CLAUSE 12.—(Income Tax for 1925–26.)

HC Deb 15 June 1925 vol 185 cc69-135

The following Amendment stood on the Order Paper in the name of Mr. LEES-SMITH:

"In page 8, line 18, to leave out the words "year 1925–26," and to insert instead thereof the words "six months beginning the sixth day of April, nineteen hundred and twenty-five."

The CHAIRMAN

The Amendment standing in the name of the hon. Member for Keighley (Mr. Lees-Smith) is one which I do not select.

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

Captain BENN

It was quite impossible for us to hear your ruling, Mr. Chairman, and would you kindly tell us what it was?

The CHAIRMAN

I said that the Amendment to this Clause was one which I should not select.

Captain BENN

Have you considered an Amendment handed in this morning to reduce the rate of the Income Tax from 4s. to 3s. 9d. in the £?

The CHAIRMAN

I have not received the Amendment referred to, but in view of the fact that it might very well have been placed on the Paper, it is not one which I should select.

Captain BENN

What is the right method in order to get Amendments handed in at the Table submitted to you? Do you rule my Amendment out of order?

The CHAIRMAN

I do not say the Amendment was out of order, but it is one which certainly should have been placed on the Paper.

Mr. LEES-SMITH

This Clause deals with the rate of the Income Tax and its reduction by 6d. in the £. This and the following Clause, which deals with Super-tax, we, on these benches, regard as the most important and the most objectionable in the whole of the Budget. We attach great importance to the Debate to-day, because here are two Clauses which, more than any other, indicate the wide difference in the essential principles of finance between ourselves and the Government. The Chancellor of the Exchequer may remember that we brought up this question of the Income Tax upon the Report stage of the Budget Resolutions, but this took place at a late hour of the evening, and the Chancellor of the Exchequer on that night said that as time was so restricted he would not deal with the arguments we had put forward, and he stated that he intended to make a full declaration of his policy when the Committee stage on these Clauses was reached. I will attempt for that purpose to summarise what are our objections to the reduction in the Income Tax by 6d. in the pound. We believe that this reduction is particularly ill-conceived and ill-advised at this moment because of the peculiar conditions of British industry and British trade at the present time. As we have listened in this House to the Debate for months past on the position of unemployment and trade, a great many hon. Members have noticed a curious contradiction in the nature of the Debate.

4.0 P.M.

We have had during these last few months members rising and pointing out how deplorable and depressed are the conditions in a great number of the staple trades of the country—iron, steel, coal-mining, cotton, and so on. On the other hand—and this is where the contradiction comes in—the Chancellor of the Exchequer, when he introduced his Budget, pointed with satisfaction and pride to the fact that a penny on the Income Tax gave us a greater yield to-day than at any period in our financial history. That is a fact which wants some explanation. I suppose the explanation is that, as a matter of fact, this industrial depression is not evenly spread over the whole range of industry. For example, I believe it is practically certain now that the retail trades had a better year last year than almost any year since the close of the War. The fact seems to be that our unemployment and our trade stagnation is more or less concentrated on a group of trades—as I say, iron, steel, engineering, cotton, coal and so on—particularly that group of trades which depend for their sales upon the markets of foreign countries.

That is the position. The first point which we wish to make is this. This reduction in the Income Tax is going to be of no substantial benefit to those depressed industries, because, owing to the fact that they are not making much in the way of profit and dividends, Income Tax has ceased to be a serious problem to them for the time being. What it is going to do is to distribute millions of pounds among the interest receiving, bond-holding, and rentier class, who do not and, from the very nature of their industrial position, cannot contribute anything to the recovery of our industrial life. That is why we first of all say that this reduction of Income Tax is not only unfair as between rich and poor, but is blind and regardless of the existing needs of British industry and trade.

May I come to the chief argument used by the Chancellor of the Exchequer in defending this part of his Budget? He said that the present high rate of taxation was one of the main causes of the chill and check upon industry, and that, therefore, to reduce the taxation would be the best method of stimulating industry to another revival. Taxation, however, appears to me to be really a very minor influence affecting trade and industry. If you ask what is the cause of unemployment at the present time, the first answer is that a large proportion of our unemployment is always there. It is inherent and inevitable in the capitalistic order of society. That is one answer. The second answer is that, if you take the abnormal unemployment at the present time, it is partly due to the impoverishment and loss of purchasing power in our export markets, and it is partly due to the abnormal expansion of certain trades necessary for war which have this enormous capacity for output when the war is over. But the rate of taxation is a cause which plays only a minor part. Look at the experience on this subject. After all, the Income Tax has been reduced. It was reduced by 1s. in 1922, and it was reduced by another 6d. in 1923, and, if we read the Budget speeches of those two years, we find the same arguments used by the Chancellor of the Exchequer as the right hon. Gentleman has used this year. What has been the result of the experience we have had? After all, by this time the effect of those reductions ought to be showing itself, and the right hon. Gentleman ought to be in the happy position of reaping the reward of them. But what is the position? The melancholy facts of the position are that every month, practically every week with one exception since the beginning of the year, the numbers of unemployed have been greater than in the corresponding week of last year, and at this moment they are not far from 200,000 more than they were last year when the Labour Government was in office.

The right hon. Gentleman in one of his speeches said that when his Government had had authority and power for three or four years they would confront us with the proved results of their doctrines It is unfortunate that at the present moment the number of unemployed is 1,250,000, and that the only proved result of these doctrines is that a certain minority of rich men have obtained a larger share of the national income than at any other time since the close of the War. I think that this doctrine that the best way of relieving unemployment and trade depression is to reduce the taxation of the wealthy, through the Income Tax and Super-tax, is one of the most mischievous and fallacious of those doctrines which are instilled in the public mind by Chambers of Commerce, Associations of Employers, and the Federation of British Industries. The fact of the matter is that when you reduce the Income Tax the great bulk of your relief about five-sixths, according to Sir Josiah Stamp, goes in those directions where the reduction of taxation has practically no effect in stimulating trade and industry. It does not stimulate your trade or your industry to reduce the Income Tax on income from War Loans, or rents, or mortgages, or debentures, or preference shares. If you wish to relieve trade and industry, you should give your assistance to those workers and employers on whom trade and industry depend, and, in particular, we believe that at this moment you should give the greatest assistance to those trades which are struggling against the greatest difficulties. Instead of that, the Chancellor of the Exchequer is giving the greatest assistance to that small section of the community who already obtain the greatest share of the national wealth.

