FINANCE BILL

HC Deb 25 May 1921 vol 142 cc165-232

Order for Second Reading read.

Motion made, and Question proposed, "That the Bill be now read a Second time."

Lord ROBERT CECIL

In the exercise of his undoubted rights my right hon. Friend has decided that it would be more convenient to the House if he reserved his observations on this Bill to a later stage, and it is a matter for very natural regret that we are not to have the advantage of his guidance in approaching this Bill. It is impossible to avoid repeating what has been the theme of so many observations already made on the Budget, namely, the very large—the enormous—figures which are involved in this scheme of taxation. Apart from the special revenue arising from the realisation of War assets we are to raise by taxation no less a sum than £1,058,000,000. This, of course, is in addition to what is raised by local taxation. I do not think it is any exaggeration to say that, allowing for all differences in the value of money, and allowing for the repayment of interest on debt, that means we are going to raise somewhere between two and three times as much as we raised the year before the War. That is a prodigious sum, and one to which this House must continue to give the closest attention if we are to avoid very serious financial embarrassment. In regard to the actual scheme for raising money which is embodied in this Bill, the best feature about it is its extremely conservative character. I, personally, have a very strong belief that it is much better to continue old taxation than to raise new, and that as long as you can possibly manage it you should avoid changes in your method of taxation unless there is a very distinct advantage to be gained otherwise, because the taxpayer naturally comes to adapt himself to a particular form of charge, whereas a new charge will always be more galling and more serious than the old one. Therefore, as far as the general scheme of the Budget is concerned, the House has a right to congratulate itself that it is free from novel experiments. Undoubtedly, there is one change which we would all desire, and which, as far as I can see, is not present in this Budget, while there is no likelihood of its being present in any Budget in the near future, according to the Government's present plans for the revision of taxation. I do not think it is a situation which will be greeted with any enthusiasm by the country. I am not sure, reading again the very interesting speech of the Lord Privy Seal in introducing the Budget, that even now the Government are fully aware of the very serious nature of the economic situation, or are fully convinced of the necessity of making drastic changes in their scheme of expenditure. I notice particularly one feature in my right hon. Friend's speech which seems to me, if I may say so with all respect to him, an indication of an extremely dangerous view. He said: Internal Debt—and this is an observation which is sufficiently obvious, though it sometimes escapes some of the critics of Government finance—does not lessen the pool of national wealth. It transfers wealth, whether in the form of interest or in the form of repayment from one pocket to another, but it does not diminish the total. Foreign Debt is a drain upon the national resources. It lowers the exchanges, it reduces our purchasing power, and it affects our world credit."—[OFFICIAL REPORT, 25th April, 1921; col. 71, Vol. 141.] 4.0 P.M.

What does that really mean? I think it is rather a serious statement for a gentleman representing the Government to make. It means that there is no injury done to the country—to the credit and the resources of the country—by raising money by any extensive taxation, provided you employ the money so raised in the repayment of Debt. That is surely a most dangerous dogma. I venture respectfully to say that it is not really true in the least. Money raised in the form of taxes will always be an injury to the industry of the country, and it is not in the least true to say that because you pay that money back in the form of repayment of debt, or interest on debt, you remove all the injury to industry done by the collection of the taxes. A moment's consideration will show that must be so. You levy your Income Tax on all the Income Tax payers. Many of them are engaged in industry. Instead of keeping their money in their pockets in order to promote the interests of their industry, they have to hand it over to the tax gatherer. The tax gatherer, it is true, pays it back, not to the same people, but to people who have invested in Government loans and who probably will not to anything like the same extent be engaged in industry but in finance. Apart from all other considerations, you take money from industry and give it to finance. That must be destructive, or at any rate a very serious blow, to the industries of the country. My right hon. Friend went on to say, or at least he implied, that internal debt did no harm to the world credit of a country. Surely that is an entire misapprehension. If the internal debt of a country be very large, and even if there be no external debt at all, there can be no question whatever that the world credit of the country will be affected by the size of the debt. We are often told that Germany is in a better position than this country, because it borrowed practically all its money from internal sources, whereas we borrowed largely from external sources. I agree that it may be a better thing to borrow from internal sources, but to say that Germany's credit is the same as if it had raised no internal debt seems to me to be a wild fallacy. I venture to insist on that point of view, because I think it shows a rather serious state of mind in the financial advisers of the Government. It cannot be too often reasserted that taxation is a great evil in a country. It does really interfere with the industry of the country, and the fact that you pay part of it back to those who have lent money to the country, though it may in some sense be a mitigation of the evil that you are doing, by no means removes the evil of the enormous scale of taxation under which we are suffering at the present time.

I also want to insist—this observation is not so much addressed to the Government as to others—on the fact that you cannot avoid the evils of taxation by any re-arrangement or modification of the methods by which the amount of the tax is raised. I know there are some people who think that you would greatly improve matters by having a capital levy. I have never been one of those who regard a capital levy as a dishonest or wicked device, but that it would be any alleviation of the difficulty under which we are labouring I do not for a moment think. Whether you raise your money by a capital levy or by an excessive Income Tax, you are imposing, almost in exactly the same way but at any rate substantially, the same burden on the taxpayers of the country. It is the size of the tax and not the method of taxing which is the really important thing for this country to consider. In the same way, there are people, for whose opinions I have great respect, who wish to do away with all forms of indirect taxation and substitute direct taxation. I quite agree that there is a great deal to be said against indirect taxation. It is quite true that it falls, not necessarily on those who are best able to bear it, but on those who in fact consume the commodity on which it is paid. I remember a speech of the Financial Secretary last year in which he explained very forcibly the evils of indirect taxation and urged very much that among other things the Corporation Profits Tax, which he regarded as a very pernicious tax, should be abolished. I remember that he went very far indeed. He protested against all idea of taxing for any purpose except to raise money. I cannot go quite as far as he went. I think, if you are going to raise money by indirect taxation, it is better to put it on a luxury rather than on a necessity and on a pernicious luxury rather than on a harmless one.

Mr. WALLACE

What is a pernicious luxury?

Lord R. CECIL

It depends upon the view that you take. At any rate, there is a great deal of force in what my hon. Friend then said. Perhaps the House will allow me to read a passage from his speech: The ideal tax in accord with the true canons of taxation is the Income Tax which is capable of being brought into as close relation as is humanly possible with the principles of general equity in taxation. Simplify that tax as circumstances necessitate in order that it may bear further and heavy burdens; simplify it and graduate it up to the degree that is necessary to obtain equality of sacrifice; extend its basis so that some of the burden is felt by all classes in the community, and then you will have laid before you the true and sensible path of taxation, and you can turn aside from such dangerous experiments, perhaps necessary experiments, as are proposed in the present Finance Bill."—[OFFICIAL REPORT, 28th July, 1920; col. 1511, Vol. 132.] I am not personally opposed to a system of taxation which is mainly, if not entirely, direct taxation, providing that it is spread widely enough, but I am satisfied that any system by which you try to raise the whole of the revenue of the country from the present Income Tax payers would be a very disastrous form of direct taxation. Direct taxation on a small minority of the population is the very worst form of indirect taxation. It is not in the least true that the people who are not taxed do not pay. They do pay, but without in the least knowing that they pay and without any direct knowledge of the consequences involved in excessive taxation. All taxation is evil and has a discouraging effect on industry. I do not say that all taxation is equally bad. Some taxes are worse than others, but all are bad. I agree that you may have taxes of such an excessive amount—we found that in the case of the Champagne Duty—that they will cease to bring in money. Take the case even of the Excess Profits Duty, because it is a mistake to suppose that excessive taxation can only be imposed on commodities. It may also be imposed on money, and may fail to bring in good results, if it be carried beyond a certain point, in precisely the same way as taxes imposed on commodities. In such cases, of course, as we have been reminded, you do an injury to the trade of the country without receiving any adequate return from your tax.

All this only leads me to the one thing that I desire to press upon the House. The only sound financial policy of the country at the present moment is economy, and I am very glad to see that from one point of view the Government have taken to heart some of the observations that have been made in this House on that subject. They have issued a White Paper. I see that my right hon. Friend the Member for the City of London (Sir F. Banbury) shakes his head, but I take a more sanguine view.

Sir F. BANBURY

I do not deny that they have issued a White Paper. What I deny is that they have effected any economy.

Lord R. CECIL

I think it does show at any rate some consciousness of sin even if it does not amount to a promise of amendment. I welcome one part of that Paper. It does concede the principle of fixing a lump sum. It does say that public expenditure should not exceed a certain fixed sum. Some of us have earnestly contended for that in this House, and we have been told over and over again by the Government, in the first place, that it is impossible, and, secondly, that it is just what the Government have always done. It is something that they have gone as far as that. They have fixed the sum. Otherwise, I say with great regret that the Paper is profoundly disappointing. It sets out with great courage the passage from the speech of my right hon. Friend the Lord Privy Seal, in which he promised—it was a very shadowy promise—economy, and in which, after explaining how the expenditure will not be quite so high in future years because of certain reductions, he says:— Even so, the starting point on the expenditure side on the present basis is not likely to be less than £950,000,000. Clearly that is too high, and must be reduced."—[OFFICIAL REPORT, 25th April, 1921; col. 78, Vol. 141.] I am afraid that as I read the White Paper there is no promise, no hope, held out that the expenditure will be reduced below £950,000,000. On the contrary, tremendous reductions are to be made, but the effect of them will be to leave the expenditure at that figure of £950,000,000 which the Lord Privy Seal very rightly says is too high. When you have made all these reductions which they hold out some hopes of making—I will not put it higher—taxation is not to be reduced by a single shilling. On the contrary, unless you make all these reductions, either taxation is to be increased or you are to resort to borrowing fresh money. It reminds me very much of the passage in that classic, "Alice Through the Looking Glass," in which the Red Queen explained that You must run very fast indeed in order to remain where you are. The Government, apparently, after prodigious efforts can succeed only in keeping taxation no higher than it is at the present time. That is a most disappointing result. Reading this Paper through, there is more than one passage in it which is not very encouraging from the point of view of economy. It says on the first page, in reference to the ordinary Supply Services: The Estimate for these services in 1921–22 is £603,000,000, and next year there will be, apart from automatic growth of grants to local authorities, additional charges, e.g., under the Agriculture Act, 1920. I should have hoped we should not hear any more talk about automatic growth of grants to local authorities. We cannot afford that kind of easy-going finance which we enjoyed in times of greater prosperity, which enabled us to look with indifference upon what is called automatic growth of grants, and when, after examination of the case, one comes to the Government's actual proposals, I think the House will feel with me that they are excessively inadequate. After explaining what ought to be done, the circular goes on to say: His Majesty's Government have accordingly decided that it shall be an instruction to every Department to undertake forthwith, whether by the appointment of departmental committees or by any other procedure which may be thought desirable, a searching examination of their current expenditure, with a view to securing the large reduction in Estimates for 1922–23 which the situation imperatively demands. That phraseology is terribly reminiscent of a number of other circulars that have been sent out in the past few months in the Government Departments, and I venture to press on the Government that we want something more effective than a mere adjuration to the Departments not to spend so much. If you do not go further than that, you will never produce any results. You must make up your mind not only to fix the total amount that you think we can afford—and, personally, I cannot help feeling that £950,000,000 is a great deal too high—but having fixed that, I am satisfied that you must go on and say to each Department, "You are not to spend more than so much, and within that limit you are to use the money as effectively as you can." Merely to say to the Departments, "You have got to economise, to reconsider your expenditure, to tell us how much you can save"—all these things, excellent in themselves, will, I feel sure, be quite inadequate to secure any real cutting down of the expenditure of the country. That fear is borne out not only by the fact that the Government do not, even in the circular, hold out any hope of a reduction of taxation in the years to come, but also, I am bound to say, it is largely borne out by the general trend of the Government policy in this matter. It would not be in order for me to deal in detail with the various failures in economy which the Government have committed during the past two years. The latest one, the casual miscalculation by the Post Office of £3,000,000, is fresh in the mind of the House. Those who attend the Debates on the Estimates will remember time after time waste and extravagance in detail being pointed out to the Government and being almost admitted by them.

Quite recently we have had, at this very moment when the Government are issuing this circular, the proposal to relieve the salaries of Members of Parliament of Income Tax, and if I turn to wider matters, I see a similar failure to take the really necessary measures of policy which will secure a more economic administration of the country As far as I can make out, two years and a half after the Armistice, there are still in Europe nearly 4,000,000 armed men. It is quite true that a very small proportion of these are being directly paid for by this country, but this House will grossly fail to deal with the financial situation here unless they realise that extravagance abroad, a bad economic situation in the rest of Europe and the rest of the world, will react fatally on our situation in this country. I do not want, and it would not be right for me, to say a word about Silesia. It may be inevitable at this stage that we should be committed to a fresh military expedition in that part of the world. I understand we shall be told in a week's time what is really going on in Mesopotamia and the Middle East. I must remind the House that at present our expenditure in those parts is at the rate of something like £37,000,000 a year, compared with the total military expenditure before the War for all purposes of £28,000,000, so that, allowing for the difference in the value of money, we are actually spending in figures something like a third as much again in the Middle East as we were spending for all military purposes before the War.

Lieut.-Commander KENWORTHY

There is civil expenditure also.

Lord R. CECIL

Yes, but I am talking for the moment only of the military expenditure. Then, of course, there are enormous sums of money which we are forced to spend by the grave failures, as I think, of the policy of the Government in Ireland, over the coal dispute, and over a number of other matters. My right hon. Friend at question time said, with great truth, that all parties and everybody in this country would agree that peace was essential to the prosperity of the country. It certainly is essential if we desire any real reduction in the weight of the taxation—real peace, peace abroad, which can only be secured, in my judgment, by a real, whole-hearted acceptation of a foreign policy founded on the League of Nations; peace at home, which involves not merely the invention of ingenious expedients for dealing with great industrial difficulties as they arise, but a serious attempt to get at the bottom of the industrial trouble and refund our industry on a more secure and stable basis.

I cannot help feeling that in 1918 this Government had an opportunity greater, perhaps, than has ever been given to any Government in modern times. They came back with a gigantic majority, with an Opposition in this House practically insignificant in numbers, and they were in a position to carry out without the slightest Parliamentary difficulty any policy which they thought fit. They had the possibility of despising popularity for the moment and founding their policy on a basis which would be, if not immediately popular, ultimately to the advantage of the country. They could have gone to Paris in no spirit of revenge, in no spirit of greed, but with a desire merely to re-establish, on the surest and securest foundations, the peace of the world and the reconstruction of society. Instead of that, they indulged in a rhetorical orgy, the consequences of which we are still feeling. It impressed itself on the negotiations for the peace, it impressed itself on their domestic policy. We had a policy of hanging the Kaiser and making Germany pay in foreign affairs, and a policy of making a land fit for heroes in home affairs. Both were unsound, both have proved terribly expensive, and even now I appeal to the Government to return to a sober and serious policy, one which will command the respect and not only the support of their fellow-countrymen, one which is free from splashy diplomacy and free also from the rhetorical flights of a Celtic imagination.

