee made a further and, in my humble judgment, a most important point. They went on to say: If the financial position of the country is such that it becomes a matter of urgent necessity to raise a sum of the magnitude of £500,000,000 which cannot be obtained by other means, the objections raised against a tax of this character should not be allowed to stand in the way of the imposition of such a tax to meet the national emergency. The immediate national emergency is the Floating Debt. Of course, the seven or eight thousand millions of debt is of vast importance, but the immediate thing to deal with is the Floating Debt. The simile which comes to my mind is that of a ship labouring in a storm, with a heavy cargo rolling about the deck and in the holds. This Floating Debt varies in its danger from week to week. It is added to, and subtracted from, according to the necessity of the Chancellor of the Exchequer. In his speech—and I am very glad to join in the tribute which has been paid to him; it was a speech, even for him, of exceptional clearness and lucidity and fairness—he pointed out that this week he had already to add to the debt. He had to raise no less than £50,000,000 for the payment of the interest on the War Debt, and the result of that is, I am sure, that he has had to borrow at least half that through Ways and Means. That sort of thing cannot go on with any safety to our national finance, and the question is, what are we going to do, not a couple of years hence, but what are we going to do in the next six months or in the next year? My right hon. Friend the junior Member for the City of London (Sir F. Banbury) suggested floating a new Loan. I do not know, but, as far as I can judge, there seems to be a very great reluctance indeed, in these days, to take up loans under very much more favourable conditions than he suggests.

I think the only way to deal with this matter must be by some means of taxation. What is the alternative? The alternative in the mind of the Chancellor of the Exchequer is one which he naturally did not dwell upon in any detail, but such remarks, few though they were, as he made, were received with an obvious amount of disappointment, which was very natural. I believe the alternative to which we are driven for dealing with this question in the present position is the Excess Profits Duty. I may be hopelessly wrong, but I believe myself that, for dealing with this question of raising money for handling in some way or other this floating debt, the Excess Profits Duty, instead of being decreased, will have to be largely increased, and that is very likely to happen in the proposals of the Budget next year. The Chancellor of the Exchequer made a very fair offer. He said in effect, "Which will you have? If you accept this proposal, and it meets with a large measure of public acceptance, I will reduce the Excess Profits Duty, and it may be fairly taken that, if reduction begins, the vanishing point will be within sight within the next two or three years." The position before the Government is this: Instead of the Excess Profits Duty showing signs of diminution and final disappearance, it appears very much to me as if there will be an increase permanently. Let hon. Members face that position which I am venturing to put forward for consideration. Now is the time to think these things out. What other way can you raise the money? Of course, you can take another alternative, and have a super-super Income Tax, whereby incomes of £10,000 and over will pay about 15s. to 16s. in the £. These are not wild speculations. The money has got to be raised to reduce this floating debt within something like manageable proportions. The argument put forward against this particular matter is that this will not work. Do the financial community believe that they prefer the Excess Profits Duty, with all its imperfections—a very mild term in which to describe it? I say again it is a bad tax, and I still think so, but the right hon. Gentleman has no alternative. He has got to get the money, and here is a machine which is raising the money, with all its difficulties and injustice. He agrees with every word I say about the arguments against the tax, but he has got to get his money, and this is the way that he is raising it. That is a matter for the commercial community very carefully and seriously to consider.

With regard to one or two other points in connection with this proposal. I do not think my right hon. Friend minimised the psychological side of the proposal. I am sure anybody who seriously thinks out the matter cannot do so. In his remarks on the Second Reading of the Finance Bill, he clearly shows how thoroughly seized he is of it. Dealing with the argument for the tax from that point of view, he says: Apart from the cases of wealth not well gotten, the spectacle of the sudden rise of vast fortunes plays straight into the hands of those who are enemies of all capital in any form."—[OFFICIAL REPORT, 11th May, 1920, Col. 345, Vol. 129.] Further, he goes on to say he believes that if a levy of this nature could be worked with no very grave injustice, it would add to the security of capital in general. I tell him then, without any hesitation at all, that the decision of the Government on this matter has, in my opinion, been greeted with great pleasure and delight in the minds of men who are enemies of all capital in any form. They believe that the Government have put into their armoury a fresh weapon of attack upon capital in any form, and from that point of view I profoundly regret the decision to which the Government have come. I think that it would have been better to take the risks. The effect upon the market has been very largely discounted already, because I think I am not very far out when I say it was the general ex- pectation, and it certainly was mine, that the Government had made up their mind to try this tax. After the speech of my right hon. Friend, and the Report of the Committee, I was asked by a friend of mine some few weeks ago what I thought. "Well," I said, "personally I have very little doubt at all that the Government are going to carry out the proposal." I do not think that I am very far wrong in saying that to a material extent the effect of such a proposal has already been discounted, but I say again that the Government cannot overestimate the danger of the step which they have now taken. The moral sense of the community is all in favour of this being done, if it can be done. We all know that. In addition to that, you have a Report which says it can be done, and the reason that is given why it is not going to be tried is that, on balance, the disadvantages and the dangers outweigh the risk of taking this step.