I want to deal with one further point. In answering these arguments, the Chancellor of the Exchequer, in previous Debates, has given us a series of calculations about the proportion of direct and indirect taxation, and he has argued as a justification for his policy that the rate of direct taxation is higher now than it used to be, say, before the War. If he is going to enter into these calculations again to-day, I would ask him to deal with this fact. It is true that the rate of Income Tax bears a higher proportion to the national taxation as a whole than it did before the War, but, on the other hand, the Income Tax and Super-tax payers get out of the national expenditure a far greater proportion than they did before the War which they keep in their own pockets. In all these discussions about direct and indirect taxation we must now take into account the fact that the expenditure side of our balance sheet is abnormal. It is lop-sided because of these huge payments of £300,000,000 a year in charges on the War Debt. You cannot in these discussions ignore that fact, and you cannot ignore how it has arisen. These are payments of interest on money that was lent to the Government during the War. The major part of it was money that was made during the War, money that was made out of the War. The Government would have been perfectly entitled to have taken that money by means of taxation. Instead of doing that, they preferred to borrow it at a high rate of interest. A great injustice was done to future generations by this distinction between the treatment meted out to life and the treatment meted out to wealth, and it is a fact which we cannot ignore in the modern financial situation.

What is the result? The result is that every year £300,000,000 has to be taken to pay the interest on this War Debt. The bulk of it goes to the Income and Super-tax paying class, and, apart from their contribution to the payment of War debt, the Income Tax and Super-tax payers contribute very little indeed to the general expenditure of the country. That is the central fact which dominates the whole of our finance every year now, and that fact, I submit, renders quite obsolete and meaningless these comparisons which the Chancellor of the Exchequer has drawn between the Income Tax now and the Income Tax before the War.

Sir FREDRIC WISE

I regret very much that I cannot agree with the arguments of the hon. Member for Keighley (Mr. Lees-Smith). I listened to him about three weeks ago, and replied to him then, but I am sorry to say he was not in the House at the time. I am not going to follow him into the question of direct and indirect taxation. The great thing about Income Tax is that it is a tax on industry, efficiency and ability, and the more you earn the more you have to pay. The hon. Member stated that there was a wide difference on this point between the two parties, and I quite agree with him; there is a great difference. We on this side firmly believe that, the more you reduce the Income Tax, or even taxation generally, the better it is for trade and industry. The hon. Member states that, when you reduce the Income Tax, five-sixths of the amount goes to the larger payers of Income Tax, and does not affect trade and industry; but what happens to that money? A reduction is made, and there are only two points that you can consider; you either spend it or you save it. Nothing else can happen. Supposing that it is a case of spending it, my hon. Friend must agree that that is good for trade.

Mr. JOHNSTON

Oh!

Sir F. WISE

If the hon. Member for Dundee (Mr. Johnston) does not agree to that, he must be one of the people who save it; and what happens when you save it? Supposing that you invest that money in War Loan, surely that is good for the credit of the country? Supposing that you put it into a savings bank, that is good for the country. Supposing that you put it on deposit at a bank, the bank does not keep that money in the bank, but lends it out to industry, either on Treasury bills or in various other ways. Supposing, however, for argument's sake, that that particular amount is invested in industry by the individual who gets the reduction, surely that is an advantage to trade and industry? It must be, whether the reduction is a reduction in Income Tax or in Super-tax. Naturally, I am not going to follow the Super-tax argument. Suppose the amount had been taken off tea, instead of being a reduction in Income Tax. I am sure the hon. Member would like that to be done, as we should all like it, but would it be of benefit to the country? I think the hon. Member would have used the argument that Indian tea companies, or tea companies in general, would have paid, perhaps, dividends of 200 per cent. instead of 100 per cent., and then he would have had a complaint to make that dividends in tea shares were too large and the profits too big. I think the right way and the best way for trade and industry is for the Income Tax to be reduced, because the money goes back into trade and industry in some shape or form

What have Income Tax payers paid since 1918–19? They have paid £2,106,000,000. If it were not for the Income Tax, this country would be insolvent; it is owing to the Income Tax that we are solvent. It is very important that we should be solvent, and anyhow it reduces costs of commodities in every way possible. If we once came into the position of not being solvent, what would happen to all our trade and commerce and industry? The more we can reduce the Income Tax, the better it is, I am perfectly certain, for industry and commerce in this country. This reduction is a relief of £24,000,000 this year, and £32,000,000 in a full year. I must leave it to the hon. Member for Keighley to suggest where that money should go. We all want a relief. The hon. Member wants a relief, just as we do on this side. He would put it, perhaps, as I suggested just now, on tea; I contend that the very best way is to reduce the Income Tax. I was reading a speech by the President of the United States recently on the Income Tax question, and this is what he stated: An expanding prosperity requires that the largest possible amount of surplus income should be invested in. productive enterprise under the direction of the best personal ability. This will not be done if the rewards of such action are very largely taken away by taxation. We are the highest-taxed people in the world, and I contend that a relief in the Income Tax is a benefit to trade and industry in this country.

Mr. ERNEST EVANS

Having passed from that part of the Budget which provides that in future the woman taxpayer shall pay through the hose, we now come to that part of the Budget which provides that the Income Tax payer shall pay through the nose, and I rather agree that this Budget is a disappointing Budget to those who were led to believe that relief was to be given to the Income Tax payer—not from any feelings of sympathy with him, but from the point of view that such relief would innure to the benefit of industry at a time when all trades of the country are suffering so much. The Chancellor of the Exchequer, in introducing his Budget and in speeches since, has emphasised the fact that, in considering these proposals, we have to take them as one general proposal, so that incidents which apply here must be considered in conjunction with incidents which apply there. The Chancellor of the Exchequer pointed out that he was endeavouring in his proposals to arrive at a very careful balance of accounts, which in some cases would involve additional burdens, but that he would provide that those additional burdens should be made bearable by reliefs granted in other directions. It is in that connection, and in the light of his claim that there will be a relief to industry, that it seems to me that his proposals in regard to Income Tax really fail to come up to the expectations which he tried to create in our minds.

There is no doubt at all that the Income Tax payer in Great Britain at the present time is being called upon to pay a very heavy proportion of the taxation of the country. As I said at the start, I am not concerned so very much with the individual, but I am concerned from the point of view of the fact that I believe it does tend to hamper the industries of the country, because a greater relief in Income Tax would enable more money to be devoted to the development and extension of industry. It is for that reason that it seems to me the Chancellor of the Exchequer has been unfair in the way he has treated the Income Tax and Super-tax payer. A relief in respect of Super-tax has not nearly the same amount of justification as a relief in respect of Income Tax from the point of view of trade and industry.