Mr. BOTTOMLEY

I beg to move, to leave out from the word "That" to the end of the Question, and to add instead thereof the words this House, whilst willing to grant to His Majesty all moneys imperative for the public service, expresses its profound regret that in the third year after the Great "War, allowing for depreciation in money values and for the provision of the war pensions and interest upon war loans, the country should be taxed to double the extent of that of the pre-War period, and calls upon the Government in the current financial year to exercise the most rigid economy consistent with efficiency with a view to relieving the taxpayers of some of the heavy burdens at present imposed upon them. A year ago I adopted the somewhat unusual course of moving the rejection of the Finance Bill. Reflection has taught me that that was an extreme method, which, whatever its merits, would never gain the support of a large section of the House, and consequently, after consultation with the small body of friends for whom I am privileged to speak, and with at least a dozen others who, although they are not sitting on our side, are in close harmony with us, and will, I hope, before long reinforce our numbers, we have tabled this Amendment. We have endeavoured to avoid the error, into which so many critics of Government expenditure have fallen in the past, of making false comparisons between the figures of to-day and the figures of pre-War times without recognising certain fundamental differences. Consequently, in express terms, we recognise the great depreciation which has taken place in money values, we recognise the necessity for providing interest upon various war loans, we recognise the necessity for paying war pensions, all too inadequate in many cases, and, having made all these allowances, the proposition I submit to the House, and in support of which I hope to carry a considerable number of Members with me, is that there must be something radically wrong when, putting aside all special war expenditure and making allowance for all depreciated money values, we find ourselves to-day, in the third year after the War, with a national Budget at least twice as heavy as that of pre-War days. Speaking in round figures, we have a Budget this year of £1,000,000,000. You may deduct £400,000,000 odd of that for war charges, leaving £600,000,000.

The CHANCELLOR of the EXCHEQUER (Sir Robert Home)

Far more.

Mr. BOTTOMLEY

I only take the figures in the financial statement—interest upon loans, pensions, and one or two other items, but call it £500,000,000 if you like. That would leave you £500,000,000, comparable with the £200,000,000 which was the Budget before the War, and making a very considerable allowance for depreciated values, you get about the figure mentioned in the Amendment. May I just recall to the House one or two very simple figures, which, I think, hon. Members are apt to overlook? When the War broke out, the Budget, as I say, was £200,000,000. I remember when, after the Unionist defeat of 1905, Sir Henry Campbell-Bannerman's party came into power, I attended a great meeting at the Albert Hall, and there he warned the country that £200,000,000 represented almost the breaking point in the financial capacity of this country. I heard him declaim against what he called the creeping paralysis which was coming over Parliament, and preventing Members exercising any control over public expenditure. A few months afterwards, I heard in this House the right hon. Member for Paisley (Mr. Asquith), speaking from the Treasury Bench, make this remarkable statement. He said, speaking then as Chancellor of the Exchequer: A uniform Income Tax of 1s. in the £ in time of peace is something which can never be justified. That was before the War. Then there was a £200,000,000 Budget, against the £1,000,000,000, or the £500,000,000, Budget, a 1s. Income Tax, against a 6s. Income Tax, and a taxation of the people of this country at that time of about £3 10s. per head, compared with well over £20 per head to-day. The War is supposed to be over. That being so, I say there is something radically wrong in this state of affairs. I have said on previous occasions, and I repeat, that I am not one who accepts these Estimates of huge expenditure, deficits, and surpluses as sacrosanct communications to this House. To my mind, there is something ludicrous in the solemnity with which, year after year, we listen to the predictions of Chancellors of the Exchequer here manufacturing a prospective surplus or deficit, and giving us these White Papers full, of figures, every one of which always contains its own condemnation, because there is always a portion showing how the revenue and expenditure compare with the previous year's Estimates.

I was looking at the financial statement the other day dealing with the estimated revenue for the last financial year. I find that the late Chancellor of the Exchequer made a mistake of £81,000,000 in his Estimates. If that happened in a business establishment we should probably have something to say to the gentleman responsible. Here we are asked to say how wonderful it was not more. To cover up this mistake the late Chancellor of the Exchequer said: "Oh, it is quite true the Estimate was out £81,000,000 gross in one way or another, but in some cases I got more than I estimated, and in some cases less, and, deducting one from the other, the mistake is only £50,000,000." It reminds me of the dying King's Counsel, who, by way of giving satisfaction to his conscience said: "In the course of my professional career I have lost many cases I ought to have won; on the other hand, I have won many I ought to have lost, and, therefore, in the end justice has been done." So with these figures. But there is the alarming fact that they are altogether wrong, and I do not anticipate we shall have very much of a change in the coming year, although we have now an Estimates Committee and a Public Accounts Committee and a new Chancellor of the Exchequer, who, if I may say so, has started well. He has issued a Memorandum. He has told us that in future he is going to supply the cloth, and the Departments have to cut their coats accordingly. I ventured to press upon the late Chancellor of the Exchequer a year ago, and a year before then, and, in popular parlance, he turned me down. Last year he said: The hon. Member (Mr. Bottomley) who opened this discussion propounded for the guidance of the Chancellor of the Exchequer the principle that it was the business of the Chancellor of the Exchequer not to act as a mere paymaster of the spending Departments. I agree. He went on to say it was the business of the Chancellor of the Exchequer to say to the Departments, 'I can find so much money, and not a penny more can you have.' I do not agree."—[OFFICIAL REPORT, 11th May, 1920; col. 337, Vol. 129.] Then he went on to talk about the principle of collective Cabinet responsibility, the very phrase which appears in this White Paper, when the Departments are told that in cutting down expenditure they need not trouble themselves about Government policy, but first cut down expenditure to £490,000,000, as against £603,000,000 in the present Estimate. At any rate, I say the new Chancellor of the Exchequer has made a start by reading the discussion of a year ago, and has adopted one or two of the practical suggestions. I notice that in the Estimates put before us, so far as I can see, there is no provision for Supplementary Estimates this year. We know they are coming. It is useless to put in figures. We know, in the present state of the world, they must come, and be very heavy indeed, and I do hope the present Chancellor of the Exchequer will carry out the spirit of the Memorandum issued by his predecessor to the spending Departments, to ask at the outset the maximum amount they are likely to require, because, in my opinion, the only justification for a Supplementary Estimate must be that it was unforeseeable, and could not even have been contemplated. I hope the right hon. Gentleman will do his best to keep us out of Supplementary Estimates, except in the most extraordinary circumstances.

I want to make one reference to an observation of the Noble Lord. He spoke about the cost of the fighting forces at the present time. I think before the War the total national expenditure on the fighting forces was £86,000,000 a year. According to this year's Budget, it is £237,000,000. If you make allowance for the depreciation in money values and call that, if you like, in to-day's currency, £120,000,000 to £130,000,000, you have got an increase of 50 per cent. over the pre-War expenditure, and I re-echo what the Noble Lord said, that we should not lightly embark on military or naval expeditions in any part of the world except where the interests of Britain are clear and definite. So much by way of rough and ready criticism.

May I just say another thing? It is no good being merely critical and destructive. I am one of those who think that we have pretty well worn out our old sources of revenue. Beer, whiskey, tobacco, and Income Tax have been splendid old servants in the past. It is no good our moral leaders teaching us, on the one hand, not to waste our substance in riotous living, and to avoid intoxicating drinks and other expenditure on things of that kind, and, on the other hand, look to these very sources for revenue. I think the time has come when the Chancellor of the Exchequer should look for some new sources of revenue. There is a source of revenue available to the right hon. Gentleman, one to which his predecessor was quite friendly a year or two ago, one which keeps France going, one to which there is no moral or financial objection, in the issue of what is known colloquially as Premium Bonds. Members smile at that, and perhaps those who smile most have got some of them, because they make people very happy. But what is a Premium Bond? You issue a loan at an agreed interest. The capital and interest are guaranteed by the State. The difference between the interest you pay, and what you would have to pay in ordinary circumstances, you pool, and make a prize fund of it, and you have periodical drawings for prizes. There is scarcely a man or a woman in the whole of France who has not one or two of these Premium Bonds, and that is why there is not the same trouble in France that you are having here to-day. Your little man does not want £5 or £10 in War Stock to return a few shillings a year. I remember a man coming to me and saying, "Tell me, guv'nor, what are these War Savings Certificates about?" I said, "You pay 15s. 6d. and get £1 for it." He said, "When?" I said, "In five years' time." He said, "That is not good enough for me." But with Premium Bonds you can get the little man in the country, with his two, three, four, or five pounds, and I say to the Chancellor of the Exchequer there is £1,000,000,000 waiting for him to-day by the issue of Premium Bonds. There is no real moral objection to them. If there were, that does not concern the Chancellor of the Exchequer. I quoted last year the statement of a predecessor of his who said: Speaking, not as a public moralist, but in my capacity as Chancellor of the Exchequer, I have this year to deplore an alarming increase in the sobriety of the nation. The Chancellor of the Exchequer must take no notice of the purely ethical aspect. He must ask himself: Is this a fiscal instrument capable of bringing vast sums to the Exchequer? Our ally, France, sets us the example, and other civilised countries have done the same. There is £1,000,000,000 waiting for you if you care to have it, and you will make the little man in the country a shareholder in the British Empire. You will kill Bolshevism in that way better than by means which are adopted at the present time.

There is another source of income. Why has not the Chancellor of the Exchequer put a tax on all advertisements? The amount spent in advertisements in this country runs into hundreds and thousands of millions a year. There is not a firm spending a large sum in advertising which would be deterred from advertising by a shilling in the £ in the shape of a Government tax. I pressed it very much upon the late Chancellor of the Exchequer, and he said that France did not reap a very large harvest from her taxation of advertisements. But the French tax on advertisements is only in respect of hoardings, and even then they have nothing like the hoardings we have in this country. The advertising in circulars and newspapers to-day amounts to millions. A tax would hurt nobody, and would not affect trade or industry, and would bring in a huge sum of money. Let me trot out another of my old crocks—unclaimed bank balances and securities in the hands of bankers. I actually succeeded in getting a Committee appointed to consider that matter. When we got upstairs I found that the majority of the members were bankers who rather ridiculed the idea that there was any large sum available. We managed, however, to get some witnesses to admit there might be £12,000,000. I made a mental calculation that, if a man admits he has got £12,000,000, the probability is he has got more. The time came when we had to report. Four gentlemen met to draft a report to this House. Three of them were bankers. Notwithstanding that fact, they indicated that there was a certain considerable sum of money to be had. Let the Chancellor of the Exchequer give facilities to a fresh Bill which will be introduced on the lines of the previous one, and let him take a modest £12,000,000 to go on with, with an annual contribution in the future.

There are many other things I do not want to keep up my sleeve. Let there be a tax on betting and on every form of gambling. Continental countries reap huge sums in that way. In France the tax is called the "right of the poor," and they distribute the sum obtained among the poor, the hospitals, etc. There are a tax upon advertisements, a tax upon betting, the unclaimed bank balances, the premium bonds—that is enough for one year for the Chancellor of the Exchequer. Let him get on with that. Next year I will give him some more. I will give him now £2,000,000,000. That will help him very much and will not hurt anybody. I only want in conclusion to suggest with great respect to the House that this Amendment is one for which every Member, whatever his allegiance to his party ties, ought conscientiously to vote. We express our regret that, putting aside all War expenditure, making all allowances for the depreciation of money, our Budget to-day is twice as heavy as it was before the War, and we beg the Government to exercise the most rigid economy in public expenditure consistent with the efficiency of the public service. No one could object to that. You may say is a pious Resolution. It will have its effect. I do not envy the lot of any Member of this House who has to explain to his constituents why he did not vote for it. What can be his objection to it? What can be the Government's objection? I think the new Chancellor would be immensely fortified by it. He might say to the spending Departments: "Look at what the House of Commons says. We have got to do it, for that wretched House of Commons, after all, can be our master. We want to keep in office, we want to keep on friendly terms with Parliament. Parliament has told us to do this." Therefore, the Government would go forth fortified by this Resolution, and ration every public Department, and the new Chancellor of the Exchequer this day twelve months, when he comes down with his dry, dusty details, may find himself added to that roll of distinguished men who have made great names in connection with the financial administration of this country.

Major C. LOWTHER

I beg to second the Amendment.

Mr. HOLMES

The Noble Lord the Member for Hitchin (Lord R. Cecil) very truly said that this Budget was a conservative one. The Finance Bill contains few provisions for new taxation. In fact, the only alterations are in the way of reduction. If it were not for the provisions dealing with the abolition of the Excess Profits Duty which can best be discussed on the Committee stage, there would be very little in the Finance Bill itself to give rise to debate. I would ask the House to consider for a short time the recommendations which were made by the Royal Commission on Income Tax, those which the Government have already adopted and those which possibly they may see their way to adopt a little later on. It will be remembered that last year the Lord Privy Seal said he was including in the Budget a certain number of the recommendations of the Royal Commission, and that he proposed during the present year to introduce two Finance Bills, one of which would deal wholly with certain of those recommendations. That Bill was duly introduced, the Revenue Bill. It was put down for Second Reading. The night before the Second Reading was to come on nearly all the London evening papers contained articles attacking those provisions, and the following morning not merely the London papers, but the provincial Press, took up the same strain. By an alteration of the business of the House, the Revenue Bill did not come on for Second Reading that day. The agitation in the Press continued. Newspaper columns headed "Hunting the Taxpayer" were to be read, and attacks were made on the attempt of the bureaucracy to take away all the privileges of private people. In the end the Revenue Bill was withdrawn, and the newspapers who had conducted this agitation—which I think I am right in saying was entirely at the instigation of one rather able gentleman in the City of London—congratulated themselves that their efforts on behalf of the taxpayers of the country had been successful, and that an anxious Government had withdrawn the Bill. I suggest to the House that the reason why the Government withdrew the Revenue Bill had nothing to do with the administrative Clauses which were in it. If the Revenue Bill had come on for Second Reading the Chancellor of the Exchequer would have had no difficulty whatever in showing that those administrative Clauses were entirely to the advantage of the taxpayers and not in any way against them. In fact, in order to give the House an opportunity of considering this matter, I propose to put down the whole of the administrative Clauses which are contained in the deceased Revenue Bill as Amendments in Committee, and, if I am so fortunate as to be called by the Chairman of Com- mittees to move those new Clauses, the House will have an opportunity of considering the matter, and the Government will have an opportunity of giving their view, and I hope the result will be that they will become part of the law of the land.

I believe that the real reason for the Revenue Bill being withdrawn was that it contained a provision to abolish the three years' average. The abolition of the three years' average would have a serious effect upon the revenue to be derived by the Chancellor of the Exchequer for Income Tax and Super-tax for the year 1922–23. Under the present provisions the Chancellor for 1922–23 will collect Income Tax on the average profits made by a business in the years 1919, 1920, and 1921. But if the Revenue Bill had passed he would in 1922–23 have taken Income Tax on the 1921 profits only. As we all know perfectly well, the profits from industry this year are far below what they have been in the other years, and therefore the revenue to be derived in 1922–23 by Income Tax on the 1921 profits only would be very small indeed, and so the Chancellor of the Exchequer is going to maintain the three years' average and make all the business firms in the country pay on the average of 1919–1920 and 1921 instead of on the single year 1921. I can understand that from his point of view, but I want to ask the House and the Chancellor to realise what a serious thing that is going to be for the business firms of the country. You are going to ask them to pay, not on the profits which they are making at that time, but on the profits they made three years before.