I believe it would have been very much better to have taken that risk. An immense amount of public opinion would have been behind the Government, and that is a very important thing. I claim to be a business man. In my experience of business, over and over again the number of times in which the impossible has turned itself into a fact makes one discount very much these prophecies of disaster. Anyhow, the thing was worth trying. The argument with which the Chancellor practically concluded his speech—namely, a comparison between ourselves and the United States, and the amount of taxation which we are under in comparison with them—did not impress me in, the least. Their position is incomparably stronger than our own. There is no use our comparing ourselves with the nations of Europe at all in this matter—neither with France nor Italy, who, for reasons which they themselves think good, have not faced the facts of the situation, which are those of very considerable danger and difficulty. But the position of the United States is much better than our own. Who can doubt it? In their internal resources they are practically self-supporting. They have vast undeveloped wealth to which they can turn their minds and add to the national resources. The ratio of direct and indirect taxation contains no real test so far as they are concerned; for, until recently, they have largely gone on raising revenue by indirect taxation. Their experiments by way of direct taxation, certainly so far as the income tax is concerned, are interesting, but to them quite modern and new. There is really no other country by which we can judge the test to ourselves. We must get through our own job in our own way. There is no other way of dealing with it. I am convinced, as I have said before, that on the ground of the psychological situation, on the ground of the inquiry, on the ground of practicability, on the ground that, to my mind, the only alternative is the Excess Profits Duty—which I think is undesirable—I think that the Government have made a mistake in this matter, and I and my friends have no alternative but to vote for the Motion.

Mr. MARRIOTT

My right hon. Friend who has just sat down has addressed himself to three points. He has addressed himself to those points with his usual directness of purpose. First of all there is the question of the diminution of the Floating Debt. I do not think that anybody in the House who listened to the exposition of the Chancellor of the Exchequer this afternoon can fail to be convinced by his arguments that as a means of reducing the Floating Debt the proposed levy on War capital would be absolutely ineffective. If I could be persuaded by my right hon. Friend opposite that this device, which he has fathered, would effect the purpose he has in view, I should be very strongly indeed inclined to support it. It is because I am convinced by what the Chancellor has told us, in his admirably lucid speech—one of the most lucid to which I have ever listened in this House and one of the most convincing, which, I venture to say with all deference and respect, will do more for the work of reconstruction in this country than half the ambitious social schemes of his colleagues—It is, I say, because I am entirely convinced by the arguments he used, and, I am afraid, entirely unconvinced by the arguments of my right hon. Friend opposite, that I take the position I do.

What is proposed? What is it suggested you could get out of this War wealth levy? The sum of £500,000,000. But in the first place when are you going to get it? My right hon. Friend opposite said: "I want this money, not two years hence, but in the next six months." Did he listen to the argument of the Chancellor of the Exchequer? The right hon. Gentleman showed with absolute conclusiveness that whatever would happen in regard to this levy you could not get it in the next six months, or twelve months, and that, as a means of immediately wiping out the Floating Debt it would be hopelessly ineffective. My right hon. Friend opposite says there is the psychological question involved. All through the Debate, to which I have listened very closely this afternoon, there have been really two lines of argument. One has been the psychological or moral argument and the other has been the fiscal argument. The right hon. Gentleman who opened the Debate and my right hon. Friend the Member for Wigan—who addressed the House in a speech which most of us listened to with great pleasure—both dwelt at considerable length on the moral and psychological effect of imposing this levy on War wealth. What was their argument? It was that in the minds of a very large number of the people of this country there was a very strong feeling that you ought to get at the wealth of the man who had made money out of the national emergency. That feeling, it was said, strongly permeated the great masses of the people of this country. I have tried to approach this question, from the first moment that it was broached, not in the least from the point of view of the rich man; not in the least in the point of view of the large capitalist; but solely from the point of view of the well-being of the great masses of the community. That is the only point of view from which, in this House, we ought to condescend to examine this question. It should not be from the point of view of the interests of individuals, but from the point of view of the wealth of the nation as a whole. I have most deliberately come to this conclusion—and I am quite sure my hon. Friends opposite will not question my sincerity—that in the interests of the masses of the people, and in particular of those who labour with their hands, this proposal would be infinitely disadvantageous and mischievous.

I suppose I must in a few words attempt to justify that conclusion, at which I have very deliberately arrived. I quite agree with what was said by my right hon. Friend opposite, that if you could impose special taxation upon fortunes made as the result of the national emergency, there is a very strong feeling that it ought to be done. But two questions arise. In the first place, can it be done, and, in the second, if it can be done can you get at the wealth of the ordinary War profiteer without inflicting more than a proportionate injury upon industry and trade as a whole? That, if I may respectfully submit it, is the point to which the House ought to address itself; not in a spirit of revenge on the War profiteer. The House should ask itself whether what my hon. Friends opposite describe as the psychological feeling—which I do not deny—can be satisfied without inflicting more than a proportionate injury upon industry and trade.