The CHAIRMAN

I think it would be more convenient to take the Super-tax arguments on the next Clause.

Mr. EVANS

I quite agree, and I was not going to make any detailed examination of that question, beyond pointing out that it was not irrelevant just to mention it in passing, in support of my submission, that relief should have come in this Clause to a greater extent to the Income Tax payer. In this connection one has to remember that other charges are in the course of this year being imposed upon the industries of the country, under the Pensions Bill. That, again, is a matter with which I cannot deal here, and which I merely mention for the purpose of emphasising the point I am making. I believe that the Chancellor of the Exchequer, in regard to the claim he has made that he has introduced a Budget which is going to assist the industries of the country, has failed to live up to that claim, in that he has not been able to give a greater relief to the Income Tax payer.

The other point I am making is that, in his praiseworthy anxiety to give relief to the Income Tax payer, he has rather diffused his generosity over various items, instead of granting a general and greater reduction in the Income Tax, which I think would be of greater benefit to the trade and industry of the country. It may be that the individual Income Tax payer who has a small income is, perhaps, to a small extent benefited—I think the right hon. Gentleman says to a large extent—but from the point of view of those who are anxious to utilise the financial arrangements of the country at the present time, in view of the great need that exists, for the purpose of facilitating the development of industries, I believe he could have utilised his generosity, if I may use that word, to a better purpose. The Report of the Inland Revenue Department for the previous financial year is full of material which is of great interest and of great value. I do not propose to enlarge upon it to any great extent on the present occasion, but it does show that the ratio of the net produce of taxation to the taxable income of the country is increasing by leaps and bounds from year to year, and, in view of the condition of trade, I do most seriously suggest that the time has come when further relief should be given, not only to the individual Income Tax payer, but also to everyone in the country, whether Income Tax payer or not, by distributing the Burden in such a way that it will free a greater amount of capital for the purpose of investment in our industries, which will ultimately benefit all classes of the community.

Sir JOHN MARRIOTT

I cordially agree with almost everything that has fallen from the hon. Member who last addressed the Committee, but I want for two or three minutes very briefly to address myself to the argument which came from the hon. Member for Keighley (Mr. Lees-Smith). In view of the whole economic position of the Labour party, nothing amazes me more than they should object to every reduction of direct taxation. Hon. Gentlemen opposite want reductions in indirect taxation, and have made dozens of speeches to that effect; but they object to a reduction in direct taxation, and I confess that that is to me a cause of astonishment. Of course, one may approach the consideration of any given tax—and I want to consider the Income Tax this afternoon—from two points of view. One may either consider it as it affects the individual taxpayer, and the genera] equity of the system of taxation as between different classes of taxpayers; or one may consider it from the point of vew, which, to my mind, is very much the more important, of the effect of any given tax upon the industrial condition of the country as a whole.

Hon. and right hon. Gentlemen opposite will, I think, admit that I am not doing them an injustice when I say that they confine their consideration almost entirely to the effect upon the individual taxpayer. The reason why they object, as I understand they do, to a reduction in the Income Tax, is that it will, as they put it, relieve the rich at the expense of the poor. I am going to traverse that argument entirely. Of course, I admit that direct taxation has this disadvantage: it is paid by the individual, and only the payment of the tax by the individual is apparent. The remoter effects of the tax are relatively hidden, but they are not less important on that account. First of all, then, one word on the equity of the tax from the point of view of different classes of taxpayers. I am sure I do not need to point out to hon. Members opposite that for very many years past there has been a constant tendency to pile up the burden of direct taxation and to relieve the burden of indirect taxation, and for a very intelligible reason. It is the indirect taxpayers who have the votes. There are only about 2,500,000 people who actually contribute directly to Income Tax. Still, the recent tendency has been very remarkable. If you go back to the great Budgets of Sir Robert Peel, you will see that only 27 per cent. of the whole taxation of the country was at that time—I refer to 1841—raised from direct taxation. Then go on for 20 years, to one of the greatest Budgets of Mr. Gladstone. You will find that in 1861 the proportion of direct taxation had risen to 38 per cent. Twenty years later, in 1881, it had risen to 42 per cent. Twenty years later again, in 1901, it had risen to 52 per cent., and in 1918 the direct taxpayers were contributing—I include in this figure excess profits—no less than 82 per cent. of the whole taxation of the country. Surely under these circumstances hon. Members opposite, looking at this matter from the point of view of equity—not the most important point I agree—as between different classes of texpayers, will admit that the time has come when in equity there should be some remission of direct taxation.

But I am very much more concerned, as was the hon. Member for Cardigan (Mr. E. Evans) who spoke last, to consider the matter from another point of view, namely, the effect of a high Income Tax upon industry and enterprise. It will be obvious that influence may be exercised in either or both of two ways. First of all—and I do not at all minimise the importance of this aspect of the matter—there is the psychological effect of high Income Tax rates. I believe psychologically you can do a good deal, and I believe the Chancellor of the Exchequer will find he has done a great deal to encourage enterprise and stimulate industry by the reductions which he is proposing in the Income Tax. Then there is the industrial point of view. I believe there also he will find himself justified. I recall that when the Chancellor of the Exchequer was opening his Budget he called attention to what seemed to me to be an exceedingly important point. He said: It is an undoubted fact that the country with the highest rate of unemployment is also the country where the taxes on income are at the highest level and where at the highest level there are collected in full. Then he put to the Committee what seemed to me to be a very pertinent question— Are you sure that that is only a coincidence? I am sure that it is not a coincidence. Of all the remedies we are advised to apply to our industrial malady, some wise and some not wise, none is so simple, so well tried, so efficacious or so safe as the diminution of taxation falling upon the profits of production."—[OFFICIAL REPORT, 26th April, 1925; col. 85, Vol. 183.] I am sure that in those words we have the true apology for the reduction which the Chancellor is now proposing, and I am very cordially in agreement with him on that point. I observe that a very careful statement was made the other day on behalf of the Labour party by one who was accustomed to speak with great authority a few years ago in our Budget Debates. I remember that for a good many years in succession I had the proud privilege of following him immediately in debate and, in particular, in answering the arguments which he advanced with great lucidity and ability on the Capital Levy. He made what was obviously a very carefully considered statement on behalf of the Labour party on this question of the reduction of the Income Tax only a week or two ago.