Sir F. BANBURY

It comes right when trade revives.

Mr. HOLMES

Yes, that may be, but I am going to try to show that this will be one of the causes which will prevent trade reviving. I will do it straight away if I may. One of the reasons that caused trade to slump a few months back was that business firms were so overtaxed and had to pay so much into the Exchequer that they had not got the available cash left to buy raw materials and pay wages. We hope when this coal stoppage is ended and now that the reparations question is settled, trade here and all over the world is going to revive, and if at the end of the year trade is reviving the business firms of the country will require all the money they have to increase their supply of raw materials and to pay wages. If at that time they have to pay taxation, not on the rate of profits they are earning, but on an imaginary figure based on their profits during 1919, 1920, or 1921, you are going to take away from them and put into the Exchequer something that is very necessary if industry is to carry on. The fact is that the Chancellor of the Exchequer would be not merely taking Income Tax at the rate of 6s., but because he will be taking that tax on a higher rate of profit than is being made at that time, he will be taxing them at a much higher rate than 6s., or in a rough and ready way we may say he is drawing on the capital of the nation. That does not affect the current year. The Revenue Bill would not have come into operation until 5th April next year, and I hope the Chancellor of the Exchequer will consider this matter before his next Budget comes along.

5.0. P.M.

I now come back to the administration Clauses of the Revenue Bill. We were told that in 1842 Sir Robert Peel reintroduced the principle that the Income Tax should be assessed by the people themselves and that the Crown officials should merely survey the securing of the proper amount of taxation reaching the revenue. That is the law as it stands to-day, that by means of assessors and unpaid commissioners and collectors the people of the country are supposed to assess and collect their own income tax. The Government officials who formerly were known as surveyors of taxes were merely supposed to survey the whole proceedings and see that the Government was not swindled. I want to ask the Chancellor of the Exchequer why he used in the Revenue Bill the words "Surveyors of Taxes." These gentlemen have been latterly called inspectors of taxes, and it will be confusing if we are going to have "inspector of taxes" used in practice when the Act of Parliament uses "surveyor of taxes."

We have in this country 650 bodies of unpaid local commissioners in England and Wales. The administration in connection with the Income Tax is carried out by them according to law with the help of their clerks, assessors, and collectors. I say according to law advisedly, for in practice nothing of the sort occurs. The local commissioners, except so far as matters of appeal are concerned, carry out merely formal duties. The assessor and collector, who is usually the same person as a rule, sends out forms and collects them, writes up books, and presents them to the local commissioners, but, as was said before the Royal Commission, as a rule he merely acts as a sign-post to the surveyor. In only three towns are there full-time paid assessors, while in the remainder of the country the assessors' work is merely a side occupation, and they have other duties to perform. But while the surveyor of taxes is supposed to be merely a supervisor on behalf of the Crown, for many years he has done all the work, and if he had not the machine would have broken down. The assessors generally had not a sufficient knowledge of Income Tax law to carry out the duties which they are supposed to perform, and they have never been the friends of the taxpayer, not because they were not desirous of being so, but because they had not the knowledge. The surveyor of taxes has been a general "guide, philosopher, and friend" all round.

The surveyors are whole-time officials trained in Income Tax law and practice and able to deal directly and without formality with the taxpayer who cannot cope with the intricacies of the system or face the uncoordinated local bodies which meet occasionally in formal session. To use common parlance, the surveyor has "run the show" for many years with a tact, politeness and patience worthy of the highest praise. During the War they had exceptional duties to perform. They had thrown upon them the munitions levy, the Excess Profits Duty and the Coal Mine Excess payments, and now they have to deal with the Corporation Profits Tax. The provisions of the Revenue Bill which I propose to put down as an Amendment to this measure are to legalise the actual practice which has been going on for many years. No destruction or weakening of the safeguards is suggested. The General Commissioners and the Special Commissioners will still be the appellate bodies. That is the work which they have done thoroughly well in the past, and no suggestion is made that they should be removed from that position. The taxpayer will have the right to appeal to these bodies against any assessment which may be made against him.

One of the new Clauses will provide that certain specified assessments shall not go to the General Commissioners, and that is Clause 8 which deals with all assessments under Schedules A, B and D, the amount of which does not exceed the amount returned for assessment or is computed from accounts furnished by the taxpayer or does not exceed the amount of the assessment made for the previous year in respect of the same source of profits or income. The reason for not sending them to the General Commissioners for assessment is that they are usually local business men, and if a taxpayer does not desire that friends, enemies or trade rivals shall know all about his affairs he will under this provision have the right to settle his affairs with the Surveyor of Taxes and not let his business go before the local business men. It is entirely in the interests of the taxpayers and not against them. It is a pernicious system which allows certain local persons to have access to the statements of other people's income. These recommendations of the Royal Commission I think are satisfactory as making for efficiency and economy and fairness.

There were one or two other recommendations made by the Royal Commission which were not included in the Revenue Bill, concerning which I want to ask whether they have been abandoned by the Government or whether they will be introduced in the future. The first was the suggestion that casual profits should be liable to Income Tax. The House will remember that the first rule of Schedule D begins: Tax under this Schedule shall be charged in respect of (a) the annual profits or gains, etc.; (b) all interest of money annuities and other annual profits and gains, etc. The word "annual" is prominent, and consequently all profits that are not likely to recur annually are treated as exempt from Income Tax. Another way of putting it is that the profits which do not arise from transactions that do not form part of the ordinary business of the person who makes them are exempt from taxation. That is difficult to understand in our Income Tax law. The Royal Commission recommended that any business transaction for profit making should be taxed. That makes it easy to distinguish between transactions for investment purposes and transactions which are for profit making purposes. Of course, if losses were made on the other side they would come in as a deduction. Then there is the question which was a recommendation of the Royal Commission, and which the Inland Revenue believed was already established under the law, for they went as far as the House of Lords in regard to it—I mean the payment of dividends and interest by means of the distribution of bonus shares. This refers practically only to Super-tax. Company A pays £10,000 in cash and the recipient is liable to Super-tax. Company B pays £10,000 in bonus shares and no Super-tax is payable although he might sell the shares on the market. The Inland Revenue fought this case and lost, and it is a recommendation of the Royal Commission that bonus shares of that sort should be liable to tax. It does appear to me that opportunities are given for avoiding Super-tax by not making this part of the law of the land.

I want to ask the Chancellor of the Exchequer whether he is not going to recommend to the House the adoption of the Royal Commission's recommendations with regard to the prevention of evasion? The Royal Commission made two particular recommendations on that point, and one was that the taxpayer should be obliged to state whether he keeps books and that the Schedule D Return Form should require a copy of the taxpayer s own calculations showing how the amount returned had been arrived at, and that accountants furnishing accounts for clients should give a certificate, and any returns should be properly signed by the responsible people in either firms or companies. A further recommendation was in regard to calling for the accounts to be properly produced by the taxpayer, and there was a recommendation that the penalties for evasion should be increased.

The point I want to put is that this is a question of safeguarding the other taxpayers of the country and it is not for safeguarding the Chancellor's own position. When the Chancellor of the Exchequer prepares his Budget he sees that he needs so much revenue and the Income Tax is probably the last thing he considers. In the first place he finds how much his other taxes are likely to realise and looks to the Income Tax for the balance. Supposing the Chancellor of the Exchequer requires £600,000,000 from the Income Tax in any one year. If the range of taxation can be widened to bring in more people the rate at which he can tax everyone will be less, so that in preventing evasion and widening the range of taxation he is safeguarding the interests of the other taxpayers, and not in any way affecting his own. It was suggested in the Report of the Royal Commission that £1,250,000 had been brought in during 1917/18 in respect of previous years and it was suggested that these were evasions which in some way or other had come to the knowledge of the Surveyors of Taxes in various parts of the country. I do not think their conclusion was right. It very frequently happens that a man receives special fees or commissions after he has made his return; he may have been elected a director of a company and thus had his income increased, thereby entailing a fresh assessment. Therefore the sum is due not so much to the discovery of evasions, as to the causes I am suggesting. I want to urge this recommendation on the Chancellor of the Exchequer, in the interests of all taxpayers, especially having regard to the fact that business men have got accustomed to rendering their accounts, and in the ordinary way send copies thereof to the Surveyor of Taxes, a custom which has caused the disappearance of the objections they formerly entertained to giving information to the Surveyor, and especially, too, as so many of the businesses are now company businesses and not carried on by private individuals. My last point is this. The Memorandum attached to the Revenue Bill stated that urgent problems relating to the question of double Income Tax within the Empire were dealt with under the Finance Act of last year. I want to remind the Chancellor of the Exchequer that when that Bill was in Committee the hon. Member for Wimbledon and I called attention to a case in which judgment had just been given in the House of Lords, and we pointed out that the Finance Act of last year rode rough-shod over that decision. The effect of the Finance Act of last year was to give preference shareholders in companies which pay Colonial Income Tax a higher rate of dividend than the Articles of Association allow. The Lord Privy Seal then explained that the whole provision with regard to double Income Tax had been made after consultation with the Colonies, and he would not like to effect any change without further consultation. He said: The whole method embodied in the Bill was part of the agreement to which we came, and I do not think I can make any change at this stage of the Bill, or even this year; but I am ready to look into the matter again."—[OFFICIAL REPORT, 26th July, 1920; col. 1083, Vol. 132.] I want to ask the Chancellor of the Exchequer if he will follow that up and see whether an Amendment cannot be introduced into this year's Bill confirming the judgment of the House of Lords in that particular case, and in that way meeting what I believe is the wish of all companies that pay Colonial Income Tax and have preference shareholders. I am afraid I have occupied a considerable amount of time on these details, but there are a good many of us who would like to have from the Chancellor of the Exchequer an explanation of the views of the Government with regard to many of the recommendations of the Income Tax Commissioners.

Sir F. BANBURY

The hon. Gentleman who has just sat down made a strong appeal for the inclusion in this Bill of the Revenue Bill dropped by the Government. I do not think, at any rate as regards the proposals to do away with the assessors and to a certain extent with the duties of the General Commissioners of Income Tax, his appeal will meet with the approval of the majority of the people who pay Income Tax in this country. The hon. Gentleman said he did not intend in any way to interfere with appeals which went to the General Commissioners, but then he went on to add that, under certain circumstances, he would interfere with those appeals—

Mr. HOLMES

No, no.

Sir F. BANBURY

Yes, the hon. Gentleman said there were certain people who did not like their affairs investigated by the General Commissioners.

Mr. HOLMES

There is nothing to prevent certain assessments going on appeal to the Commissioners if the taxpayers so desire; it is only a question of certain assessments being agreed with the Surveyor and consequently never going before the Commissioners.

Sir F. BANBURY

At any rate it would be the thin edge of the wedge. The real reason why these changes were proposed is to be found in the anxiety to appoint more officials and to give more importance to existing officials. I admit I am a General Commissioner myself, and with all due deference to the hon. Gentleman, I say I do not think the work is going to be done as cheaply under his proposal as it has been done in the past. I thought the hon. Gentleman was going to allude to a matter on which he and I have worked together in past years. I want to draw the attention of the Chancellor of the Exchequer to Section 18 of this Bill. That, in my opinion, is very bad. It makes a tax retrospective. I am sorry the House is so empty at the moment. I want to draw attention to what is being contemplated by the Government under this Section. In the year 1843 an Act was passed, Section 122 of which provided that where a taxpayer found in any given year that his income fell below the amount on which he was assessed he should only pay on the reduced amount. Somewhere about the year 1908, when the present right hon. Member for Paisley (Mr. Asquith) was Chancellor of the Exchequer, a Clause was introduced into the Finance Bill doing away with that privilege. I objected to it at the time. I asked the right hon. Gentleman the reason for it. I pointed out that it had been in operation since 1843, and I wanted to know why he wished to do away with it. He replied that people were only just beginning to find out that the provision existed, and that they were taking advantage of it to the detriment of the Exchequer. Evidently it was a very just provision, and it ought not to have been altered. Somewhere about the year 1915 I managed to get the provision re-inserted in the Finance Act of that day, with this alteration, that it should only apply where the deficiency was more than 10 per cent. of the income. For instance, if a man's returned income was £3,000, and the actual income fell to £2,500, he obtained the remission; but if it fell to only £2,850 then he did not obtain it. Last year the Government brought in a Clause which repealed that provision, and the hon. Gentleman opposite and I opposed it, with the result that we thought we had succeeded in defeating the project of the Government, but on the Third Reading it was intimated to me that I had been mistaken, and that our proposal really had not repealed this particular Section.

Mr. HOLMES

I am afraid it was not quite so much in our favour. We actually put down a new Clause on Report, but that was defeated on a division.

Sir F. BANBURY

The fact remains, I do not know whether it is due to the Government not being quite so wide awake as usual, that the Clause did remain in last year's Finance Bill. I have the report of the case to which I have referred, deciding that the Clause was in the Act of 1920, and evidently the Government thought that it did so remain or they would not have deemed it necessary to bring in this Clause 18 to abolish it this year. The Government have, of course, a right to bring in a Clause to abolish anything, but they have no right to make it retrospective. The effect of this Clause is to impose retrospectively an additional tax. A large number of people have got this remission, and if we pass this Clause in this form they will have to pay an additional tax for the year which has just gone by. All the time I have been in this House I have opposed—always successfully I think—attempts at retrospective legislation. Legislation of that character in my opinion is absolutely wrong, but retrospective taxation is even worse. I think it would be a mistake in these days of heavy taxation, when people are unable to carry on their business on account of that taxation, not to give this remission. If the Government are going to take it away it should be agreed not to make it retrospective. It is a very bad habit of the Government—a habit which is growing—that when they are defeated in the courts of law they decline to take their defeat but bring in an Act of Parliament to alter the decision of the Court and to put themselves in the right. That is a practice which we ought to stop. This of course is a matter for the Committee stage, but I thought it advisable to raise it at the present moment in order that I should not have the unpleasant task of voting against the Government, or doing anything which they would dislike.

I want to call the attention of the House to the enormous taxation which is imposed by this Bill. I can confirm what my Noble Friend (Lord R. Cecil) said with regard to the detrimental effect of this enormous taxation on the industries of the country. The only thing the Noble Lord said with which I disagree was when he rather wandered from his subject and got on to the League of Nations. I have no faith in the League of Nations. I believe that "a strong man armed keepeth his palace." I rather objected to that part of my Noble Friend's speech in which he complained of the expenditure on the fighting services. In my opinion it is absolutely necessary that these fighting services should be maintained. I would like to call the attention of the House to a Paper issued sometime ago—a return relating to Imperial revenues for a certain number of years. I think it is a return of revenue and expenditure from the year 1819 to the year 1918, a period of one hundred years. In the last year before the War I find that the Civil Service expenditure, excluding Ireland, amounted to something like £41,000,000, and that of the Post Office to £17,268,000. According to the return issued this year, the Post Office expenditure was £67,000,000. It has grown up from £17,268,000 eleven years ago to £67,000,000, and, while we have to pay about £50,000,000 more, we are not to have any letters delivered or posted on Sundays. Apparently the more we are taxed the less facilities we get. That, in my opinion, is the wrong way about.