Let me address myself for a few moments to that question. The moment the Select Committee, of which I was not a member, began to investigate this question they were at once confronted by the considered opinion of the expert advisers of the Government that a levy on "'war-wealth" must be interpreted as a levy upon "war-time wealth." That was a point at which they arrived—that you could not discriminate between wealth which arose as the result of the War and wealth which merely arose during the progress of the War. The Memorandum which was submitted by the Board of Inland Revenue to the Committee made that point very clear indeed. They said that the ideal tax would, no doubt, seek to discriminate between the various classes of increases in wealth. For example, firstly, there would be wealth obtained by dishonest practices, exhorbitant charges, or evasion of direct taxation. Secondly, wealth obtained through the favourable situation of the particular class of property owner. Thirdly, increased wealth derived from increased earning power, and alteration of prices. Fourthly, increased wealth arising from exceptional efforts and exceptionally valuable services. Fifthly, increased wealth derived from normal savings out of ordinary business profits or other sources of income. Lastly, increase of wealth derived from exceptional savings made by special effort for the purposes of investment in war loan and the like.

Having enumerated these various classes of increase of wealth, and having said that an ideal tax would discriminate between them, what is the conclusion to which the expert advisers are driven? That "specific differentiation of this character is too difficult to be within the range of practical policy." If that is so, what is the value of the argument which has been elaborated by hon. and right hon. Gentlemen opposite in regard to the psychology of this question? Their moral or psychological argument is that the tax should be put on the man who has made wealth as a consequence of the War. But the expert advisers of the Government tell the Government, the Committee and the House of Commons that they cannot differentiate, so that that argument surely falls to the ground at the outset? The Committee, as the House knows, worked at the whole of this problem with immense patience and assiduity. What was the result? The net result was that the longer and the harder they worked the greater the complexities in which the problem appeared to be involved. We have in the Report a summary of the evidence which they received, and I will quote one or two sentences from that admirable summary. I will ask the House to observe the distinction which the Committee draws between the evidence they received from men versed in commerce and business and that obtained from economic theorists, one or two of whom have addressed us this afternoon. They say: As regards the effect of the imposition of such a tax upon the individual taxpayer and on the country at large, your Committee found that: (a) the representatives of commercial and financial interests were convinced that the imposition of a tax on War-time wealth would have dire results. In their view such a tax would lead to a general shrinkage of credit, to a fall in the prices of securities, and a rise in the rate of interest .… One and all, they were of opinion that reduction of debt should be secured by taxation of current profits and current income and not by any levy on capital, however limited in extent. That was the opinion of practical men versed in commerce and finance. The Committee go on to say: (b) On the other hand, the economists who came before your Committee disagreed with many of these conclusions. So that on the one hand you have the evidence of the practical men of business, and on the other hand the evidence of the theoretical men. I confess that in this matter I am, on the whole, on the side of the men of experience and business, for whom my right hon. Friend the Member for the City of London (Sir F. Banbury) spoke with such admirable force this afternoon. I am of this opinion for precisely the reason advanced by some of my hon. Friends opposite. They have told us that the governing consideration of this question is not economic but psychological. I venture to substitute the word "human." You are dealing not with figures, but with men actuated by the ordinary motives of human action.

I want most strongly to urge upon the attention of the House, and in particular upon the attention of those who sit opposite, this point. I would ask them, with all the seriousness and earnestness I can command, what are the fundamentals of the industrial and commercial situation to-day? I do not believe that their answer will differ from mine. [Laughter.] I think I heard an hon. Member laugh, but perhaps he will consent to hear what I am going to say before he dismisses it with a sneer. I was about to say that the fundamentals of the commercial and industrial situation to-day are (1) abundant labour, adequately remunerated for adequate effort—the hon. Member opposite will not disagree with that; (2) in addition to abundant labour adequately remunerated, we want abundant capital, also adequately remunerated for an indispensable economic function; (3) we want confidence and security between those who can give labour and those who can provide capital, and we want security for the employment of both in the future.

Why do I oppose a capital levy in any shape or form? Not, as I have already said, from any selfish or personal point of view, but for these reasons. Firstly, that it will not effect that which it sets out to do. It will not adequately reduce the Floating Debt. Take the figures which have been given this afternoon. It is proposed to obtain £500,000,000 from this levy on war wealth. Supposing you get it. Would it really be more effective for the purpose we have in view than the taxation which is already existing? In the first place, you would take your £500,000,000 out of the pockets of those who have it, if you can get it. That sum at 5 per cent. interest will produce £25,000,000 a year. You cannot have the £500,000,000 in the form of a levy on war wealth and also as a basis from which you derive Income Tax; and, again, as a basis for your Death Duties. It was shown by a simple calculation, in a letter which appeared in the financial columns of the "Morning Post," that actually, from the fiscal point of view, the Government would be no better off by the adoption of this levy on war wealth.