Mr. LEES-SMITH

Who is this?

Sir J. MARRIOTT

I was referring to Lord Arnold.

Mr. SNOWDEN

He never spoke in this House.

Sir J. MARRIOTT

Never spoke in this House! I have replied to Lord Arnold in this House time after time and year after year.

Mr. SNOWDEN

Lord Arnold was never a Member of the Labour party in this House.

Sir J. MARRIOTT

I never said—at least if I did I withdraw immediately—I am not aware that I said Lord Arnold spoke in this House on behalf of the Labour party. What I said was that a week or two ago he put forward what was obviously a very well-considered statement on this question of the reduction on Income Tax, and I presume now he is entitled to speak to some extent on behalf of the party which he has joined and of whose Government he was recently a member. I do not quite understand the interruption. If I made a slip, I apologise. I desire to reply to one or two of the points which Lord Arnold made, I presume, on behalf of the party opposite. This was his argument against the reduction of Income Tax. He said: The great bulk of the Income Tax is coming from persons whose activities will not be stimulated by a reduction in the rate of the tax. That is almost exactly the argument which was used by the hon. Member who is just leaving the House. I am entitled, therefore, to think it is the considered argument of the party of which he is a distinguished member. What is the truth in regard to this argument? It was developed even more in another place than it was here to-day.

Mr. LEES-SMITH

On a point of Order. Is it in order for a Member of this House to answer a speech delivered in the other House?

The CHAIRMAN

My ear was occupied for the moment. No, it is not in order to reply here to a speech made in the House of Lords. I believe strictly it is not in order even to refer to speeches in another place, but, as a matter of fact, that has fallen rather into desuetude. I have not gathered that the hon. Gentleman was doing it.

Sir J. MARRIOTT

I was only referring to the speech of the Noble Lord in another place because he appeared to put precisely the arguments which have been put by the hon. and learned Gentleman opposite.

The CHAIRMAN

May I ask if there were two speeches? In the first instance, the speech a fortnight ago, I gathered, was a speech in the country? [HON. MEMBERS: "No!"] Then the reference is distinctly out of order.

Sir J. MARRIOTT

I shall not pursue that. I apologise.

Captain BENN

On a point of Order. I assume that the fact that a Noble Lord, in another place, made a speech expressing the same opinion as the hon. Member does not preclude the hon. Baronet replying to the hon. Member here.

The CHAIRMAN

Oh, no, certainly not.

Sir J. MARRIOTT

I did not think that was your ruling, and therefore I wish to address myself to the argument which fell from the hon. Member opposite. If I referred to the other speech at all, it was because I thought Lord Arnold put precisely the same argument rather more elaborately and quite as lucidly. Of course, I shall make no further reference to that speech. I return to the point that hon. Members are constantly suggesting that, as a fact, this remission of Income Tax will not really stimulate trade in the way it is suggested it ought to. The question has been raised as to how it would affect those who invest their money in what are called fixed interest bearing securities, as, for example, debenture holders, persons who invest their money on mortgage and those who derive their income from fixed income bearing securities. I have seen it suggested that a remission of Income Tax to those people will have no effect. To my mind, that is a most amazing argument. Would any hon. Member on the benches opposite assert that the remission of taxation to those who are deriving their income from fixed income bearing securities is not likely to flow back into the channels of industry? Of course, it is. Anything which will help the investing public to save a little more will tend to go back into industry and to fertilise the channels of trade.

Mr. JOHNSTON

Will the hon. Member explain what effect upon trade and industry the remission of Income Tax to the extent of 1s. 6d. has had in the past two years?

Sir J. MARRIOTT

I can only say I think industry would have been a great deal worse had those remissions not been made. At any rate that is not an argument I want to pursue. [HON. MEMBERS: "Hear, hear!"] If hon. Members would like me to, I will, perhaps, return to it. But there is another point which has been raised and argued with a certain degree of plausibility. It is that owing to the fact that a large proportion—I think it is commonly said 80 or 90 per cent.—of our industrial and commercial capital is invested in limited liability companies, the remission of Income Tax will not find its way back to the channels of trade. That again is a most amazing argument. If a remission of taxation will assist the private business man who has his capital invested in his own individual or private business, why should it not equally stimulate industry if the remission is made to those who have their money in limited liability companies? To listen to some of the arguments which fall from those who are opposed to this remission, one would suppose that every individual in this country was living up to the hilt of his earned income, and that every sixpence of remitted taxation would lead only to increased expenditure on his part. The hon. Member for Ilford made it clear that what did not flow back into industry would go into expenditure and stimulate trade. I am not quite sure that I am fully in accordance with my hon. Friend on that point. What I want to see is this extra sixpence going to savings and to accumulated capital. That is the way in which it may, and as I believe it will, stimulate trade. I confess that I have a bone to pick with the Chancellor of the Exchequer on that point, but I should not be in order if I embarked upon it in this discussion. I only wish, in passing, to say that it seems to me he is taking away with one hand what he gives with another.

I have examined the arguments which have been directed against this remission of Income Tax, and have tried to put myself at the point of view of those hon. and right hon. Gentlemen opposite who are opposing the remission of Income Tax in the present conditions of industry in this country and, having tried with all honesty to put myself in that point of view, I have utterly failed to understand it. To my mind, the Chancellor of the Exchequer, both on psychological grounds and on grounds which are more purely economic and industrial, is taking a step which, at any rate, may, and I believe will, have the effect of doing something to stimulate and encourage our great and harassed industries.

Mr. ATTLEE

I should like to say a few words in reply to the hon. Member for Ilford (Sir F. Wise), because he is a well-known authority on finance, and the hon. Member for York (Sir J. Marriott), because about 21 years ago I used to have to sit under him, without any chance of reply.

Sir J. MARRIOTT

You have your chance now.

Mr. ATTLEE

I think there was a certain fallacy in the argument of the hon. Member for Ilford. His argument, as I understood him, was that this remission of Income Tax was a good thing, because the amount so remitted would flow back into industry, and what did not flow back into industry would go into ex- penditure and would, therefore, stimulate trade. I am glad to think that on that latter point there was some doubt raised in the mind of the hon. Member for York. From what the hon. Member for York said, if it does flow back into purchasing power, it is going back into the purchasing power of luxuries. This is not a time to stimulate luxury industries in this country, when the necessary industries are impoverished and many people cannot purchase the ordinary things by which they live.