Then I see that the expenditure on the Civil Services amounts to no less than £327,503,000, as against £41,000,000 previously. That is where the economies ought to be. Unfortunately during and since the War, we have increased our Civil Service Departments and the number of our civil servants. We shall never get on to a safe financial basis until we begin by decreasing those Departments and diminishing the number of civil servants. It is no use saying, as has been said in the White Paper circulated with the Finance Bill, that orders have been given to them to exercise the most rigid economy. The orders ought to be that they should be done away with altogether, root and branch. Every Department that did not exist before the War ought to be scrapped. Unless that is done, we shall never get back to a position in which we can meet the expenses of the year without imposing upon the taxpayer a burden which he cannot bear. Even if we get back to an expenditure of £950,000,000 or £1,000,000,000—which I do not think is by any means certain—it is absurd to suppose that we can continue to carry that burden. Trade will not stand it. You cannot go on taking from people 10s. of every sovereign that they get—and in saying that I am leaving out altogether any provision for Death Duties. I believe I am not exaggerating when I say that in many cases, out of every sovereign that a man receives, including provision for Death Duties, at least 12s. or 13s. is taken from him in the form of taxation, and that is without allowing anything for local rates. The effect is that no money can be saved, and if you cannot save money you will not have any capital to carry on the industries of the country.

Therefore, it is absolutely necessary that the Government should wake up to the fact that they must, for inevitable economic reasons, abandon all their ideas of social reform, health ministries, the enormous increase in education, and every other kind of increase of expenditure which possibly in an ideal state, or if we had not been at war, might have had some foundation, but which, in the present state of affairs, has no foundation at all. Unless something of that sort is done, and done at once, we shall be faced with an enormous diminuation in trade and with the fact that people will not be able to pay those taxes. I believe there is no question that at the present moment a large number of people are borrowing from their bankers to pay their taxes. That cannot go on. It is absurd to suppose that these people are to be taxed in order to pay a civil servant double what he had before the War. What we ought to insist upon is, not that the Government should issue White Papers saying that Departments will be asked to diminish as far as possible their expenditure, but that the Government should commence forthwith by abolishing all those Departments which were created since the outbreak of war, and will reduce to the smallest possible compass the old Departments. To-day I had a letter from a solicitor in which he refers to what takes place on the sale of land. This is what he says: I am a strong opponent of all these ridiculous changes in the shape of Ministries and bureaucratic institutions. They are a curse to the carrying through of business. Only this morning I have received an intimation in connection with quite a small sale, from which it appears that some self-constituted official's assent is required some half a dozen times over in the matter of selling £300 or £400 worth of land. The sooner private individuals are allowed to carry out their business without these bureaucratic interferences, the sooner will this country begin to improve in its financial position, and not until then. That is a very sensible letter, and I commend it to the Financial Secretary, who, if he had been sitting on the other side of the House as he was two months ago, would have cheered my observations to the echo.

Sir DONALD MACLEAN

The subject before the House this afternoon is one in which I, with many other hon. and right hon. Friends, have taken since the commencement of this Parliament a very deep interest, namely, the question of State economy. I join with my Noble Friend (Lord R. Cecil) and my hon. Friend (Mr. Bottomley) in expressing our appreciation of the fact that, in the Memorandum issued to-day as a Parliamentary Paper, we have a repentance of sorts. Late though it may be, it is distinctly welcome, as showing that the Government is at last awake to the agitation which has been continually developed, at any rate from this side of the House, from the very start of this Parliament, as to the urgent need of economy in our national finance. Some sentences in the Memorandum might have been taken from some of the speeches which have been made from time to time from this side of the House—

Sir F. BANBURY

And this side also.

Sir D. MACLEAN

From both sides, and especially from the seat which is occupied by my right hon. Friend. The real point of criticism which I and others have against the Memorandum is not its pious aspirations, but its complete lack of practical grip and determination in regard to the present situation. After stating that the revenue in 1922–23 is not likely to exceed £950,000,000, and that there will be for debt charges alone a total of no less than £465,000,000, it goes on to say that, making allowance for other special services which are indicated, there is a balance of £485,000,000 for all the ordinary supply services. But it goes on to say that the Estimate for these services for this present year is £603,000,000. I am quite certain that if those of us who are business men were dealing with our own affairs and were faced with that actuall position, what we should say would be, not that we would deal with it in 1922–23, but that we would deal with it here and now; that we cannot wait until we get departmental reports about what might be done in 1922–23, but that we would get the heads of our Departments before us and point out to them that the position is so serious that not only shall we be unable to pay a dividend, but we shall be unable to pay our creditors—that we cannot raise any more money by the ordinary means, and that our only way of saving our business is to cut down expenses. The best form of taxation that the Government can go in for now is economy. That is a very old maxim. It goes back to the days of Rome. It was laid down by the financiers of those days, and here it is as fresh and necessary as ever it was.

Sir C. KINLOCH-COOKE

Can we have the name of the financier?

Sir D. MACLEAN

This Circular is nothing more than an elaboration of what the Prime Minister said nearly 18 months ago when he circularised the various Departments. He wound up with these words: If they cannot reduce expenditure, they must make room for somebody else who can. That is the public temper, and it is right. Admirable as those words were, however, I find nothing in this Circular but a hope that in 1922–23 we shall be face to face with a real reduction in national expenditure. I intend to vote for the Amendment which is now before the House, and I hope that everyone else who really means business will do the same.

Mr. BOTTOMLEY

They will not.

Sir D. MACLEAN

Of course they will not. The aspect of the House is in itself sufficient evidence of what the House really means by economy. This is one of the most important subjects that we can possibly have before us, and the Benches are just as empty as they always are. This is no new phase. Right through this Parliament there has been the same absence of Members from these financial discussions. What is the good of Members going down and making speeches on their platforms and writing letters in answer to their constituents, saying that of course economy ought to be enforced? You can only enforce economy on the Government by voting against them. It is not the least use talking about it; you must vote against them. We want to get them really to come down to business. The situation at the present moment is so serious that only drastic methods of that kind will be of the least avail. The strike is not yet ended. Suppose that by good fortune—let us hope it may be so—the miners by the end of next week determine to go to work again. What is going to be the position? Weeks must elapse before the industries of the country can commence to do business once more. We are face to face in all that remains of this year with an industrial position which will not produce revenue for the Government anyhow, and the hopes of the Chancellor of the Exchequer of revenue amounting to £900,000,000 cannot be realised. That money cannot be raised this year. People cannot pay it. I make that prophecy with the most profound regret. You cannot raise taxes out of money and income which are non-existent. The right hon. Baronet (Sir F. Banbury) said just now, what I know of my own personal knowledge to be the case, that business men all over the country are going to the banks to arrange further overdrafts to pay their taxes, and I know of instance after instance where the banks have refused it to men whose record is impeccable in all financial respects. The money the Government hoped to raise in their Budget estimate cannot be fulfilled this year. That being the case, what is the use of producing a Circular which hopes that in 1922–23 reductions will be effected? That is not business at all and it must inevitably lead to disaster.

I think the Financial Secretary to the Treasury must have taken an active part in the production of these useful papers. For the first time we have been placed in possession of a clear comparative statement of figures in a form which I find extremely useful. Following up a point made by the Noble Lord (Lord R. Cecil) on the subject of the expenditure of the Government on the fighting forces, I should like to draw attention to figures which are positively staggering. With all the interest and attention which I have paid to them I was not prepared for the total. Taking the Army first and the years 1919–20 and 1920–21, and the estimated expenditure for 1921–22—which exclude, of course, the years of the War and bring in only the expenditure which is authorised by this present House—there has been and is estimated to be spent £860,273,000, compared with an estimate of the previous years which certainly would not have amounted to more than £120,000,000. Taking the Navy for these same three years, there has been an expenditure of £384,724,000, while the Air Force amounts to £56,000,000, £25,000,000, and another £19,000,000. The total in these three years on the fighting forces only is £1,345,847,363. How can the country stagger along under such a burden? It is impossible. We cannot be arming against Germany, France, Japan, or America. They are quite out of the range of belligerents. Whom, then, are we arming against, and, if we are not arming against the nations I have named, for what is the money being poured out? In the Civil Services we find the same story. I have not had time to pick the figures out, but I hope hon. Members, the country, and the Press will take this return and study it, and see what the actual position is. I have been quoting the gross figures. I will give the hon. Gentleman the odd £345,000,000, if he likes, for Appropriations-in-Aid. Many of them are really nothing but savings in one Department which, if made, should have fallen into the general Exchequer and not been applied to a reduction of the cost of these services. But there it stands, a ghastly monument of gross extravagance and unforgiveable carelessness. And what is the result of it? It has produced this memorandum for 1922–23. We know what a circular has produced before. The Prime Minister himself has said that if they cannot reduce expenditure they must make room for someone else who can. How many of the Civil Service have gone?

Let me turn back again to this admirable return. In the year 1914 we had 278,000 civil servants. On 1st April, 1921, the War having ceased in November, 1918, we had still 366,894 civil servants and staffs of Government Departments. The only reduction they succeeded in making in all those years is one of 51,000. That is the test of what the Government really are doing. Over and over again it has been said from this box that if you reduce the staffs of Government Departments, if indeed you abolish the Departments, all the result is that they go into some other Department. What the country is demanding is that there should not be mere circulars issued, but that economies should be dealt with in such a manner that from the top to the bottom of every Government Department they should know that unless economies are effected they will go. I am quite certain that when the country has a chance of dealing with those who have been unfaithful in this matter, irrespective of which side of the House they sit on, they will go too. There are many political issues before the country at present of deep and vital importance, but there is no issue which so deeply concerns the people as this one. It may not be very ideal, but that is the fact, and no one who goes about the country with his eyes and ears open can come to any other conclusion than that. Of all the record of failures of this Government, and they are great and many, this is the one in which they have most grossly failed, and the one in which they could have made, if they had) attempted it, the greatest success.

Mr. WATERSON

In listening to the speech of the hon. Member for South Hackney (Mr. Bottomley), I was rather puzzled as to whether he was speaking to the terms of his Amendment or whether he was speaking in support of the Finance Bill. The matter that he laid before us in order that we may come to some decision was certainly of such a weak nature that something more convincing will have to come forward from his friends if he is anxious to get much support from the House. He complained very strongly as to the terrible amount of the Budget. We shall all agree that economy must take place. But he failed to put before the House where the economy should be made. The right hon. Gentleman (Sir D. Maclean) has very well suggested one or two places at least where such economy could take place. The right hon. Baronet (Sir F. Banbury), who is not extremely optimistic as far as the future of the League of Nations is concerned, was something in the same category as the hon. Member for South Hackney. Whilst they were prepared to condemn the Government for its vast expenditure upon many things, they failed absoluely to tell us where economy should take place. We who represent the working-class thought and aspirations to the best of our ability are anxious to know what these Gentlemen are prepared to submit in their demand for economy. If it is that economy should take place in connection with the forces and powers that make for the devastation of life and property they may rest assured that from this side of the House they will have hearty support, but as the right hon. Baronet has mentioned that education and social reform must not go forward, we feel, because we know the conditions of many of the toiling masses of the country, that we cannot allow economy to take place in that direction, because in our judgment it is really false economy. My Noble Friend (Lord R. Cecil) desired to press home to the House the point of economy. The House ought to appreciate the point of view that he expressed relative to foreign policy. He very wisely said, and perfectly correctly, that our foreign policy reacts at home. If only the Government could see its way clear to stir up interest in the hearts of the British people, and a firm belief in the establishment and realisation in the League of Nations, just as they have placarded the walls in order to defeat the miners, it would be money well spent.

6.0 P.M.

We had a Budget introduced by a new Minister or, rather, by an old Minister in a new office. Although it is a new Budget it consists of old measures. It is a Budget coming within the scope of two men, but composed of old measures that have appertained to Budgets of many years. There has been the usual playing with taxes on cigars and sparkling wines, which do not in the least disturb the equanimity of those who have done very well out of the War. Those taxes do not cause them to have one hour's less rest because they have either reduced or increased the consumption of those articles. One had hoped that the Government would have brought forward some scheme, in the third year after the War, to relieve us from the great millstone of debt which hangs round the neck of the nation. I remember a speech being delivered in this House by my hon. Friend the Member for South Hackney (Mr. Bottomley) two years ago, when he said that it could not be expected that the people of the present age should bear the entire burden of the late War. Evidently it is his opinion that posterity should find the necessary wherewithal for what one might term the sins of the present age. It would be wiser to make a bold bid and a courageous attempt to remove the deadweight of debt by a quicker and more lightning process than we have hitherto experienced, and one regrets that the Government has not considered that question. The Budget is not relieving the already hard-pressed one iota. In looking through the OFFICIAL REPORT I noticed that on the 24th April last my right hon. Friend the present President of the Board of Trade in reply to a question said that in 1919–20 the estimated tax revenue derived from England and Wales amounted to a contribution per head of the population of £22 13s. I ask the House to consider the effect of that taxation upon people who to-day are suffering from indirect taxation and are unemployed. It is certainly a crushing burden upon the toiling masses, who so long as the present system of taxation is in operation will have to carry the greatest burden. One had hoped for great things from the new Minister in devising some new methods for removing the great millstone of debt from our necks, but I am afraid that we have looked into the darkness and we are now lost in the haze.

It is admitted that tea and sugar are articles of every day necessity in the home, and from the taxation on these articles the Government is deriving vast sums of money. In looking through the statistics of one firm of this country I noticed that out of a trade of £15,269,734 they have paid duty of £3,491,951 which, roughly speaking, is a tax of 10s. per cwt. In tea duty they have paid £1,777,661 on a turnover of £5,453,557, so that 2½d. in every shilling goes in taxation so far as sugar is concerned and 3½d. in every shilling goes in taxation on tea. There are many people to-day not only in the middle classes but in the poorer classes who cannot make ends meet, and they have to live practically on tea, sugar, and bread, and these people are taxed to the vast amount I have mentioned. That is extremely unfair, because there are other classes in the community who could pay the tax far easier. Looking through a table dealing with indirect taxation and how it affects the cost of living, I find that in 1914 the indirect taxation upon food was £10,903,000 and in 1921 it was £53,300,000. In 1914 the taxation upon drink was £43,268,000 and in 1921 it was £209,870,000. Take tobacco, which is well used by the working classes. In 1914 the Government derived £18,263,000 in taxation upon tobacco, and in 1921 they derived £66,100,000. There was no enter- tainments tax in 1914, but to-day the Government are receiving £11,000,000 from that indirect source of taxation.

I want to draw the attention of the House to a class of people who are hit very hard. I refer to those people who may be at the moment enjoying an income of between £600 and £800 a year. Many of us feel that the Income Tax basis acts unduly hard upon such people. Some of us believe that there ought to be a more graduated system of Income Tax. The minimum upon which a man can clear himself so far as taxation is concerned is well known. Above that amount, say, up to £1,000 a year, why could not there be an ascending scale, say, of £200 steps, and instead of a man being suddenly taxed at 6s. in the pound Income Tax we might proceed by £200 steps by a graduated tax scale of 3s., 4s., 5s., and 6s., until the Super-tax is reached. That would remove hardship on a goodly number of people known as the middle class, and in the long run it would be a paying proposition for the Government to accept. I regret that the Government has not introduced in the Finance Bill some relief for the widower. Last year they were good enough to make an allowance to a widower who had a relative looking after his home and his children, but the widower who was not fortunate enough to have a relative but who had to employ another person to act as housekeeper was not allowed exemption. I think the House will agree that that is a hardship. If a person is called in by a widower to look after his children—children are an asset of any nation and should not be neglected—there should not be this line of demarcation that was set up by the Government in last year's Budget.