But there is another result. Confidence, I am sure, will be shaken to its foundations by any suggestion of that kind much more by realisation of this device. This is the point which most strongly appeals to anyone acquainted with the contemporary business situation. Capital which is indispensable to our economic recovery at the present time would in consequence of such a levy become both dearer and scarcer, because you would have taught people the unforgettable lesson that it does not pay to save. Is that the lesson which anybody in this House seriously wishes to inculcate and enforce to-day? Only yesterday there was delivered before the Bankers' Institute a very remarkable address by Mr. Edgar Cramond, and from that address I select this one sentence— The dominant characteristic of international trade in the next ten years will be the tremendous world demand for capital, and our internal policy should be framed with due regard to world conditions. That is a very authoritative opinion, and, in my view, a very sound one. I put it to hon. and right hon. Gentlemen opposite whether they have closely and seriously considered the problem we are discussing from that point of view. Credit is an exceedingly delicate instrument, and capital is a very shy bird. The Committee whose investigations we are discussing was appointed with a very limited reference, namely, "whether a tax on War-time increase of wealth is practicable, and, if so, what form should it take?" On that limited reference what was the conclusion at which they arrived? We have had it quoted in several quarters of the House this afternoon, and naturally people lay emphasis on different sections of their conclusion, but here is the gist of it: They are of opinion that, although the administration of a tax of this character would involve many difficulties, yet those difficulties should not be insurmountable, and in its main features the scheme of the Board of Inland Revenue as now amended is practicable in an administrative sense. As regards the question of practicability in its wider sense, of expediency and desirability your Committee feel that this question is one which can only be determined with regard to national and financial conditions in general. Precisely; and it is from that point of view that I, at any rate, as a Member of this House, have desired to approach the consideration of this question. I am not going now to repeat the views which I have had many opportunities of giving expression to on the general question of a levy on capital, but in conclusion, I wish to express my own profound satisfaction with the decision at which the Government have arrived and which they have announced to the House. I am convinced that that announcement will be received, not only with a sigh of relief, but with immense satisfaction by the entire business community of this country. I do not think it is too much to say that ever since the Select Committee was appointed enterprise has been, by the mere fact of the appointment of that Committee, very seriously checked. No man in the financial or commercial world has during the last three months known where he stood, or where he was likely to stand six months hence. Therefore, I say that the decision of the Government will be received with immense satisfaction by the business community. I confess that when the Committee was first appointed I was very seriously doubtful as to the expediency of appointing it, but I admit that the Chancellor of the Exchequer has been so far justified in the result, in that a scheme which would have been fraught with the most mischievous results to the business community has been thoroughly and exhaustively explored and as a result of that examination has been turned down.

Mr. TREVELYAN THOMSON

The hon. Gentleman who has just spoken, in combating the psychological or moral argument which he attempted to pay some lip service to, suggested that as the Committee found it was impossible to discriminate between what can be called war wealth and war-time wealth, that therefore the moral argument broke down. I submit that practically the whole of the wealth above that made during the period of the War, and owing to the ramifications of the War, and its effect on trade and all the wealth made during that period, is in fact war wealth. No one can carry on industry without consciously or unconsciously being affected by the abnormal conditions which prevailed during the War. I submit to the hon. Member for the University of Oxford (Mr. Marriott), that although you cannot possibly differentiate between what he calls war wealth and war-time wealth, it is really a distinction without a difference, and under the scale submitted by the Committee allowing for 100 per cent. increase up to a certain limit, you avoid all these peculiar hardships and injustice which so many of those who pay lip service to the theory wish to avoid. We have heard a great deal to-day about the City and Lombard Street, and its advice. I understand the Chancellor of the Exchequer has had the advantage of that advice in all the various measures he has taken since the beginning of the War in floating loans and carrying on the national finance. No doubt he has acted on that advice, although it may not always have been the advice of the right hon. Baronet the Member for the City of London (Sir F. Banbury). At any rate, he has had the advice of the City and its financiers, and I venture to suggest that the results of that advice are nothing to boast of. Has that advice resulted in such a tremendous success that those who gave it can claim to be infallible? I submit that the advice given by the financiers has proved to be wrong, time after time, and the appalling financial condition in which we now are is in some measure due to our having followed the advice which has thus been given. No one can contend that the present position is financially sound, and although the Government have acted on the best advice available from the City, it has not kept us out of the financial muddle in which we find ourselves to-day.

Sir F. BANBURY

The City is not responsible for the expenditure which is responsible for the present position.

Mr. THOMSON

You cannot run a war without expenditure. It is the policy of the raising of money inevitably due to war, and the big advances in the rates from 2½ per cent. up to 7 per cent., that I am criticising. We are told the Government have had the best advice of the City. In view of the results which we have in front of us, I suggested we need not be too careful to follow too literally the advice which they give us on this particular occasion. I am sure the House is struck by the very careful and able contribution to the Debate of the hon. and gallant Member for Norwich (Lieut.-Commander Young), a contribution which the hon. Member for Oxford (Mr. Marriott), who spoke just now, disposed of by calling it mere theory. When one does not agree with the theory of things, but does agree with the matter, then I suggest it is sound common sense to accept the matter of the speech. All big business men are not opposed to a capital levy. The Chairman of Cammell, Laird and Co. is the head of a practical business firm, and he has spoken very strongly in favour of the principle of a capital levy. I submit that from the point of view of real production of wealth, apart from the flotation of companies, this Gentleman is as much an authority on this subject as anyone in the City. There are many business men who are in favour of this solution, as well as many who are against it, and therefore I suggest that the House itself should weigh the pros and cons as to the psychological and moral effects, which I admit may have greater influence in the country than many realise.