Sir J. MARRIOTT

I said that I did not want to see it go back into expenditure. I want to see it go back into savings and accumulated capital.

Mr. ATTLEE

Perhaps I agree with the hon. Member, but for a different reason. Both hon. Members wish to see it flow back into industry.

Sir F. WISE

Hear, hear!

Mr. ATTLEE

Curiously enough, both hon. Members seem to be still in the mists of their old laissez faire views. Although they both believe in the direction of industry by the State, so far as they can do it by tariffs. Although they believe in stimulating key industries, they still have a beautiful and sublime trust that if they put money into the pockets of the very rich it will inevitably flow into the very best channels for the people of this country and for the whole of the country. I think that was the point which the hon. Member for York made. He thought it was very inconsistent that we should consider the individual investor. His point was that we should consider the whole country.

Sir J. MARRIOTT

Hear, hear!

Mr. ATTLEE

That particular class of the investing public look in investment for two things. In the first place, they look for the return that they are going to get and the amount of the return and, secondly, the security. That does not necessarily turn them in the direction which is going to be most helpful to the country. For instance, we had a spectacle not long ago of a flotation in the City of some extremely cheap newspapers, I think particularly noxious newspapers. I do not quite know how they are regarded on the other side. I do not know whether they are hitting the other side or whether they are hitting the Chancellor of the Exchequer at the present time, but I do know that they help the income of one of the Chancellor of the Exchequer's colleagues in regard to his writings. I refer to the "Daily Mail" Trust. When a loan was floated in the City of London in support of those newspapers, I think it was subscribed a 100 times over. Was that one of the key industries of the country? Was it one of the most necessary things at the present time? Supposing, on the other hand, we want to float a public utility company for the benefit of the people of this country in regard to some of the things which they badly need, let us say a housing loan, at a very low rate of interest, or a London County Council loan, we do not find that the money flows so readily where it is really needed.

We are challenged from the other side as to what we would have done with the £30,000,000. The hon. Member for York said that we would have given it in remission of indirect taxation. May I offer him two other suggestions. First of all, the Government might have used the £30,000,000 towards paying off the National Debt. In that case you would have the money flowing back into industry. In the second place, I would suggest that the money if it had been retained by the Chancellor of the Exchequer might have been used as an investment in the name of the nation and not in the name of a few rich capitalists. That is a fundamental fallacy of hon. Gentlemen opposite. They always confound capital with private ownership of capital. They cannot conceive of any capital being owned except by individuals. The real poverty of this country at the present time is that it lacks the ownership of capital in public hands. There is a great deal of capital in private hands, but not nearly enough in public hands.

The CHANCELLOR of the EXCHEQUER (Mr. Churchill)

As in Russia.

Sir F. WISE

Has the hon. Member looked at the trading accounts of the Government for 1923–24?

Mr. ATTLEE

Yes, and I think I know how those accounts are made up.

Sir F. WISE

They are audited.

Mr. ATTLEE

In reply to the Chancellor of the Exchequer I may say that my knowledge of Russia is not so great as his. My knowledge of Gallipoli comes from taking part in a campaign there, and his knowledge of Russia comes from the campaign which he waged against her.

The CHAIRMAN

Although the right hon. Gentleman interrupted the hon. Member, it is not very wise to develop an argument on the interruption.

Mr. ATTLEE

I apologise for being led into this digression. I do suggest that this country does need more national investments. The hon. Member for Ilford realises that. I think he is disturbed by the fact that we have a very heavy National Debt. Why should we not have national assets to set against that debt? He knows that during the past few years the weight of that debt has become greater and greater with the fall in prices, and the present Budget by the standardisation proposals is carrying on the same process, and as those prices fall the amount which is taken by the holders of fixed securities from the income of the nation waxes greater and greater. That is realised by most financiers as one of the great dangers of our financial position. There is a parallel, and that is the clog on private enterprise by the enormous mass of rentiers who take no part in industry except to take their interest. That tribute is not only swollen by war profits but by the habit of watering capital that has been done to so great an extent in the past four or five years. The class that holds these securities is the class that is being benefited by this Budget.

The hon. Member for Ilford said that it would be a very bad thing for us if we had no Income Tax payers. It would not be if the income came to the community. He seems to think that we only have real income if that income filters through the hands of the Income Tax payers. The other night I was unfortunate enough to meet a mosquito. I was fortunate enough to catch it. I found that it had consumed a certain amount of my blood. I did not need to catch the mosquito in order to know that I had blood. I prefer to retain the blood and to kill the mosquito. The truth is, that in this country, as in other capitalist countries, we have the existence of this enormous rentier class, the class which draws money without working for it. That class tends to develop a national industry in articles of luxury instead of articles of necessity. We have the enormous burden of paying interest to this class, and the Chancellor of the Exchequer in this Budget has deliberately put money into the pockets of that class.

The hon. Member for York said that if it is a good thing to remit taxation to the man who is conducting his own business, why is it not equally good to remit taxation to a shareholder in a limited liability company? The fact is that the shareholders in a limited liability company do not do anything. You cannot stimulate the industry of a man who has nothing to do but to cut out coupons. That is not going to make the company work harder. Perhaps it will mean more dividends for the man who cuts out the coupons. If you tax him a little more, perhaps he will touch up the directors and they will make the concern work harder. The hon. Member for York said one true thing, and that was that the great mass of wealth in this country is now in the form of shares in limited liability companies. I think he said it was 83 per cent. The interest on the 83 per cent. of capital thus held will be increased by this remission of taxation, and you are doing that for an apocryphal stimulus to the remaining 17 per cent. That is bad finance. It would be bad finance at any time, but it is particularly bad finance at a time when things are as they are now.

If this remission of taxation stimulates anything it will stimulate the consumption of luxuries. Shortly after the sixpence remission of Income Tax was announced, I was travelling in the train, and I heard various people say what they would do with the remission of taxation. One person was going to invest it in a motor car. Another was going to buy a bicycle for his boy. A considerable amount of this remission of taxation will simply go in expenditure, and often it may not be expenditure in this country. There are quite a lot of patriotic people who will spend their money on the Riviera. Why is the Chancellor of the Exchequer throwing away this £30,000,000, and giving it to the least deserving class in the community? I hope the House will agree to the reduction.