If we are to have an adequate idea of the burden of the taxpayer we must turn to the estimates of revenue of £1,058,000,000 and the estimate of expenditure of £974,028,000, which leaves a surplus of £84,437,000 for contingencies. That surplus, according to past experience, is subject to charges not yet ascertained, If we trace these figures and how they are derived we shall have some idea as to the burden which is going to fall upon the taxpayer. In addition, there are the loans to Allies and Dominions, and the money owing between ourselves, France, Russia, Italy and America. On this side of the House we have suggested for several years a way in which this heavy load could be removed. The House has repeatedly turned down the suggestion of a capital levy, but we still feel strongly that a capital levy should be adopted. If the House will not have a capital levy, I ask whether it will consider the advisability of accepting its own Committee's Report, the Committee which was specifically set up to deal with the question of war wealth taxation. It will be remembered that on the 8th of June last year the House talked upon this matter because a Motion had been tabled by one of my hon. Friends.

My right hon. Friend the Member for Peebles (Sir D. Maclean) gave startling figures as to the cost of the Army, Navy and Air Force during the past three years. I may refer to the figures which came before that Committee which were given by Inland Revenue Authorities and were of such a startling character that this House cannot go on much longer repudiating the statements and evidence given on that occasion. These figures given not by outside authorities, but by Inland Revenue officials have not been repudiated. We were told that war time increases of wealth amounted to something like £4,000,000,000, and that 70 per cent. of that £4,000,000,000 belonged to 1 per cent. of the population. We were also told that during the War period 280 persons added an aggregate of £200,000,000, or an average of £700,000 each, to their fortunes; 200 persons added an aggregate of £64,000,000, and 565 added an aggregate of £129,000,000, or an average of £230,000 each. In addition, 80,000 people came up from below the £5,000 limit. The number of people at that time whose capital was between £3,000 and £5,000 was put at 170,000. Compare with these figures the conditions prevailing according to the Government report in 1908–09. At that time 12 persons in every 100 took half of the national income, and two persons in every 100 took two-thirds of the whole accumulated revenue.

I have enumerated some points of the Budget in which I have been interested with the view of giving the Government some idea as to the class of Amendments which may be drafted, and which will have to be debated at the proper time, but I feel justified in saying a word or two upon the Corporation Profits Tax. During the Debate 12 months ago I had the audacity, I believe the Prime Minister would say, to foreshadow what the result of the Corporation Profits Tax would be. The Chancellor of the Exchequer last year provided in his Estimate for £3,000,000 from that tax. The result was that £650,000 came in. We have a right to know from the Chancellor of the Exchequer what is the reason for having such a large estimate foreshadowed with such a small result, and also how can he justify the estimate of £30,000,000 as the produce of this tax during the current year. One could reiterate this afternoon almost every argument which was used against the tax last year, but it would be unwise and unjustifiable, but in dealing with this question I may refer to the conclusion of an eminent lawyer's opinion, because it affects the application of this tax to the co-operative movement in this country: The Corporation Tax, as a whole, is undoubtedly open to the objection that it is a species of Income Tax which falls even upon the smallest income without any possibility of its being recovered by those whose incomes are below the exemption limit; but the members of co-operative societies appear to have a ground for objection which goes beyond that of the small shareholder in a company. The shareholder contributes capital on which he receives a return which has been earned by the capital. The members of a co-operative society who invest money in that society are paid interest which is contributed by themselves in accordance with their mutual arrangement, and there appears to be a fundamental distinction as between the two cases. I expressed regret during the discussion on Ways and Means that the Government were re-introducing this tax this year. It is well known that many business firms are complaining bitterly of the attitude of the Chancellor of the Exchequer in this respect, because they regard it as a sinister blow to industry. I express regret not only for myself but on behalf of 4,500,000 individuals in the country. I suppose that the Chancellor of the Exchequer's Department has been rather busy with the various forms of protest in this matter which the Department has been receiving from these particular people. There is in our minds no room for doubt as to the ostensible object for which this tax has been deliberately forced upon a band of mutual traders. It is apparent to any of us who have given any serious thought and attention to it. The co-operative movement, it has been said, usually goes completely free of taxes. I do not think that the Chancellor of the Exchequer would put up an argument of that kind, because it is totally untrue. Even if it could be argued that the tax might fairly be applied to various corporations registered under the Companies Act, still it would be grossly unfair to levy that tax upon mutual trading societies which have been established under the Industrial and Provident Societies Act. The ramifications of such societies are entirely different and their construction is entirely different from that of any private company in existence. The whole of their operations are on a different principle. Private companies exist for the specific purpose of private profit, whereas these organisations are established for the ostensible object of mutual help and not for private gain.

The President of the Board of Trade (Mr. Baldwin), when Financial Secretary to the Treasury, stated last Session that he hoped at no distant date that this tax might take the place of the Excess Profits Duty, but if the Excess Profits Duty is to be a jumping-off ground for the imposition of the Corporation Profits Tax then you must logically exclude the co-operative societies from the scope of this tax because they are not profit-making associations, and if we are to compare the results of co-operative trading during the War with those of private companies and private trading organisations, I suggest that greater benefit has been given to the country by the co-operative movement than was rendered by the private trading organisations. I hope when the Debate on the Clause takes place to get the opinion of the House that this Corporation Profits Tax should not be applied to co-operative societies. In our opinion it is an illegal practice and is not logical. We do not ask for any privilege or preferential treatment, but simply for justice and equity. Income Tax is based on income and cannot be based on the savings of an individual, and Income Tax should be applied to individuals according to the amount of their income and not because of their membership of an association with the ostensible intention of giving mutual help. Mutual trading associations have always been exempt, and it is to be regretted that only twelve months ago that old principle was violated. Therefore I hope that the Chancellor of the Exchequer will see his way to let us know first why the Corporation Profits Tax brought in such a small amount during the past year and also how or where does he expect to get £30,000,000 from this tax during the present year. I trust that he will also give us satisfaction so far as the co-operative movement is concerned by standing by the majority of his predecessors and exempting the co-operative movement from the operation of this tax.

Sir WILLIAM PEARCE

I confess that the balance sheet of this Budget gives me a great deal of anxiety. Before I deal with it I wish to refer briefly to the remarks of the last speaker. I do not think it is quite realised how much education costs the country. It comes home to me because in my early days I happened to be associated with a non-provided school. In those days we used to charge a 6d. fee and we got a Government Grant equivalent to about 6d. per week. The 1s. covered the cost of education in the school. To-day every child who goes into an elementary school costs the Government and the rates 6s. per week. I do not think the working classes realise the expense that our system of education entails. I am not for a minute suggesting that it should be reduced, for nobody puts a higher value on education than myself. If the working classes realised what the cost was it would, perhaps, do something to reconcile them to paying taxes on tea, tobacco, and sugar. I have said that I feel extremely anxious about the balance sheet of the present Budget. I was anxious when the Budget was introduced, and I do not think that the situation can by any means be said to have improved since then. In fact, it is very much worse. I am inclined to think that the expenditure of the Government is likely to go up and that the receipts are likely to be less. When the Budget was introduced I said that the most astonishing feature of it was that the Government should expect to raise £1,000,000,000 out of the taxation of a country which was passing through the most desperate financial crisis within the memory of anyone in this House. To-day every industry is fighting for its life. It was a great tribute to the resources and the capacity of the country that the Government should even have imagined that they could raise £1,000,000,000 in taxation.

Let us look at the figures. On the receipts side Customs and Excise stand at £323,000,000. Those receipts must depend on the purchasing power of the population. I have been in works in London to-day. Some are closed and some are working only 30 or 40 per cent. of their full time. The aggregate wages paid throughout the country must be very much reduced in the next financial year, and it follows as certainly as night follows the day that the recepits from Customs and Excise must diminish. Income Tax and Super-tax are estimated at £410,000,000; Excess Profits Duty. £120,000,000, and Corporation Profits Tax £30,000,000. It is all very well to estimate those figures, but will industry be able to pay them? To-day many industries are obliged to borrow from their bankers in order to pay taxes, and the situation is getting very much worse. People are not examining their accounts to-day to see how much profit they are making, but to see how big are their losses. Unfortunately, that fact is applicable to the whole of the country. It is the rarest thing in the world to find anyone who is an optimist with regard to the next few months, as far as the industrial position is concerned. I feel very strongly that I would not like to be responsible for the receipts side of this Finance Bill. Turn to the other side of the account. Railway agreements are put down for £30,000,000. We have heard of £60,000,000 having to be paid. I do not know whether it is to be paid this year or not, and it would be useless to know whether the £60,000,000 is to come into the present Budget. The deficiency on the Coal Account is given as £3,000,000. I should think that that is very far from the correct figure. The Ministry of Labour is down for £18,000,000. I should think that figure also is likely to be increased. I often wonder whether the House has fully considered what the Ministry of Labour is costing, how much it is likely to cost, and whether from a national point of view the money likely to be expended by the Ministry is worth while. Take Unemployment Insurance. It is not a very great resource for the working man when he gets it. If my recollection is right, the Labour party as a body voted against the Bill. At present you have 12,000,000 people eligible for unemployment benefit. That means that there are 12,000,000 cards to be kept. There must be an enormous staff, an enormous record office and an enormous amount of administration. Benefit is to be paid through the employment exchanges. That will mean employment exchange buildings throughout the country.

If we are ever to get back to anything like pre-War expenditure, ought we not to consider most carefully whether the Ministry of Labour can be afforded? After all, I am afraid I am very pessimistic. I hope I am not right, but if I am right in my prognostications, these are things that will make the Government economise. If expenditure is more this year and the receipts are less than anticipated, what are the Government going to do? I cannot imagine that they will have recourse to the printing press. Our debt charges to-day are nearly £350,000,000, and they are standing charges. It would be midsummer madness to go further into debt. If I am unfortunately right in my forecast and this balance-sheet turns out much less favourably than the figures indicate, that will perforce make the Government economise in many of the directions indicated this afternoon. I meet many people who are authorities in industry. The House hardly realises the depth and magnitude of the anxiety due to the present industrial crisis. It has been made much worse by the coal trouble. If the dispute continues, it will be not merely deplorable but will make one almost despair. I am not speaking from the miners' point of view or the mine-owners' point of view, but from the national point of view, the point of view of all of us. The position is bad enough at present, and if the coal trouble is not stopped the figures of our balance-sheet will be very much worse than the prognostications I have felt obliged to make.

Mr. FILDES

I must confess to a feeling of despondency at the lamentable inability of the Government to deal with the question of restricting expenditure. The Chancellor of the Exchequer has succeeded the Lord Privy Seal. It is within the recollection of the House that protests were made to his predecessor again and again with regard to the Excess Profits Duty. Those protests were for long ignored. Prophecies were made as to what would follow if the Govern- ment persisted in their financial conduct and those prophecies have already materialised. I am sorry that the Government seem to fail to appreciate the intensity of the feeling amongst the commercial classes in the country, and that the Government do not recognise the seriousness of the situation caused by the present enormous taxation. Our trades are being handicapped out of the competitive markets of the world. I would appeal to the present Chancellor of the Exchequer to take more notice of representations made to him by leaders in industry and commerce. I do not say from where the remedy is to come. I can only suggest to the Government that they should delay the infliction of this taxation upon the community, because in the present state of our industries we cannot afford to make the contributions that the Government are demanding. The Excess Profits Tax was a bad tax, and when Members of this House become fully acquainted with the details and the incidence of the Corporation Profits Tax they will be surprised. The Corporation Profits Tax is a hopelessly bad tax from every point of view. It places one class of investor at an advantage as against another class of investor. It strikes at the man who is dependent for his dividends on the proceeds of an ordinary share and places in an armour-plated position the man who takes least risk in a business enterprise. I have no sympathy at all with the points raised in regard to the Corporations Tax and the co-operative societies. The co-operative societies should pay a greater contribution than they do at present to the finances of our country. I again appeal to the Chancellor of the Exchequer to consider more seriously than apparently he has done the serious state in which the industries of the country have been placed largely by the extravagance and the folly characteristic of many of the things the Government has been responsible for. We must leave our industries with more money to play with. The Government have been bleeding the trade of the country white, and it is no exaggeration and no figure of speech to say that scores and hundreds of manufacturers and merchants in this country have been borrowing money from the banks to pay taxes. When money is handed over to the Government in cir- cumstances like these, I submit the expenditure of that money should be subject to the most sedulous consideration and care on the part of the Government. I do not like the flippancy and the indifferent aspect which characterises the Treasury Bench when these matters come up. They are serious matters, for the future of the country and the future of the whole of the working classes depends upon the view the Chancellor of the Exchequer takes, and the courage with which he is going to say, "I am going to be master in my own house; these expenses must be cut down, or the Chancellor will resign." I believe he would have the country behind him if he would deliberately say he was going to resign rather than be a party to bringing upon this country what I regard as a great disaster, and the ruin of many of our industries.

Mr. WISE

I have not had the opportunity of being in the House during the whole of this Debate, and I do not know whether the letter which appears in the "Times" to-day from Lord Inchcape has yet been referred to. It is a very important letter, and the writer is a very important business man. The letter is headed, "Where are we going?" "Sequels to Industrial Paralysis," "Exports and Employment." The gist of the letter is that our imports and exports, compared with the pre-War days and reducing the prices to pre-War figures, have gone down considerably. Ours is a peculiar country. Our country lives on its exports, and you cannot compare it with any other country in the world. Some hon. Members have compared it to France and Italy and even Germany, but we are dependent on our exports, and any small interference with our exports must damage our industrial trade. There has also been published an appeal by bankers of the United Kingdom. That appeal is fairly long, but there is one very important passage in it which states: The burden of taxation can only be lightened if the necessity for public economy is resolutely faced. The present rate of national expenditure threatens to cripple the country's resources, and impair its credit abroad. In our judgment it is more than the commercial community can stand, more than the capacity of the nation can afford, and more than, when proper economy is effected, the nation need he asked to sustain. That letter is signed by the principal bankers in the City of London, and the Government should take notice of it. These are the traders. These are the people we depend on to get our taxation. We all agree that the coal crisis is bad, but I have had an opportunity of meeting one or two people connected with the steel industry in the North of England, and what was far worse than the coal position itself was their hesitation as to whether or not, when the coal dispute was over, these steel works would start again. With regard to the external debt referred to by the Noble Lord the Member for Hitchin (Lord R. Cecil), I consider at the moment the external debt involves a far bigger policy than the internal debt, and a policy which should be settled. I contend we are in the hands of the United States of America, and if some scheme could be drawn up whereby a favoured nation commission either on securities or exports to America would be given to manufacturers or investors, it would be a benefit to our country, because it would help to pay off our large indebtedness to America. I should like the Government to consider something of that nature, either in the shape of freights on the manufactured goods, or in the shape of commission on securities. I also expressly draw their attention to the letter of Lord Inchcape, and to the manifesto from the bankers of the City of London.