I am sure the country expected, after the speech of the Chancellor of the Exchequer on the Second Reading of the Finance Bill, that the finance of the Government would have been entirely different from what it now appears to be, and the House has a right to ask why there has been this change of opinion. The Chancellor of the Exchequer, on the Second Reading of the Finance Bill, appeared to be strongly in favour of a levy of this kind. We know that the Prime Minister, from the speech he made some little time ago at Manchester, was also in favour of this levy. We know further, although he has spoken with more caution, that the Lord Privy Seal looked favourably on the question of a capital levy. Here we have three responsible Members of the Government in favour of a policy which we are now told has been turned down. Why is it? Are there influences at work behind the scenes which are even stronger than the three principal Members of the Government? It is unfortunate if it is so. This House was once described outside—I thought wrongly at the time—as a capitalist House of Commons. I am afraid if it goes forth that the influence of the Chancellor of the Exchequer, of the Prime Minister, and of the Lord Privy Seal, who have expressed themselves in favour of a levy, is to be overthrown in this way, there may be some ground for the criticism that other influences than those of mere principle are at work in a matter of this sort

Is this, after all, a business-like proposition? We all know that industrial concerns when they come to bad times, when they have to face a bad year's trading, and find themselves with a larger capital than they can conveniently carry, immediately adopt the business-like method of writing down their capital and reducing the paper value of their assets. Might not a parallel course be adopted by us as a nation? Could we not carry out the same principle, and get rid of some of our debt by means of a Capital Levy, thereby putting ourselves into a sound financial position? We could thus reduce our liabilities, and in some measure reduce the taxation we shall have to pay in the future. If you do not have a war levy you are bound to get an increasing amount of annual taxation in order to meet the obligations which will be a burden for all time. Our debt has been incurred on inflated values, and if you postpone repayment until money becomes normal again, you are incurring a burden much greater than there is any need to.

I wish to join with those who are protesting against the failure to take advantage of the opportunity now laid before the House to redeem pledges already given. At the time when we conscripted our sons we did not consider whether we were going to ruin businesses. We did not consider how we were ruining businesses when we took the man away from the single-man business. Surely, all the arguments and objections which have been offered to the raising of a war levy must have applied with infinitely more force to the action of conscription and taking the man power of the nation. Thereby we were ruining businesses; we were not only taking away the leading men, we were also taking the key men out of industry; we were taking away the men who were the sole support of the wife and family, and if we had no consideration for them in the hour of the nation's jeopardy, when man power was so necessary, why should we now allow such objections to stand in the way of giving equal treatment and equal justice to those who have the capital which is required to wipe off the debt that has been incurred?

How can we face social legislation in the future? How can we go on piling taxation upon taxation unless we wipe off some of our debt by a war levy? The right hon. Baronet the Member for the City of London referred to the Civil Service Estimates and suggested that they should be reduced by one half. He referred to Pensions, but not to Education, or to the Health Services, or to Housing. It would be futile for this House to think it is going to economise in the future on education. To-day the Education Minister is cutting down grants made previously to the War to industrial communities, and he is thereby adding severely to the rates of those communities. We want more money for Education, for Health Services, and for Housing, and it is impossible to get it unless we are prepared to deal drastically with the Debt. I submit that the Chancellor of the Exchequer is rejecting a golden opportunity by turning down this proposal which the Committee have admitted is practicable, and he is not thereby enabling the country to stabilize its position, to reduce prices, and to get back to normal industrial methods.

Mr. CHAMBERLAIN

May I make an appeal to the House to come to an early decision? I understand that my appeal meets with the concurrence of the right hon. Gentleman who opened this Debate (Mr. Clynes), and I think it would be for the general convenience of the House that we should come to a decision before business is interrupted in the ordinary way at a quarter past eight.

Major BARNES

I have no intention of standing in the way of the appeal of the right hon. Gentleman, and I think I can say all I wish long before the period of interruption comes. I think the Debate we have had on this subject must be a great encouragement to those of us who believe in a capital levy. We have now got in this House a control of finance policy such as at one time met with favour only in the quarter of the House from which I am speaking, and that advanced control is now being supported in many other quarters. It has taken the Government, as we learned last night, eighteen months or more to arrive at a sound Russian policy, and I do not think it will take much longer to induce them to arrive at a sound financial policy on this subject. There has been a good deal to encourage us during this afternoon's Debate. There has been an absence of heat on the part of those who object to our proposals. Years ago a proposal of this kind would have been met with cries of "confiscation," but to-day we are told that there is very little, if any, moral objection to it. There we have a considerable advance Then we have had support from un-expected quarters. The excellent speech of my hon. and gallant Friend the Member for Norwich indicates that this proposal is supported by a section of the community to which it has not hitherto appealed. There is reason therefore to hope that long before the next Budget comes this House will be prepared to adopt the principle of a levy on capital.