5.0 P.M.

Mr. CHURCHILL

I rise in order to express the hope that we may make a substantial progress during to-day, because the new Clauses which we should discuss to-morrow, and the Schedules, undoubtedly, give rise to many questions which ought to be discussed. We are working for a general understanding to which assent has not been given to terminate by Wednesday night the Debate on the Committee stage of the Finance Bill. The Government, of course, have no other wish in the matter than to facilitate the discussion of whatever points are considered to excite the greatest amount of public interest, and whatever course the Opposition consider best to pursue with that object the Government are only anxious to meet their views, and so to arrange the course of the Debate as to enable all the points to be made effectively. In view of the work which we have to do we ought to aim at getting the Income Tax and the Super-tax and the earned income remission provisions before the dinner hour so as to enable us to deal with the Death Duties after that. [HON. MEMBERS: "No!"] That would be a very reasonable way of doing it in view of what we have to do. If, however, hon. Members would prefer to spend their time in a different way that is a matter with which the Government would not be disposed to interfere unduly.

On the subject of the reduction of Income Tax I have very little to say, because I should have thought that it was almost universally agreed outside the limits of a very small circle, that it was a good thing that there should be a reduction of Income Tax. The hon. Member for Keighley (Mr. Lees-Smith), who opened the discussion, argued that it was wrong to have any reduction at all. If his arguments were carried to their logical conclusion there never would have been any reduction in Income Tax at any period. That was not the view of the late Chancellor of the Exchequer, and it was not the view of hon. and right hon. Gentlemen opposite when they were in office. On this point I may refer to a speech by the late Chancellor of the Exchequer.

Mr. SNOWDEN

The third time.

Mr. CHURCHILL

The right hon. Gentleman says that this is the third time that this quotation has been used. It appears to me to be such good sense, and to be one of the most interesting of the right hon. Gentleman's speeches, and one which constitutes in our opinion a most effective justification of our financial policy, that he ought not to object to its quotation, not once or twice, but if necessary 30 times. He told us, when he was Chancellor of the Exchequer, that he expected to have a statue put up to him in Throgmorton Street by the merchants of the City of London. In the course of his speech, when introducing the Budget last year, he said: I must not be understood to imply that I anticipate the permanent maintenance of a 4s. 6d. Income Tax. What I mean is that, so far as concerns the relief I can afford to give this year, there are other taxpayers whose claims I must prefer."—[OFFICIAL REPORT 29th April, 1924; col. 1606, Vol. 172.] But the force of a statement like that is much greater when coming from the mouth of the first Socialist Chancellor of the Exchequer and the highest authority upon finance on the Opposition benches, and coming at a time when he had at his disposal the whole of the information of the Treasury and the Departments of State. A doctrine like that does not agree with that which has been laid down by the hon. Member for Keighley. After all, the hon. Member for Keighley seems to have fallen away from grace. The right hon. Gentleman opposite indicated his perfect readiness, a readiness which almost amounted to a promise, to grant a reduction in the standard rate of Income Tax at some later period in his tenure of office. The hon. Gentleman (Mr. Attlee) who spoke last, and who was concerned with the administration of the War Office in the Labour Government, went very much further. His argument was an argument for the abolition of the capitalist system and the nationalisation of the means of production, distribution and exchange. I have no doubt that it is one which has done duty in a different form on many occasions and that it has gained for him, and will again receive, a meed of popular applause. I ventured to interject one word, and one word only, which I am bound to say appears at any rate to be relevant to those considerations which the hon. Gentleman put forward. The hon. Gentleman argued that for the greater development of State trading we ought to put this £30,000,000 into additional State trading.

Mr. ATTLEE

I said national assets.

Mr. CHURCHILL

The hon. Member pointed out how much more powerful the national assets were for the development of national industry than assets which were in the hands of private individuals. That policy has been tried on a very much larger scale, and by people of very strong convictions in the country to which I referred. I should not like to go into this matter further, as I might be treading on dangerous ground, but it is not necessary to do so, since everyone has the results in his mind.

Mr. RILEY

Glasgow and Birmingham.

Mr. CHURCHILL

Our view is that the development of national resources is more fruitful and more rapid when private enterprise and freedom of action are permitted, within the broad limits of the law, to the citizens of the country, and if you could have an account of the unfortunate developments which followed State trading in this country, I agree with the hon. Gentleman below the Gangway that the present condition of some of the State enterprises which have been embarked upon would furnish a remarkable example of—

Captain BENN

Were not those enterprises entered into by the right hon. Gentleman's own Government?

Mr. CHURCHILL

The hon. and gallant Gentlemen's interruption is one which does not affect the argument. The argument is not who was guilty—whether it was the capitalist-minded people who formed the Coalition Government, or whether it is the party opposite. The whole question with which we are concerned is whether these enterprises of State trading do in fact produce the result which—

The CHAIRMAN

If this argument is further developed the hopes of the Chancellor of the Exchequer as to an early end of the discussion will be futile.

Mr. CHURCHILL

I will stop at once. Then the hon. Gentleman who opened the discussion has challenged the broad proposition that a diminution of taxation tends to foster and develop the trade of the country. I should have thought that that was a statement which very few people would challenge. The relief of direct taxation undoubtedly renders sums available for the maintenance of industry and the undertaking of enterprise not within the year ahead, but for two or three years ahead, which is absolutely essential if the general prosperity of national industry is to be maintained. What we are really suffering from at present is that the whole process of building up enterprise three or four or more years ahead was interrupted by the War, and has not since been fully resumed. There is no doubt that enterprise and production are stimulated according as the national burdens resting upon capital and also upon labour are reduced. Whereas, however diminutions of indirect taxation manifest themselves by increased consumption, diminutions of direct taxation very frequently manifest themselves, at any rate to a large extent, by increased investment and enterprise. But the hon. Gentleman spoke about the relation of the rate of Income Tax to unemployment. He said, "How foolish it is to imagine that by reducing Income Tax you improve employment." The fact, however, is that the country with the highest rate of direct taxation is also the country with the highest unemployment.

That is the fact. It may be a coincidence. But when the Income Tax was reduced by 1s. and then by 6d., there was a great improvement. When the Income Tax was 6s. in the £ there were over 2¼ million persons unemployed. Now that the Income Tax has been reduced to 4s. 6d. in the £ that figure has fallen to 1¼ million people unemployed, and it would have fallen much lower but for the various improvements and relaxations carried out by the late Minister of Labour last year. It is true on paper that there has been an increase in unemployment between this year and last year. Perhaps if the right hon. Gentleman the late Chancellor of the Exchequer had carried out the policy of reducing the Income Tax last year that tendency would have been checked. At any rate it is just as open to me to argue that as it is for the right hon. Gentleman to argue the contrary. Certainly as there has been a reduction in the rate of direct taxation there has also been a steady diminution in the number of persons unemployed if you make allowance for the relaxations made last year by the Minister of Labour.