Mr. W. GRAHAM

As the Chancellor of the Exchequer may be replying early in this Debate, I have no desire to detain the House unduly in the discussion of the Finance Bill now before it. After all, in the Committee stage of the Bill we shall get an opportunity of directing attention to all the particular changes which we wish to see introduced, and I therefore propose to confine myself to two broad aspects of the Finance Bill, and to suggest that this is an occasion on which the Government should do something to meet the case we are trying to present from this side of the House. The first matter to which I desire to direct attention is the structure of the Income Tax, and in the second place I propose to say something about the Corporation Profits Tax and its incidence as regards co-operative societies. Taking the general question of the structure of the Income Tax as laid down by the Finance Bill which we are now discussing, and as amended within recent years more particularly since the Royal Commission made its Report, we have in this country married couples with, say, three children who are entitled to the usual exemptions and abatements and who may enjoy an income of very nearly £400 per annum before they are liable for a copper of Income Tax at all. All hon. Members will agree that is a very striking state of affairs, having regard to the existing condition of national finance and having regard to the importance which is rightly attached to direct as opposed to indirect taxation. While we recognise that the Government undoubtedly adopted many of the immediate proposals of the Royal Commission on Income Tax we still feel that the structure is capable of very great improvements.

I am going to suggest two propositions with which hon. Members will probably agree. First we should try to make the payment of Income Tax as easy as we possibly can for the earning section of the people—that is the section of the people who have limited incomes, and require for the most part to earn them—and secondly we should be perfectly sure that we are getting all the revenue under the tax to which we are entitled in law, according to the general scheme of the taxes of this country. If we take the case of the range of incomes between £400 and £2,000 per annum it will be agreed that covers a very considerable section of the British people and it covers that section which is carrying the burden of the work and the enterprise in many of the things upon which this country primarily and mainly depends. More and more as we examine the exemptions and abatements in this range of incomes, we come to the conclusion that there is not to begin with sufficient differentiation between earned and unearned income, and in the second place we do not make the full concessions we ought to make for people within that range or scale of income in this country. I am going to plead with the Chancellor of the Exchequer for some reconstruction of the abatements or the general incidence of the Income Tax between £400 and £2,000 per annum.

7.0 P.M.

The other point to which I wish to direct attention is far more important. Many hon. Members say that so complete and so perfect is the Income Tax machinery of Great Britain that from year to year we lose very little of the revenue to which we are entitled. What are the real facts? The Income Tax surveyors—who are perfectly impartial in matters of this kind—in giving evidence before the Royal Commission said that, in their judgment, during about four years of the War, in Income Tax, Super-tax, and Excess Profits Duty, this country lost at least £100,000,000 to which it was entitled as the law stood from time to time. That estimate of evasion and loss was regarded as a very moderate and conservative estimate by every student who had applied his mind to this problem. Not only that, but excluding for the moment the immediate exceptional circumstances which existed during the War, chambers of commerce and other authorities on Income Tax, both from the point of view of the business community and from the administrative standpoint, have suggested that we were losing anything between £5,000,000 and £10,000,000 per annum. The loss of a sum of this kind is not one which the country can bear at the present time, and, even if it were so, that would be an altogether irrelevant consideration. The really relevant consideration is to make perfectly certain that the people do their duty according to the Income Tax law. If they do not do that duty then there will be general agreement that an undue and unfair burden is imposed upon the honest section of the community who make fair returns and pay the tax for which they are liable. I know this is not a popular doctrine, but the Government, in my judgment, have run away from the proposals of the Revenue Bill. It would be irrelevant to argue the proposals of that Bill this afternoon, but it is relevant to plead that we must adopt at the earliest possible moment the safeguard of the improved methods in the collection of Income Tax which the Royal Commission laid down. It is very important that these improvements should be introduced at a time when large sections of people, especially up to £2,000 per annum, are finding it very difficult indeed to meet the Income Tax demand. I therefore hope that the Chancellor of the Exchequer will be sympathetic in his attitude towards the request made by the hon. Member for North-East Derby- shire (Mr. Holmes) that he should incorporate in the Finance Bill, by way of an Amendment in Committee, the Clause which should have figured in the Revenue Bill relevant to this proposal, and which would give effect to the recommendation of the Royal Commission for the prevention of fraud and evasion.

The other point to which I wish to direct attention is the Corporation Profits Tax and its incidence on co-operative societies. Many of us on this side of the House never approved of the Corporation Profits Tax at all. I am safe in saying that the majority of the members of the Royal Commission on Income Tax would not recommend a duty of this kind. We come back, in all discussions on the Finance Bill, to abiding principles of taxation, and the principle on which there is hardly any dispute at all is that which lays down that taxes should be few and simple. The introduction of the Corporation Profits Tax was, in the judgment of many members of the Royal Commission, the introduction of nothing more than a refinement of Income Tax. It was the wrong time to multiply taxes. In any case taxes should fall as far as possible on results; that is, after business duty had been discharged there remained for the individual a balance or residue of which the State was rightly entitled, in the present circumstances, to take toll. The Corporation Profits Tax violates that principle. I think it is unnecessary, and all the revenue, amounting to a beggarly £30,000,000 as compared with £400,000,000 of Income Tax, could be obtained by a quite fair and quite reasonable readjustment of Income Tax and Super-tax which would be very much better than the introduction of this exceptional and additional device.

Coming to the narrow point of the application of this duty to co-operative societies may I make this very general statement to-day, in the hope that when the real conflict comes, as it will come in the Committee stage of this Bill, we may get consideration of a kind different from the consideration that was given to this subject in the House of Commons a year ago? On that occasion many hon. Members pleaded that the co-operative societies were not making a fair contribution. [HON. MBMBEES: "Hear hear!"] They said that in the light of all the circumstances which had come to their knowledge this application of the Cor- poration Profits Tax was perfectly fair, and they thought that the Chancellor of the Exchequer of the day was correct in arguing that the undistributed portion of the surplus arising from the mutual trading of these societies was something that should be regarded as a profit and should be amenable to this particular form of taxation.

I would respectfully plead with the right hon. Gentleman that the experience of the past year has made it perfectly plain that there is no more case to-night, than there was a year ago for the illogical device that was then introduced. The House of Commons, in fact, applied the Corporation Profits Tax to the undistributed portion of the surplus arising from the mutual trading of these societies. No Member ever disputed the proposition that this undistributed portion of the surplus came from the very same fund which resulted from the mutual trading and that, as the results of mutual trading were exempted from the tax, there was really no case at all for applying it to that portion which the societies held for any temporary or permanent purposes. Quite apart altogether from the very illogical nature of that device, however, it would be far better for the Chancellor of the Exchequer to adopt proposals which are being made, if not officially at all events unofficially by those who have the interests of the co-operative societies at heart. Last year, for a variety of reasons which I will not go into now, we were precluded from making a constructive suggestion of an alternative character to the Chancellor of the Exchequer. I am going to take the risk this afternoon of suggesting that he might very well withdraw the Corporation Profits Tax as applied to that undistributed portion of the surplus based on mutual trading and impose his tax on at least four other heads, which are so far covered at the present time, and might perhaps be completely covered if he were prepared to entertain the suggestion. I refer, first of all, to the profits on the non-mutual trading of the co-operative societies. Secondly, to the interest on the share capital of the members. In the third place, to the return on investments held outside the co-operative movement; and, fourthly, to what is generally called the earnings of the reserve fund. There is down on record, in what I hope is a very clear and simple form, a definite proposal which has been submitted to the Chancellor of the Exchequer or to his predecessor in writing within recent times. I am optimistic enough to believe, in the course of this Debate, that that programme would be accepted by the great body of co-operative opinion in this country, and it would form a very much better basis of taxation than the illogical scheme now in operation, which was recommended by practically no one and which has created a great deal of ill-feeling and prejudice in the co-operative movement.

These are the two suggestions which I venture to make in connection with the Finance Bill. I would only add this, in conclusion, in the light of some argument which has been raised by hon. Members in other parts of the House. I agree entirely, speaking from the Labour Benches, that we require most drastic economies. We require to cut down, especially, the £207,000,000 provided for naval and military expenditure and preparation, but we cannot afford to economise in the wrong way upon those forces or elements in the State which are necessary to our industrial and commercial development. That is just the issue on which I join with hon. Members who have selected education and other subjects for the purpose of drastic reductions in expenditure. It is true to say that there are continental and other competitors of this country who are gaining the markets which we formerly enjoyed because of the attention which even under present circumstances they are devoting to technical and other education. My question is plainly this: Can we afford to take the risk of neglecting a proper, a wise, and a remunerative expenditure in that direction? We can only take that risk if we are prepared to see world markets go, and we should make every effort at the present time, while economising in other directions, at least to provide that those services which are going to minister to our economic efficiency at home and help us to recover our world markets should be safeguarded and developed.

Sir J. HARMOOD-BANNER

I do not propose to enter into any arguments about co-operative societies, because it would take a very long time, and they have been very frequently discussed here. All I can say is that the ordinary citizen only desires perfect equality. In his shops, his trading, his soap works, shipping, coalmines, and everything else, he desires that there should be no priority or preference given to the co-operative societies, but that they should be dealt with equally and fairly. Like the hon. Member who has just spoken, I was a member of the Royal Commission on Income Tax, and I join with him in great regret that the Government have not seen their way to complete the Revenue Bill which they brought in. It would have assisted them very materially. All the got-up Press agitation was a ridiculous proposition, and everything that was necessary for the safeguarding of the ordinary interests of the merchant was contained in the recommendations included in the Bill. I have not the slightest doubt that the reason why the Bill was withdrawn—and I am sure the Chancellor of the Exchequer will not rebut it—was that it was going to create a loss. It was going, by taking away the three years' average and adopting an average of one year, to create a position in which he would not have had anything like the Income Tax to collect that he has had under the regulations that now exist. I see he is carrying that out by the provisions in the Bill as regards retrospective legislation in connection with Sections 43 and 44. He is going to keep himself pretty well covered and to get the benefit of the average in regard to the War profits for the purpose of increasing his revenue for this year. I am quite certain he will want it, and therefore I suppose we ought not to grudge it. If he has dropped the Revenue Bill, he has put in these Clauses in order that he may have the full benefit of the averages of the profits made during the War.

One thing mentioned by the hon. Member opposite with regard to casual profits does require some little elucidation. I quite agree with him that if the provisions as to casual profits which were in the Revenue Bill and were in the recommendations of the Royal Commission had been enforced there would have been very large sums which would have come in for the purpose of relieving expenditure. I remember that I raised the point on the Royal Commission, with others, and we got from the revenue authorities the statement that there were more casual losses than casual profits. That was rather early on, but we know that during the War the casual profits were enormous. Men in one trade went into another, and in cotton, corn, hemp and other things made enormous sums of money on which they never paid any Income Tax or Super-tax, and were often in competition with the more or less honest men who paid their taxes as and when and as regularly as they could. It is probable that now the casual profits will not come in so well. There may be casual losses which may further reduce the income of the Chancellor of the Exchequer, but still there is the fact that these casual profits were the profits which created the profiteer and created the scandal about which the Labour Members have so much to say and with regard to which we thoroughly agree. Enormous profits were made in speculation and expended in great show, and they never paid any Income Tax or Super-tax, and I warn the Chancellor of the Exchequer that if he now wants to take them, he may find he may have to pay casual losses.

I heard a good deal of cheering of the statement that the prosperity of this country arose from its exports, but I am one of those who do not quite agree with that. I think our prosperity arises from the British Empire, in this way, that the men from Australia, New Zealand, India, Singapore, Argentina, and British men all over the world come home and bring their wealth home, from Burma and such places, to spend and to invest. I think all this forms a great part of the wealth of this country, and our own exports, which are really coal only and our manufactures arising from the coal, are small in comparison with the industries of the Empire, the labour of the Empire, and the exports of the Empire, the good will of these people who live abroad. We ought to consider that, and not to have this feeling always in existence that the only person, who produces prosperity is the exporter. There are plenty of others as well. The principal matter to which I want to refer is the question of the abolition of Excess Profits Duty, which is coming on this year, and the fact that in the Vote Office to-day we were able to get the Government proposals for the valuation of stocks. I am not going to find fault with anything which the Chancellor of the Exchequer gives us. In the old Latin phrase, I always respect those who give us a free gift, but I think it was a little bit hard that a matter of this importance, dealing with the valuation of stocks in connection with the abolition of the Excess Profits Duty, was not in the hands of Members earlier, so that we could consult the big traders interested beforehand.

I am one of those who are delighted that the Excess Profits Duty is gone. A more infamous, a more unenlightened, extravagant, ruinous, demoralising Measure has never been brought before the country. It has created, I was going to say, more theft, but more peculation in the shape of a man charging expenses at £50 when they ought to be only £5, and things of that description, than any Measure that could possibly have been devised. It has gone now, and I hope the Chancellor of the Exchequer, in the 6s. Income Tax which he will get on those profits, especially as they will not be subject to the excessive depreciation and allowances which were made in the Excess Profits Duty, but will be on the ordinary lines of the Inland Revenue, will get a very handsome sum out of those profits, notwithstanding the fact that the Excess Profits Duty is gone. I always believed that the ordinary Income Tax would have been more moral and would have produced more at 6s. in the £ than the 40 per cent. Excess Profits Duty which was at one time charged. I would like the right hon. Gentleman to understand that his proposals in connection with the valuation of stocks will have to be considered by the various bodies interested and that we may desire to see him and ask him for certain amendments, as there is no doubt there are great hardships involved. A man dies, having paid Excess Profits Duty, and his son succeeds but cannot get the duty back on his father's estate, and there are various other things in connection with this Measure which will require close study in order to make them fair and equitable. Amalgamations may have taken place, but there is the fact that up to the 31st August there is power to value stocks, as well as apparently the power for two years afterwards to consider revaluing the stocks, so that there will be a means of every firm putting itself on a proper footing in this connection. I would like to thank the Chancellor for having returned to his highly moral duties instead of exacting a tax which was so immoral as this tax, and I can only hope he will allow the traders and others who are interested to come to him in connection with the valuation proposals.

Sir R. HORNE

My Noble Friend the Member for Hitchin (Lord R. Cecil) referred, as if it were an unusual course, to the fact that I had not opened the Debate upon the Second Reading of the Finance Bill. I was, however, acting, if not in accordance with every precedent, at least in accordance with a practice which has been observed on many occasions in this House before. I am sure that the course which I adopted was not inexpedient, and it was of the utmost advantage that I should have an opportunity of hearing what the Members of the House had to say with regard to the particular questions in which they were specially interested. It was all the more so, because the present Budget varies very little in principle from the Budget of the previous year, as my hon. Friend the Member for North-East Derbyshire (Mr. Holmes) said. It accordingly left very little room for a discussion of questions of principle of a novel character. We have heard again this afternoon of the Excess Profits Duty, but I confess that it leaves me cold now to hear that tax criticised by the people who no doubt have suffered from it in the past and are still regretting the injuries which they assume to have been done to them. I do not think I need take up any time in discussing further the qualities or merits of that particular tax. No doubt in Committee we shall come to detailed questions as to the valuation of stocks and other matters to which the hon. Baronet who has just sat down (Sir J. Harmood-Banner) has referred. I am sorry if the White Paper, which has been issued, has not reached the hands of Members in time, but it was in the Vote Office yesterday. In point of fact, I have not acted without the advice and counsel of the business men to whom my hon. Friend has referred. The whole of the question dealt with in the White Paper was the subject of a very prolonged and valuable discussion with the representatives of the leading businesses of this country, and I hope I have been able to meet their views in at least a very large measure. I do not say I have met them upon every point, but I certainly have upon many of the questions in which they professed themselves vitally interested.