8.0 P.M.

I want to make some comments on what was said by the right hon. Baronet the Member for the City of London (Sir F. Banbury), who suggested that the way in which the situation could best be dealt with was by imposing privations on the community. He finds his golden age by turning back to the year 1910, and he suggests that the Civil Service Estimates today ought to be based on the Civil Service Estimates of that year, and that everything which has been passed since that time should be wiped out. What is the privation which is to be borne by the community as a result of getting rid of all the legislation passed between 1910 and the present time? The National Health Insurance Act is to go. There is to be a loss of the maternity benefit and the sanatorium benefit. That is the sort of privation to which the community in the opinion of the right hon. Baronet should be subjected. The Unemployment Act is to go with whatever advantage can be and is derived from that expenditure. These are the directions in which the right hon. Baronet looks for economy. I venture to say that, if there were a real desire to meet the situation, some compromise might be made between the other side of the House and this. We are not much in favour of a reduction of the Civil Service Esti- mates, but we are in favour of a reduction on the Estimates for the Army and Navy. If right hon. Gentlemen opposite could see their way to meet this situation by consenting to a reduction of those Estimates, perhaps on this side there might be a disposition, at some time in the future, to suspend any increase in expenditure on social reform. If economy is to be talked about, it should be economy in both directions; but economy cannot meet this situation; it can only be met by further taxation. The alternative is the Excess Profits Duty, and the House is agreed that that is bad. We ask ourselves whether the Government ever seriously entertained this idea of a war levy, and why they should have gone to the trouble of setting up a Committee and of forcing the decision of that Committee. It is very well known that, if it had not been for the presence of the Chancellor of the Exchequer at its closing meetings, that Committee was not at all likely to have reported in favour of a war levy.

Mr. CHAMBERLAIN

The hon. and gallant Member has fallen into two errors, one of which I have already corrected. The Committee did not report in favour of the taxation of War wealth, and I exercised no sort of pressure whatever on the Committee.

Major BARNES

I am not suggesting for a moment that the right hon. Gentleman exercised any material and direct pressure, but I think he will agree that his presence at the Committee was bound to have its influence. I am not, however, dealing with that point. [HON. MEMBERS: "Divide, divide!"] I am not likely to be able to finish any more quickly if I am interrupted. It will not be necessary for me to speak for more

than two minutes longer—unless I am interrupted. We are assured that the right hon. Gentleman will have to go from his position. Perhaps I may be allowed to say that there is no Minister on the Treasury Bench who, in my opinion, fills his position with more distinction than he does, and it is not we who say he must go. The cry that he must go comes from the City. I would ask the right hon. Gentleman the Member for the City of London (Sir F. Banbury) to look after the City. The City is getting shaky on this question. I expended 6d. in the purchase of a leading organ in the City, and from it I found that there is a disposition in the City to turn round upon this subject; their views are changing. I learn from other sources that the bankers think it may really be good business—that the business which will follow, in the circulation that will pass when money goes through them to the Government and back from the Government to them, is going to be good business. From every point of view it seems to me that we on this side of the House have reason to be satisfied with this Debate, however the Motion may go—and at the present moment this House is not likely to vote for a levy on capital. If it were a question of a levy by capital, I have no doubt as to what the verdict would be.

Question put, That this House, realising the serious effects upon trade and industry of the nation of the enormous financial burdens resulting from the War, regrets the decision of His Majesty's Government not to impose special taxation upon fortunes made as a result of the national emergency and declares that in order to meet the present financial burdens and assist in liquidating the National Debt further measures should be adopted for raising revenue from accumulated wealth.

The House divided: Ayes, 81; Noes, 244.