I should have thought that no one would deny the very great increase that has been made in the burdens of the Income Tax payer during the period of the War. It is not merely a question of the rates of Income Tax having been greatly increased. The whole system of graduation has been developed and completed. But quite apart from that there has been a decline in the purchasing power of money which is represented by an increase in the nominal value. An income of £10,000 a year, for instance, purchases only about what £6,000 would have done before the War. The ratio is about 180 to 100. The whole system of Income Tax is based, not on purchasing power, but on the nominal figure. Therefore, quite apart from the increase in the rates of taxation, it is levied on an income which purchases not much more than half what it would have purchased before the War. That is a fact which must be set against some of the facts adduced by hon. Members on the other side. The burden of the Income Tax on the graduated scale has been nearly doubled by the fact that the nominal value of money has so greatly changed.

It may be asked, "Have not all classes suffered equally from this increase in the nominal value of money?" That is not so. So far as the wage-earning classes are concerned, they have succeeded in raising, during the War period, their rates of wages to a level which almost exactly corresponds with the decline in the purchasing power of money. Weekly rates of wages are now, on the average, from 70 to 75 per cent. above the pre-War rates. That compares very closely with the 80 per cent. increase in the cost of living. On the other hand it must be remembered that the standard week of work to-day is about 13 per cent. short of the pre-War standard. That is to say, that whereas a man got wages of a unit of 100 for 100 weeks' work before the War, he now gets from 170 to 175 for 87 weeks' work. I am very glad indeed that the terrible catastrophe which swept across the world has left in this country the mass of the wage-earning people with their position unimpaired in regard to many of their prime essentials. There are many aspects in which they have not suffered in the same way as the Income Tax payers.

Mr. KIRKWOOD

Would you say that to the shipbuilding trade, engineers and the miners?

Mr. CHURCHILL

In making this reduction in the standard rate of Income Tax, we are taking a step which we firmly believe will be followed by an improvement in the trade activities of the country. That improvement may not manifest itself in a month or even in a year, but that it will manifest itself over a period of time, and will lead to an improvement in the economic condition of the country I have no doubt whatever.

Mr. SNOWDEN

I did not intend to take a part in this Debate, and would not now do so but for the preliminary observations made by the Chancellor of the Exchequer. The right hon. Gentleman suggested that we might get the Income Tax Clauses before the dinner hour, and then get to the new Clauses.

Mr. CHURCHILL

To begin to-morrow.

Mr. SNOWDEN

I think the right hon. Gentleman is asking rather too much of us. Only two of my hon. Friends have so far spoken, and in view of the deep interest felt in this matter, and in view of its importance, it would be most unfair for the Debate to close before others of my hon. Friends have had an opportunity of speaking. Therefore, I suggest that we go on a little longer without any agreement or understanding. Let me offer a few observations on the matter which is now before the Committee. The earlier part of the right hon. Gentleman's speech had about as much to do with the reduction of the Income Tax as with the man in the moon. I shall try to confine myself to points which have at least some relation to the matter now being considered. If the Chancellor of the Exchequer will only repeat a few more times that quotation from my Budget speech of a year ago, he may be able to repeat it by heart. I noticed that the right hon. Gentleman was being prompted, and that this precious speech was conveyed from another part of the House to the hands of the right hon. Gentleman.

Mr. CHURCHILL

I asked for it.

Mr. SNOWDEN

The right hon. Gentleman seems to think that in that speech he has got hold of something of value, something that is in contradiction of the attitude which my hon. Friends are now taking up on this matter. He has not, and he is quite welcome to whatever use he can make of the quotation. If his memory went back sufficiently long he would remember the controversy that took place shortly after the War on the question of a Capital Levy, when the late Mr. Bonar Law was the supporter of a Capital Levy and was supported by the Liberal party. He would remember, I suppose, that my hon. Friend the Member for West Leicester (Mr. Pethick-Lawrence) made a most interesting contribution to the question in a little book that he issued, and another hon. Member who sits behind me also wrote a book about it. If the right hon Gentleman would turn his attention for a moment from my previous speeches to the works of my hon. Friends he would find that one of the arguments for the Capital Levy was that the proceeds of a Capital Levy might be used for the reduction of Income Tax. There is no justification whatever for saying that we are opposed to a reduction of the Income Tax in all circumstances and under all conditions. What I said last year, and what I should very likely have said this year if I had been in the same position, was that I favoured reductions for the poorer classes of Income Tax payers. I was not committed for all time, nor was my party committed, to maintaining Income Tax at a flat rate of 4s. 6d. in the £. Still, at present there are other classes of tax payers whose claims must be considered first. It was most unfortunate that the right hon. Gentleman should have said what he did say in the concluding part of his speech. He said that the payers of Income Tax had suffered more than the non-payers; they had suffered by the depreciation in the purchasing power of their incomes.

Mr. CHURCHILL

Owing to the fact that the increase in the nominal value of the income means that each step of graduation is reached earlier. That has been my argument.

Mr. SNOWDEN

Yes; but the right hon. Gentleman forgets that about three years ago there was a rather drastic alteration in the scale, which gave very considerable relief to the people who had a few hundreds a year. The point of the observation of the right hon. Gentleman was that the Income Tax payer, through the depreciation of the purchasing value of money, had suffered more than the wage-earning classes. That is not only an unfounded statement, but, if the right hon. Gentleman meant it, it was a very cruel thing to say. Any sacrifices that the richer people make through the decline in the purchasing power of money are merely sacrifices of luxury and of things which they are probably better without, but the depreciation in the value of money, when not accompanied by at least a corresponding increase in wages, means a lowering of the standard of living for the poor, and as at all times practically the whole of the wages earned by the working classes must be spent in providing physical necessities, any reduction means that they have to eat lees, that they cannot buy as many clothes, and that they have to spend less on rent. It was most unfortunate that the right hon. Gentleman should have attempted to draw the comparison.