The hon. Member for North-East Derbyshire drew attention to the fate that had attended the Revenue Bill recently introduced into this House, and still more recently withdrawn, and there have been certain speculations with regard to the reasons for the withdrawal of the Bill, I do not propose to deal with that question this afternoon. I should like, however, to say something upon the matters to which my attention was directed by my hon. Friend the Member for North-East Derbyshire. He regrets that the administration Clauses of the Bill have not been proceeded with, and he proposes, he says, to move each of them in turn in connection with this Finance Bill. I understand the position which he takes up upon that matter. These Clauses are, undoubtedly, of great importance. They have been completely misapprehended, I think, by the outside public, and there has been a very great deal of uninformed criticism upon them. It was made perfectly apparent, however, that if we were to go forward with the Bill the provisions of those Clauses would undoubtedly have excited very considerable controversy—so much so, indeed, that in view of the congested character of this Session it would have been impossible to pass the Bill. Accordingly, it was regretfully withdrawn, but I should like to say to my hon. Friend that those Clauses will take up just as much time, if moved in connection with the present Finance Bill, and I hope he will not think it necessary to take the drastic course to which he has alluded.

I would like to refer also to the matter which he raised as to the effect of the proposal of the Revenue Bill to make the test period upon which an Income Tax assessment should be imposed that of the year immediately previous, instead of the average of the three preceding years. It is perfectly true that under present circumstances to have proceeded with a Measure in that sense would have resulted in a great loss of revenue, but when this matter comes to be considered I hope hon. Members will keep in mind the fact that during the years which have just gone, when we had a period of such hectic trade as, I suppose, none of us has ever previously known, people have made profits which have been assessed on the three years' average. They have had the benefit of the average during the period of high profits, and it will not be inequitable if they should be asked to take the fat with the lean and, in the period through which we are going, suffer the results of the three years' average still being kept in application. I do not, however, say that my mind is made up upon that subject, nor the mind of the Government. I shall certainly take into consideration anything which is relevant which can be put before the Government between now and the period at which it will be necessary to pass a Measure dealing with this topic.

On the other points which my hon. Friend raised and which were referred to by the hon. Member for Central Edinburgh (Mr. W. Graham), namely, the questions of casual profits and evasion upon which certain findings were pronounced by the Royal Commission on Income Tax, these matters have not been left aside by the Government through any formed view that the findings should not be put into operation. I cannot say that upon the question of casual profits any scheme has been put before me which seems administratively practicable, and that is the reason why the question has not been dealt with; but if a practical scheme can be invented, then I think it is perfectly open to us to go forward with it. I entirely agree with my hon. Friends as to the necessity of making evasion less easy, and I am sure that they put it on the right ground when they say that it is not merely a question of getting money for the Exchequer, but also of being fair and just to the other taxpayers, and accordingly I would welcome any efficient scheme for carrying out the purpose which they have in view. The point which my hon. Friend the Member for North-East Derbyshire (Mr. Holmes) made with regard to double Income Tax is, I think, now the subject of fresh litigation on the terms of the new Act, and I think, if my information is correct, the view which he has expressed in the House this afternoon has been adopted by one of the Courts, but that decision is now the subject of appeal.

These were the matters my hon. Friend raised, and I should now like to turn for a moment to the point which was started by the right hon. Baronet the Member for the City of London (Sir F. Banbury). He complained that the Government under this Finance Bill were imposing retrospective taxation. He professed to find in Clause 18 of the Bill a provision which would have the effect of imposing taxation upon people who otherwise would be free from it. The point he made was that, according to the previous law, people could put forward for assessment a certain figure of actual profits obtained, and have it taken as the basis of assessment, rather than the three years' average. I think the right hon. Gentleman must have been under a misapprehension upon this matter. The fact is that there were certain exemptions granted under War legislation which required to be re-enacted from year to year. Last year, in the Finance Bill, there was a provision for repealing these exemptions. Upon that occasion the right hon. Gentleman, abetted I think by the hon. Member for North-East Derbyshire, proposed to have these exemptions taken out of the list of the provisions to be repealed. It was pointed out by the Lord Privy Seal, then Chancellor of the Exchequer, that the mere fact of taking these out of the repeal Section would not keep them in being unless they were re-enacted. Accordingly, at a later stage of the Bill it was proposed by the hon. Member for North-East Derbyshire to enact a Clause which would have the effect of continuing the exemptions previously granted. The House, however, rejected that Clause, and accordingly made it plain that these exemptions were to disappear. One result, however, has been that, because of the fact that these exemptions were not nominatum repealed, certain views have been taken by local Commissioners as if these exemptions were still in existence, and the whole point of the present legislation is, not by retrospection to impose taxes on people who otherwise would not have been subject to them, but solely to make it plain what the law is under the legislation which the House of Commons really enacted. I am sorry the right hon. Baronet is not here to learn the explanation of the Clause to which he has taken exception.

Dealing still with matters of detail, the hon. Member for Central Edinburgh (Mr. W. Graham) has raised two questions, one with regard, as I understand, to the graduation of the Income Tax, upon which, however, he has put forward no specific proposals. These, no doubt, will be brought forward in Committee, and therefore I do not deal further with this matter. The other question is with regard to the Corporation Profits Tax, and I should like to say a word with regard to the re-imposition of that tax. It was said by the hon. Member for Stockport (Mr. Fildes) that the Corporation Profits Tax was unjust, because it put a special imposition upon a particular class of company or shareholder. But, in point of fact, there are two things to remember about the corporations which are liable to this tax. It is only limited liability corporations which come under this liability, and by the very fact of the privileges which were granted to them by the State in respect of limitation of liability, they have got privileges which the ordinary trading concern has not got. That is one reason why you are entitled at least to ask them to bear a particular obligation to the State. But there is another very important matter. It is that an ordinary trading firm which is not incorporated as a limited liability company is liable for Super-tax upon the fund which it puts to reserve. There is no such liability imposed upon the ordinary limited liability company, and, accordingly, it is not either unjust or unfair to ask limited liability corporations to bear this particular tax. So far as the revenue which is obtained from it is concerned, the House will keep in mind that only for a very short period have corporations been liable to this duty, and that during that period there has been no really efficient system of collection in vogue. In future, undoubtedly, the yield from this tax will be considerably greater.

The real point of all this Debate has been the question of expenditure and economy. I am very glad, from my own point of view, that this matter has been raised so sharply and so clearly in the House this afternoon. I do not think any of us can look upon the present expenditure of this country and upon the conditions with which we are faced with any kind of equanimity. I am sure we all share the anxiety which has been expressed by the hon. Member for Lime-house (Sir W. Pearce). The figures of our expenditure over recent years have been startling, and at the present time they are still of such size as to give rise to very great apprehension. I hope, however, that the House will, in fairness and justice, remember the actual reductions of expenditure which have been made. I will not go over the figures again, but I think that my right hon. Friend the Member for Peebles (Sir D. Maclean) spoke with less than his usual fairness and justice this afternoon when he referred to the amount of expenditure on the Army, Navy and Air Force. He took the figures for the Army in 1919–20, 1920–21, and 1921–22. He lumped them together in one sum, and said that it was a startling expenditure for the three years. That is one way of treating it, but I think it is only fair to point out that, while that sum over three years has been very considerable, the decrease from year to year has also been very great. For example, if you take 1919–20, the amount for the Army was £521,000,000. In 1920–21 it was brought down to £211,000,000, and in 1921–22 the Estimate is £126,000,000. Therefore, I think it is right when using figures of that kind, that it should be made plain that we are not keeping up the inflated figure to which the right hon. Gentleman referred, but are doing everything in our power to get that figure down to the lowest possible limit. The same is true with regard to the Navy and the Air Force, and I should like to add that, whereas in 1919–20 the Civil Service cost £865,000,000, the Estimate for this year is considerably less than half that figure, amounting in all to £409,000,000.

Lieut.-Commander KENWORTHY

What was the figure before the War?

Sir R. HORNE

I will deal with that in a moment. What I have been referring to in the argument up to now is the fact that we are doing something to reduce the expenditure upon these services. I am not saying we have done everything the human mind can accomplish, but we have done a very great deal, and I think the House is very willing to recognise that fact. The Noble Lord the Member for Hitchin (Lord R. Cecil) expressed great disappointment at the figure at which expenditure still stood. He was good enough to refer in terms of some praise to a circular which has been issued by the Treasury to the various Departments with regard to the necessity of effecting economy in the current year. I am hopeful that that circular will produce the result which it is intended to achieve, but I recognise that it would be just as fallacious for me to make any claim on what we hope to achieve from the circular, as it is to make any criticism of it on the ground that we are not likely to achieve anything. I think the House must take it that we intend to get all the results we can, and I mean to use all the powers which I have of securing as good results as possible.

Sir D. MACLEAN

This year?

Sir R. HORNE

Of course, I hope that the investigations we are going to make will not only affect next year but will also affect this year; at least, I shall try to achieve something even in this year. My hon. and gallant Friend, in referring to that circular, said he was disappointed that the figure of expenditure to which we look forward in 1922–23 was not to be less than £950,000,000. I agree that when you look at it it seems a very large figure, and I agree that if, without consideration or reflection, you put it against our expenditure before the War, about which the hon. and gallant Member for Hull (Lieut.-Commander Ken worthy) is anxious, it still looks a very large figure. But consider it for a moment. Our expenditure before the War was £208,000,000. I am not exaggerating the facts of the case when I say that to accomplish the same result now that you did then you require at least double that sum, £416,000,000. Then all the increases that have taken place in the pay of soldiers and sailors have to be paid for.

Major C. LOWTHER

And the Civil Service.

Sir R. HORNE

Yes. There is the staff of the Civil Service as well. Human nature is human nature in whatever branch of employment it is engaged, and I am not aware that the human stomach requires any less sustenance in one Department than in another. If you start accordingly with a figure of £416,000,000 you have immediately to add to that figure £320,000,000, which is the excess amount we have now got to pay in interest on debt as a direct result of the War. That makes a very large hole in the remainder. It brings you up to between £700,000,000 and £800,000,000. Pensions is the next item. There is another £120,000,000 to add for that purpose. Then you have got to keep in mind that you have varying sums of maturing debt to meet and you have to provide for all sorts of obligations incurred under war loan redemption and payment of death duties in the shape of war stock. You cannot put that sum at less than £100,000,000, and I am stating the minimum figure when I say that. Accordingly I agree with the disappointment of the Noble Lord (Lord R. Cecil) with regard to the size of the figure, but I cannot see how you are going to make it less.

Lord R. CECIL

My disappointment was at the statement in the Paper that there was no prospect of any reduction of taxation.

Sir R. HORNE

It only requires an inference to arrive at what the Noble Lord has said, because if you premise that your revenue is not likely to be more than £950,000,000, and your expenditure is likely to be in the region of £950,000,000, then obviously there is no room for remission of taxation. The Noble Lord said British citizens would not receive with very much enthusiasm the fact that there was to be no reduction of taxation. I am afraid there is no opportunity for enthusiasm at the present time in matters of finance. It is a question of grinning and bearing the condition in which you are, and facing and confronting facts, rather than of lamenting and bemoaning. The facts are there and we have got to meet them. I am obliged to my hon. Friend below the gangway (Mr. Bottomley) for the variety of suggestions which he has made with regard to possible ways of raising further revenue. Personally I do not exclude from my mind any of the suggestions, and I am willing to consider them all upon their merits. There are various considerations which apply to each of them, and these must be weighed before anybody can give an opinion as to what he would do in regard to them.

We are, as the hon. Member for Lime-house (Sir W. Pearce) pointed out, passing through a very trying time. Nobody realises more than I do the difficulties of trade in this country at the present time, because I have just left a Department where these matters were brought before me every day as simple matters of routine. There is nothing which impresses me more in connection with the country than the necessity of giving every possible encouragement and facility to industry. I agree with everything the Noble Lord (Lord Robert Cecil) said as to the hampering effect upon industry of very high taxation, because you are taking away from the industry the money which should be fructifying in the factories. Therefore nobody could be more anxious than I to see the burden upon industry reduced. But it is necessary to keep going the country in which industry is carried on and you must deal with your conditions as you find them. The present year is going to have a very testing effect upon the courage and stability and steadiness of our people. We are going through a very great industrial crisis which has been tremendously emphasised by the coal stoppage, but there is one good effect which is coming out of the coal stoppage. I think people are really beginning to understand the economic position in which we find ourselves to-day. A great deal of optimism, entirely unjustified, existed throughout the country. People thought, when the load and burden of the War was off their shoulders, they must emerge into some sort of quiet space of happy good fortune. It only required a moment's reflection to show that nobody could rightly entertain such expectations.

Dr. MURRAY

Except the Prime Minister.

Sir R. HORNE

It is impossible that you could blow away £50,000,000,000 of the world's wealth without suffering for it. People expected to be in a better position than before the War. How is it possible for us to-day to be better off than before the War? The flower of the manhood of all the nations engaged in the War has been struck down and crippled, and the power of the world to produce wealth to-day is immeasurably less than it was. But I feel no pessimism whatsoever about the situation. I am sure that once we emerge from our immediate troubles the nation will settle down to work with a will which we have not known since the Armistice, and I am equally certain that if we confront the situation with courage we shall conquer it by our perseverance and our industry.

Mr. DENNIS HERBERT

On a point of Order. May I ask your guidance, Mr. Speaker, as to the effect of the Amendment proposed by the hon. Member for South Hackney? What would be the effect of our carrying that Amendment, feeling regret at being obliged to do so, and also feeling it imperative to vote for the Second Reading of this Bill?

Mr. SPEAKER

Perhaps the hon. Member was not in the House at the moment when I put the Question. This Amendment of the hon. Member for South Hackney was proposed as an Amendment to the Question that the Bill be now read a Second time. If that Amendment were carried, the result might be that there would be no taxes for any of us to pay, and that the taxes which have been already paid on champagne and cigars might have to be refunded, but where the money for pensions and other payments is to come from I do not know.