Division No. 129.] AYES. [8.5 p.m.
Barnes, Rt. Hon. G. (Glas., Gorbals) Edwards, Major J. (Aberavon) Kenworthy, Lieut.-Commander J. M.
Barnes, Major H. (Newcastle, E.) Finney, Samuel Kenyon, Barnet
Bell, James (Lancaster, Ormskirk) Galbraith, Samuel Lawson, John J.
Bell, Lieut.-Col. W. C. H. (Devizes) Graham, D. M. (Lanark, Hamilton) Lunn, William
Benn, Captain Wedgwood (Leith) Graham, W. (Edinburgh, Central) Maclean, Rt. Hn. Sir D. (Midlothian)
Bowerman, Rt. Hon. Charles W. Grundy, T. W. Malone, C. L. (Leyton, E.)
Brace, Rt. Hon. William Guest, J. (York, W. R., Hemsworth) Mills, John Edmund
Bramsdon, Sir Thomas Hall, F. (York, W. R., Normanton) Morgan, Major D. Watts
Breese, Major Charles E. Hallas, Eldred Murray, Dr. D. (Inverness & Ross)
Briant, Frank Hancock, John George Murray, John (Leeds, West)
Brown, James (Ayr and Bute) Hartshorn, Vernon Myers, Thomas
Cape, Thomas Hayday, Arthur Newbould, Alfred Ernest
Carter, W. (Nottingham, Mansfield) Henderson, Major V. L. (Tradeston) O'Grady, Captain James
Clynes, Rt. Hon. J. R. Hirst, G. H. Palmer, Charles Frederick (Wrekin)
Davies, A. (Lancaster, Clitheroe) Hodge, Rt. Hon. John Parkinson, John Allen (Wigan)
Davison, J. E. (Smethwick) Hogge, James Myles Preston, W. R.
Dawes, Commander Jones, G. W. H. (Stoke Newington) Raffan, Peter Wilson
Edwards, C. (Monmouth, Bedwellty) Jones, Henry Haydn (Merioneth) Rees, Capt. J. Tudor (Barnstaple)
Richardson, R. (Houghton-le-Spring) Spoor, B. G. Wedgwood, Colonel J. C.
Robertson, John Stanton, Charles B. White, Charles F. (Derby, Western)
Robinson, S. (Brecon and Radnor) Swan, J. E. Wignall, James
Rose, Frank H. Thomas, Rt. Hon. James H. (Derby) Wilson, Rt. Hon. J. W. (Stourbridge)
Royce, William Stapleton Thomas, Brig.-Gen. Sir O. (Anglesey) Wood, Major M. M. (Aberdeen, C.)
Short, Alfred (Wednesbury) Thomson, T. (Middlesbrough, West) Young, Lieut.-Com. E. H (Norwich)
Simm, M. T. Thorne, G. R. (Wolverhampton, E.) Young, Robert (Lancaster, Newton)
Sitch, Charles H. Walsh, Stephen (Lancaster, Ince)
Smith, W. R. (Wellingborough) Walton, J. (York, W. R., Don Valley) TELLERS FOR THE AYES.—
Spencer, George A. Ward, Col. L. (Kingston-upon-Hull) Mr. Tyson Wilson and Mr. Neil Maclean.
NOES.
Agg-Gardner, Sir James Tynte Ford, Patrick Johnston McLaren, Hon. H. D. (Leicester)
Allen, Lieut.-Colonel William James Forestier-Walker, L. M'Lean, Lieut.-Col. Charles W. W.
Archdale, Edward Mervyn Foxcroft, Captain Charles Talbot Macleod, J. Mackintosh
Ashley, Colonel Wilfrid W. Fraser, Major Sir Keith Macmaster, Donald
Atkey, A. R. Gange, E. Stanley Manville, Edward
Baird, John Lawrence Ganzoni, Captain Francis John C. Marriott, John Arthur Ransome
Banbury, Rt. Hon. Sir Frederick G. Gardiner, James Middlebrook, Sir William
Barker, Major Robert H. Gibbs, Colonel George Abraham Mitchell, William Lane
Barnett, Major R. W. Gilbert, James Daniel Moles, Thomas
Barnston, Major Harry Gilmour, Lieut-Colonel John Molson, Major John Elsdale
Barrand, A. R. Goff, Sir R. Park Moreing, Captain Algernon H
Barrie, Charles Coupar Grant, James A. Morison, Thomas Brash
Barrie, Hugh Thom. (Lon'derry, N.) Gray Major Ernest (Accrington) Morrison, Hugh
Beauchamp, Sir Edward Green, Albert (Derby) Mount, William Arthur
Beckett, Hon. Gervase Green, Joseph F. (Leicester, W.) Murchison, C. K.
Bellairs, Commander Carlyon W. Greer, Harry Murray, Major William (Dumfries)
Benn, Com. Ian H. (Greenwich) Gretton, Colonel John Nall, Major Joseph
Bennett, Thomas Jewell Hall, Lieut.-Col. Sir F. (Dulwich) Neal, Arthur
Birchall, Major J. Dearman Hall, Rr-Adml Sir W. (Liv'p'l, W.D'by) Newman, Sir R. H. S. D. L. (Exeter)
Bird, Sir A. (Wolverhampton, West) Hanna, George Boyle Nicholl, Commander Sir Edward
Blades, Capt. Sir George Rowland Harmsworth, C. B. (Bedford, Luton) Nicholson, William G. (Petersfield)
Blair, Major Reginald Harmsworth, Sir R. L. (Caithness) Nield, Sir Herbert
Blake, Sir Francis Douglas Harris, Sir Henry Percy Norman, Major Rt. Hon. Sir Henry
Boles, Lieut.-Colonel D. F. Haslam, Lewis Norris, Colonel Sir Henry G.
Boscawen, Rt. Hon. Sir A. Griffith- Henry, Denis S. (Londonderry, S.) Norton-Griffiths, Lieut.-Col. Sir John
Bowyer, Captain G. E. W. Herbert, Dennis (Hertford, Watford) Oman, Charles William C.
Boyd-Carpenter, Major A. Hickman, Lieut.-Colonel Thomas E. O'Neill, Major Hon. Robert W. H.