Lieut.-Commander KENWORTHY

I understood you to say, Mr. Speaker, that if this Amendment be disposed of the Bill is then read a Second time, and any further comment is impossible. In view or the very remarkable and interesting speech we have just had from the right hon. Gentleman the Chancellor of the Exchequer, I think one or two brief words of comment are required. The concluding words of the right hon. Gentleman's speech were the only part with which I agree. I must make some protest about one more example from that Treasury Bench of fatuous optimism. It has been proved fatuous. We have had it now for the third year in succession. We have been told we must grin and bear this burden of taxation which hon. Members, playing the part of Jeremiah throughout the whole afternoon, have testified in no uncertain terms is doing great injury to the country. The right hon. Gentleman excuses himself for not promising any reduction of taxation next year or this year by Saying we have a very heavy burden of debt to pay off, pensions and so forth, but he does not follow that up by saying that that was all the more reason for rigid economy now and all the more reason why an expenditure approximately equal to the pre-War expenditure for armaments, allowing for the increase of prices and soldiers pay, etc., is altogether indefensible. It is because we are a poor country, it is because so much wealth has been blown away, it is because we have this burden of debt and pensions and so on, that the expenditure on the swollen Civil Service estimates and the expenditure on armaments is altogether indefensible, and I am in hopes that the Government, as I believe will be the case, by the very financial situation will be forced to go to the country this autumn. I believe they will have to do so because, I think, the situation is so serious, and it will reveal itself in all its wretchedness when the coal stoppage is settled. If hon. Members are still complacent, might I draw their attention to the fact of the American exchange during the last week? Very optimistic speeches can be made from the Treasury Bench, but the exchanges tell their own tale. We are having to pay more than we had to pay a week ago on the American exchange. This is not the big buying season from the United States; there will be a further drop, in the autumn, probably, when we buy our corn from the States. Our financial situation is obvious to financiers abroad, if not to the right hon. Gentleman on the Treasury Bench. Yet we are told to grin and bear it, and hon. Members tell me to "Divide!" Yesterday we had a very heavy Estimate for Naval expenditure, and nobody cried "Divide!" We could not even get a Division.

8.0 P.M.

I wish to refer hon. Members to this very remarkable document which found its way into the Vote Office to-day—No. F3256, signed by the Financial Secretary to the Treasury, in which the Government hold out their new panacea. Last year it was the Prime Minister's letter to the Departments, advocating economy with an axe. It had no effect, and for obvious reasons. To-day we have this precious document advocating the same policy to the Departments. The remedy does not lie in the Departments, but in the policy of the Government. There is one sentence in the document which sums up the pious aspirations of this remarkable document. It says, My Lords earnestly trust that all Departments will co-operate in effecting the maximum reductions possible in their own expenditure. A little higher up on the same paper—[HON. MEMBERS: "Divide, divide!"]—this matter is of vital importance because people are being ruined—[HON. MEMBERS: "Divide, divide!"]—I am not going to be shouted down, and I will make this protest if hon. Members will bear with me. The Departments are enjoined to address themselves to economies, and they are invited to make changes which will effect reductions. Take, for example, the India Office and imagine them setting to work to advocate a policy in Mesopotamia to reduce expenditure. Can you imagine the Irish Office setting to work to advocate a new policy that will save money in Ireland? The thing is too ludicrous. The policy must come from the Government, and until we have a totally different policy we cannot economise.

I am going to make one or two suggestions. The hon. Member for South Hackney (Mr. Bottomley) has suggested additional taxation, but I advocate another alternative. At Question Time, the Leader of the House, replying to a question about Asia Minor, said the Government only knew what had appeared in the papers on this point. We have a large British garrison at Constantinople maintained at a very heavy cost, and until the Near East situation is settled in Asia Minor we have to keep that garrison there, and the Government are taking no steps to bring an end to that state of unrest. The consequence is that British trade is suffering and the revenue is reduced, and we are being put to an enormous expenditure in keeping this garrison at Constantinople. That is one of the directions in which we can economise.

My second suggestion is in regard to the policy of keeping a garrison of 15,000 troops on the Rhine, and if that policy were altered we should save the cost of those troops. My third suggestion is in regard to Mesopotamia, because the country cannot afford to repeat the expenditure which we have incurred in that country in recent years. The Government have been asked what they are ex-

pending upon roads in Mesopotamia, and the reply was that they had telegraphed to find out. I think anyone who motors in this country will agree with me when I say that if any money is to be spent on roads, it will be much better spent upon roads in Great Britain than in Mesopotamia. Whatever we could afford last year in view of the industrial depression and the coal stoppage, we cannot afford to pour out those millions again in the desert. Those are examples where the Government could cut down expenditure.

My fourth suggestion is in regard to Ireland. The expenditure there is increasing week by week, and the regrettable loss of life increases. In Ireland the Government policy is absolutely futile. Those are the four main items where economy can be effected, that is Constantinople and Turkey generally, Mesopotamia, the Rhine, and Ireland. Until our policy in those four theatres of expenditure is altered, the expenditure will go on and there can only be one end to it, and that is that the Budget will not balance. I was informed recently by a well-known banker, that during the last four or five weeks we have had a revenue of £55,000,000 short of the Estimate. If that is a sample of the revenue you are going to get this year, then Heaven help us all. It means our credit will suffer abroad, and that the exchange will go still further against us, and the whole prosperity of the country will be effected. For these reasons I make no excuse for taking up the time of the House protesting against the fatuous optimism of the Chancellor of the Exchequer.

Question put, "That the words proposed to be left out stand part of the Question."

The House divided: Ayes, 213; Noes, 46.

Division No. 118.]	AYES.	[8.10 p.m.
Agg-Gardner, Sir James Tynte	Bird, Sir A. (Wolverhampton, West)	Burn, Col. C. R. (Devon, Torquay)
Amery, Leopold C. M. S.	Bird, Sir William B. M. (Chichester)	Campbell, J. D. G.
Archer-Shee, Lieut.-Colonel Martin	Blades, Sir George Rowland	Cautley, Henry Strother
Armitage, Robert	Blake, Sir Francis Douglas	Chamberlain, Rt. Hn. J. A. (Birm. W.)
Astor, Viscountess	Boscawen, Rt. Hon. Sir A. Griffith	Child, Brigadier-General Sir Hill
Atkey, A. R.	Bowerman, Rt. Hon. Charles W.	Churchman, Sir Arthur
Baird, Sir John Lawrence	Bowyer, Captain G. W. E.	Clay, Lieut.-Colonel H. H. Spender
Baldwin, Rt. Hon. Stanley	Boyd-Carpenter, Major A.	Clough, Robert
Balfour, George (Hampstead)	Breese, Major Charles E.	Coates, Major Sir Edward F.
Balfour, Sir R. (Glasgow, Partick)	Broad, Thomas Tucker	Coats, Sir Stuart
Banner, Sir John S. Harmood-	Bromfield, William	Cohen, Major J. Brunel
Barnston, Major Harry	Brown, Major D. C.	Colfox, Major Wm. Phillips
Bellairs, Commander Carlyon W.	Brown, T. W. (Down, North)	Conway, Sir W. Martin
Benn, Sir A. S. (Plymouth, Drake)	Bruton, Sir James	Cory, Sir J. H. (Cardiff, South)
Benn, Capt. Sir I. H., Bart. (Gr'nw'h)	Buckley, Lieut.-Colonel A.	Croft, Lieut.-Colonel Henry Page
Betterton, Henry B.	Bull, Rt. Hon. Sir William James	Curzon, Captain Viscount
Davies, Thomas (Cirencester)	Jackson, Lieut.-Colonel Hon. F. S.	Roberts, Samuel (Hereford, Hereford)
Denniss, Edmund R. B. (Oldham)	Jephcott, A. R.	Robinson, S. (Brecon and Radnor)
Edgar, Clifford B.	Jodrell, Neville Paul	Rodger, A. K.
Edwards, Allen C. (East Ham, S.)	Johnson, Sir Stanley	Roundell, Colonel R. F.
Edwards, C. (Monmouth, Bedwellty)	Jones, G. W. H. (Stoke Newington)	Royds, Lieut.-Colonel Edmund
Edwards, G. (Norfolk, South)	Jones, J. T. (Carmarthen, Llanelly)	Samuel, Samuel (W'dsworth, Putney)
Edwards, Major J. (Aberavon)	Kellaway, Rt. Hon. Fredk. George	Sanders, Colonel Sir Robert Arthur
Evans, Ernest	Kenyon, Barnet	Sassoon, Sir Philip Albert Gustave D.
Eyres-Monsell, Com. Bolton M.	Kidd, James	Scott, A. M. (Glasgow, Bridgeton)
Falle, Major Sir Bertram Godfray	King, Captain Henry Douglas	Scott, Leslie (Liverpool, Exchange)
Farquharson, Major A. C.	Kinloch-Cooke, Sir Clement	Scott, Sir Samuel (St. Marylebone)
Fell, Sir Arthur	Law, Alfred J. (Rochdale)	Seager, Sir William
Flannery, Sir James Fortescue	Lewis, Rt. Hon. J. H. (Univ., Wales)	Sexton, James
Ford, Patrick Johnston	Lewis, T. A. (Glam., Pontypridd)	Shaw, Thomas (Preston)
Forestier-Walker, L.	Lindsay, William Arthur	Shaw, Capt. William T. (Forfar)
France, Gerald Ashburner	Lister, Sir R. Ashton	Simm, M. T.
Fraser, Major Sir Keith	Lloyd, George Butler	Smith, Sir Allan M. (Croydon, South)
Fremantle, Lieut.-Colonel Francis E.	Lloyd-Greame, Sir P.	Stanley, Major Hon. G. (Preston)
Gee, Captain Robert	Lorden, John William	Starkey, Captain John Ralph
George, Rt. Hon. David Lloyd	McLaren, Robert (Lanark, Northern)	Steel, Major S. Strang
Gibbs, Colonel George Abraham	Macleod, J. Mackintosh	Stephenson, Lieut.-Colonel H. K.
Gilbert, James Daniel	McMicking, Major Gilbert	Stevens, Marshall
Gillis, William	Mallalieu, Frederick William	Sturrock, J. Leng
Graham, D. M. (Lanark, Hamilton)	Malone, Major P. B. (Tottenham, S.)	Sugden, W. H.
Gray, Major Ernest (Accrington)	Mason, Robert	Surtees, Brigadier-General H. C.
Green, Albert (Derby)	Meysey-Thompson, Lieut.-Col. E. C.	Sutherland, Sir William
Green, Joseph F. (Leicester, W.)	Mitchell, William Lane	Taylor, J.
Gregory, Holman	Molson, Major John Elsdale	Terrell, George (Wilts, Chippenham)
Greig, Colonel James William	Mond, Rt. Hon. Sir Alfred Moritz	Thomas, Sir Robert J. (Wrexham)
Guest, Capt. Rt. Hon. Frederick E.	Moreing, Captain Algernon H.	Thomson, F. C. (Aberdeen, South)
Guest, J. (York, W. R., Hemsworth)	Morgan, Major D. Watts	Thomson, Sir W. Mitchell- (Maryhill)
Guinness, Lieut.-Col. Hon. W. E.	Morris, Richard	Thorpe, Captain John Henry
Hacking, Captain Douglas H.	Murchison, C. K.	Tryon, Major George Clement
Hall, Lieut.-Col. Sir F. (Dulwich)	Murray, John (Leeds, West)	Waddington, R.
Hall, F. (York, W. R., Normanton)	Murray, William (Dumfries)	Wallace, J.
Hall, Rr-Adml Sir W. (Liv'p'l, W. D'by)	Neal, Arthur	Walton, J. (York, W. R., Don Valley)
Hallas, Eldred	Newman, Sir R. H. S. D. L. (Exeter)	Warner, Sir T. Courtenay T.
Hamilton, Major C. G. C.	Nicholson, Reginald (Doncaster)	Weston, Colonel John Wakefield
Hannon, Patrick Joseph Henry	Nield, Sir Herbert	Wignall, James
Henderson, Rt. Hon. A. (Widnes)	Oman, Sir Charles William C.	Wild, Sir Ernest Edward
Henderson, Major V. L. (Tradeston)	Parker, James	Wills, Lt.-Col. Sir Gilbert Alan H.
Herbert, Dennis (Hertford, Watford)	Parkinson, Albert L. (Blackpool)	Wilson, Daniel M. (Down, West)
Hinds, John	Parkinson, John Allen (Wigan)	Wilson, Colonel Leslie O. (Reading)
Hoare, Lieut.-Colonel Sir S. J. G.	Peel, Col. Hn. S. (Uxbridge, Mddx.)	Wilson, Col. M. J. (Richmond)
Hodge, Rt. Hon. John	Pennefather, De Fonblanque	Wilson, W. Tyson (Westhoughton)
Holbrook, Sir Arthur Richard	Perkins, Walter Frank	Winfrey, Sir Richard
Hope, Sir H. (Stirling & Cl'ckm'nn, W.)	Perring, William George	Wise, Frederick
Hopkins, John W. W.	Pinkham, Lieut.-Colonel Charles	Worsfold, T. Cato
Hopkinson, A. (Lancaster, Mossley)	Prescott, Major W. H.	Worthington-Evans, Rt. Hon. Sir L.
Horne, Sir R. S. (Glasgow, Hillhead)	Pretyman, Rt. Hon. Ernest G.	Yate, Colonel Sir Charles Edward
Hotchkin, Captain Stafford Vere	Purchase, H. G.	Young, E. H. (Norwich)
Hunter, General Sir A. (Lancaster)	Ramsden, G. T.	Young, Sir Frederick W. (Swindon)
Hurd, Percy A.	Raper, A. Baldwin	Young, Robert (Lancaster, Newton)
Hurst, Lieut.-Colonel Gerald B.	Ratcliffe, Henry Butler
Inskip, Thomas Walker H.	Raw, Lieutenant-Colonel Dr. N.	TELLERS FOR THE AYES.—
Irving, Dan	Roberts, Rt. Hon. G. H. (Norwich)	Mr. Dudley Ward and Lieut.-
		Colonel Sir J. Gilmour.
NOES.
Barker, G. (Monmouth, Abertillery)	Hayward, Evan	Smith, W. R. (Wellingborough)
Barnes Rt. Hon. G. (Glas., Gorbals)	Hirst, G. H.	Swan, J. E.
Barnes, Major H. (Newcastle, E.)	Hogge, James Myles	Thomas, Brig.-Gen. Sir O. (Anglesey)
Bentinck, Lord Henry Cavendish-	Holmes, J. Stanley	Thomson, T. (Middlesbrough, West)
Cairns, John	John, William (Rhondda, West)	Thorne, G. R. (Wolverhampton, E.)
Carter, W. (Nottingham, Mansfield)	Kenworthy, Lieut.-Commander J. M.	Townshend, Sir Charles V. F.
Cecil, Rt. Hon. Lord R. (Hitchin)	Lambert, Rt. Hon. George	Walsh, Stephen (Lancaster, Ince)
Collins, Sir Godfrey (Greenock)	Lunn, William	Waterson, A. E.
Davies, Major D. (Montgomery)	Maclean, Rt. Hn. Sir D. (Midlothian)	Wedgwood, Colonel Josiah C.
Davison, J. E. (Smethwick)	Murray, Dr. D. (Inverness & Ross)	Williams, Aneurin (Durham, Consett)
Entwistle, Major C. F.	Newbould, Alfred Ernest	Williams, Col. P. (Middlesbrough, E.)
Galbraith, Samuel	Raffan, Peter Wilson	Wilson, Rt. Hon. J. W. (Stourbridge)
Glanville, Harold James	Rees, Capt. J. Tudor-(Barnstaple)	Wood, Major M. M. (Aberdeen, C.)
Graham, R. (Nelson and Colne)	Richardson, R. (Houghton-le-Spring)
Griffiths, T. (Monmouth, Pontypool)	Robertson, John	TELLERS FOR THE NOES.—
Hayday, Arthur	Royce, William Stapleton	Mr. Bottomley and Major C.
		Lowther.

First Resolution read a Second time.