Brassey, Major H. L. C. Hilder, Lieut.-Colonel Frank Palmer, Lieut.-Colonel G. L.
Bridgeman, William Clive Hoare, Lieut.-Colonel Sir S. J. G. Parker, James
Brittain, Sir Harry Holbrook, Sir Arthur Richard Peel, Lieut.-Col. R. F. (Woodbridge)
Britton, G. B. Hood, Joseph Pennefather, De Fonbianque
Brown, Captain D. C. Hope, H. (Stirling & Cl'ckm'nn'n, W.) Percy, Charles
Bruton, Sir James Hope, James F. (Sheffield, Central) Perkins, Walter Frank
Buchanan, Lieut.-Colonel A. L. H. Hope, Lt.-Col. Sir J. A. (Midlothian) Perring, William George
Buckley, Lieut.-Colonel A. Hope, J. D. (Berwick & Haddington) Pinkham, Lieut.-Colonel Charles
Bull, Rt. Hon. Sir William James Hopkins, John W. W. Pollock, Sir Ernest M.
Campbell, J. D. G. Hopkinson, A. (Lancaster, Mossley) Pownall, Lieut.-Colonel Assheton
Carr, W. Theodore Horne, Sir R. S. (Glasgow, Hillhead) Pratt, John William
Cautley, Henry S. Hotchkin, Captain Stafforo Vere Pulley, Charles Thornton
Cayzer, Major Herbert Robin Houston, Robert P. Purchase, H. G.
Cecil, Rt. Hon. Lord H. (Ox. Univ.) Howard, Major S. G. Rae, H. Norman
Chadwick, R. Burton Hume-Williams, Sir W. Ellis Raeburn, Sir William H
Chamberlain, Rt. Hn. J. A. (Birm., W.) Hunter, General Sir A. (Lancaster) Ratcliffe, Henry Butler
Child, Lieut.-Colonel Sir Hill Hurst, Lieut.-Colonel Gerald B. Raw, Lieutenant-Colonel N.
Clay, Lieut.-Colonel H. H. Spender Inskip, Thomas Walker H. Rawlinson, John Frederick Peel
Clough, Robert Jackson, Lieut.-Colonel Hon. F. S. Reid, D. D.
Coats, Sir Stuart Jameson, J. Gordon Remer, J. R.
Cobb, Sir Cyril Jephcott, A. R. Remnant, Colonel Sir James F.
Cohen, Major J. Brunel Jesson, C. Richardson, Alexander (Gravesend)
Colfox, Major Wm. Phillips Jodrell, Neville Paul Rogers, Sir Hallewell
Cooper, Sir Richard Ashmole Johnson, L. S. Roundell, Colonel R. F.
Coote, Colin Reith (Isle of Ely) Johnstone, Joseph Royden, Sir Thomas
Cope, Major Wm. Jones, Sir Edgar R. (Merthyr Tydvil) Royds, Lieut.-Colonel Edmund
Cory, Sir J. H. (Cardiff, South) Jones, Sir Evan (Pembroke) Sassoon, Sir Philip Albert Gustave D.
Craig, Colonel Sir J. (Down, Mid.) Kelly, Major Fred (Rotherham) Shaw, William T. (Forfar)
Curzon, Commander Viscount Kidd, James Shortt, Rt. Hon. E. (N'castle-on-T.)
Dalziel, Sir D. (Lambeth, Brixton) Kinloch-Cooke, Sir Clement Smith, Harold (Warrington)
Davidson, Major-General Sir J. H. Knight, Major E. A. (Kidderminster) Smithers, Sir Alfred W.
Davies, Sir Joseph (Chester, Crewe) Knights, Capt. H. N. (C'berwell, N.) Stanley, Major H. G. (Preston)
Davies, Thomas (Cirencester) Lane-Fox, G. R. Starkey, Captain John R.
Davison, Sir W. H. (Kensington, S.) Larmor, Sir Joseph Steel, Major S. Strang
Dean, Lieut.-Commander P. T. Law, Alfred J. (Rochdale) Stephenson, Colonel H. K.
Dewhurst, Lieut.-Commander Harry Law, Rt. Hon. A. B. (Glasgow, C.) Stewart, Gershom
Dockrell, Sir Maurice Lister, Sir R. Ashton Strauss, Edward Anthony
Doyle, N. Grattan Lloyd, George Butler Sturrock, J. Leng
Elliot, Capt. Walter E. (Lanark) Lloyd-Greame, Major Sir P. Talbot, G. A. (Hemel Hempstead)
Elveden, Viscount Lorden, John William Terrell, Captain R. (Oxford, Henley)
Falcon, Captain Michael Lort-Williams, J. Thomas, Sir Robert J. (Wrexham)
Fell, Sir Arthur Lyle, C. E. Leonard Thomson, F. C. (Aberdeen, South)
FitzRoy, Captain Hon. E. A. Lynn, R. J. Thomas, Sir W. Mitchell-(Maryhill)
Flannery, Sir James Fortescue M'Donald, Dr. Bouverie F. P. Thorpe, Captain John Henry
Mackinder, Sir H. J. (Camlachie) Tickler, Thomas George
Townley, Maximilian G. White, Lieut.-Col. G. D. (Southport) Wood, Major S. Hill- (High Peak)
Tryon, Major George Clement Whitla, Sir William Woolcock, William James U.
Turton, E. R. Willey, Lieut.-Colonel F. V. Worsfold, Dr. T. Cato
Vickers, Douglas Williams, Lt.-Com. C. (Tavistock) Worthington-Evans, Rt. Hon. Sir L.
Waddington, R. Williams, Col. Sir R. (Dorset, W.) Yate, Colonel Charles Edward
Wallace, J. Willoughby, Lieut.-Col. Hon. Claud Young, Sir Frederick W. (Swindon)
Ward-Jackson, Major C. L. Wilson, Daniel M. (Down, West)
Warren, Lieut.-Col. Sir Alfred H. Wilson-Fox, Henry TELLERS FOR THE NOES.—
Watson, Captain John Bertrand Winterton, Major Earl Mr. Dudley Ward and Commander Eyres-Monsell.
Weston, Colonel John W. Wood, Hon. Edward F. L. (Ripon)
Wheler, Lieut.-Colonel C. H. Wood, Sir J. (Stalybridge & Hyde)

Question put, and agreed to.