I am not going to enter into what might be described as the main point which has been put forward this afternoon, namely, that a reduction of the Income Tax is a stimulus to trade. I will make only one observation. The right hon. Gentleman said that there had been a decrease in unemployment from the high-water mark of about 1920–21 The Chancellor of the Exchequer said it might be a mere coincidence, but it was a fact that this country, which has the highest proportion of direct taxation, has also the largest percentage of unemployed. How is it, then, that when direct taxation reached its highest point in this country there were practically no unemployed, and we had such a boom in trade as had never previously been experienced in the industrial history of this country? There had been, the right hon. Gentleman said, a slight increase of unemployment compared with a year ago. I wonder what he means by "a slight increase." He is evidently like a famous colleague who once led the Tory party, in that he does not read the newspapers. Had he done so, he would certainly have seen the appalling statement that last week there was an increase of 60,000 in the number of registered unemployed, and the further statement that the number of registered unemployed is 240,000 more to-day than it was 12 months ago. I wish to say a few words about the point which the right hon. Gentleman made about the decreased purchasing power of money. Is he aware that two or three years ago the cost of living was about 176 points above 1913? To day it is about 80. Therefore there has been an increase in the purchasing power of money as between 176 and 80, and it is the people who spend most who reap most advantage from that fact. This has been accompanied as everybody knows by a very rapid decline in the wages of the working class, and if you compare purchasing power with wages today over the whole field of industry—I will not put it higher than to say you will see that at any rate the wage earners are no better off than they were in 1914, and if you take a great many of the industries such as mining, they are decidedly in a position very much inferior to that in which they were before the War. As I said, I am anxious that my hon. Friends behind me should have an opportunity of continuing this Debate. Therefore I will not say anything more than that we certainly do not subscribe to the contention that this reduction of Income Tax will be any stimulus to industry at all. If it were, the mere announcement of the reduction would have shown effect, but instead of doing that there has been an increase of nearly 100,000 in the number of unemployment since the right hon. Gentleman made the announcement of this reduction. The right hon. Gentleman may smile, but he cannot have it both ways. He maintains that this reduction will stimulate trade, but facts are stubborn things, and here the fact is facing the Chancellor of the Exchequer that since he made the announcement there has been no improvement in trade, but on the contrary, as the newspapers show this morning, imports and exports are down last month compared with 12 months ago, and there has been an increase last week of 60,000 in the number of unemployed.

Mr. MORRIS

The argument advanced by the Chancellor of the Exchequer is that a reduction of Income Tax means an increase in the accumulated savings of the country, and enables the Government to do something to meet the situation with regard to unemployment. That argument would be more convincing if we did not know that the Chancellor is taking £6,000,000 more out of the pockets of the taxpayer than his predecessor was taking last year. The argument which he puts forward that if you reduce taxation sufficiently, you will then solve the unemployment problem, is deprived of its force by this fact. The hon. Member for York (Sir J. Marriott) told the Committee the history of the balance between direct and indirect taxation, and a good deal has been said from time to time about the effect of altering the balance as between one and the other. Mr. Gladstone, in introducing his great Budget of 1861, referred to this problem, and explained how he regarded these sources of taxation— I never can think of direct and indirect taxation except as I should think of two attractive sisters introduced into the gay world of London, each with an ample fortune, both having the same parentage—for the parents of both I believe to be necessity and invention—differing only as sisters may differ, as where one is of lighter and another of darker complexion, or where there is some variety of manner, one free and open, and the other more shy, retiring, and insinuating. I cannot conceive why there should be any unfriendly rivalry between the admirers of these two damsels, and I frankly own whether it be due to a lax sense of morals or not, that, as Chancellor of the Exchequer, I have always thought it not only allowable, but even an act of duty to pay addresses to both. The present Chancellor of the Exchequer has not only thought it allowable, but also his duty to pay his attention to both these damsels, and he has paid attention to both to such effect that he has taken from the fortune of both a sum of no less than £6,000,000 more than was taken by his predecessor in office. Yet a remission of taxation, he says, is going to give assistance to industry. How is he assisting industry when he takes this extra sum? What assistance does that render to the solution of the unemployment problem? Will it not create a greater number of unemployed? We further object to this money being taken because it is being devoted to expenditure which is in a large degree wasteful, unprofitable and of no value whatever to the country. If the Chancellor of the Exchequer is looking for opportunities of lessening the burden on the taxpayer, he could, with profit, turn his attention to the sum spent this year on armaments, which is £120,000,000. It may be argued that money spent on armaments is insurance for the safety of the country, but we have to decide what amount of premium we should pay for that insurance. Obviously, over-insurance is as ruinous as underinsurance. If one compares the annual income of this country to-day with that for the last quarter of the nineteenth century and the amount of money spent on the defence of the country then and now, we find that the premium roughly worked out at about 2 per cent. in those days, and I do not suppose it will be suggested that there is now any greater danger of war from any quarter of Europe, or that this country is in any greater peril now than during the last years of the nineteenth century and the beginning of this century. For instance, I find that in 1875 the national income—

Mr. DALTON

We were discussing Income Tax, and many of us are anxious to continue that discussion. Is the hon. Member in order?

The CHAIRMAN

Hon. Members have been consulting me as to the business of the Committee, and as to whether certain Amendments are or are not in order. My ear was occupied at the moment. I will now listen with diligence to the hon. Member.

Mr. MORRIS

I have an Amendment on the Paper which I understand is not going to be called, and what I was submitting was that this reduction of Income Tax by 6d. in the pound does not go far enough, and that there should be a further reduction to 3s. 9d., and I was suggesting directions in which the Chancellor of the Exchequer might find means of doing so. He should give attention to the expenditure which is being authorised this year

The CHAIRMAN

The hon. Member is going into the question of alternatives. If that were to be repeated on every argument, it would lead to an endless series of discussions.

Mr. MORRIS

With great respect. Sir, I accept your ruling. I do not want to suggest an alternative, but I am pointing out that the Chancellor of the Exchequer this year is taking £6,000,000 over and above what was taken last year, and at the same time he is arguing that if you take money out of the pockets of the taxpayer, you are handicapping industry. For my part I accept the argument that remission of taxation, whether direct or indirect, is by the amount of that remission an assistance to industry, and my point is that the right hon. Gentleman does not go far enough. I suggest that if he turned his attention to the spending Departments of the Government, he would find means of giving further remissions. If we compare the position of the taxpayer in this country with that of the taxpayer in the United States, we find a vast difference. No doubt that accounts to some extent for the difference in prosperity between the two countries. The man with an income of £500 in this country pays Income Tax to the amount of £19 2s. The American citizen in the same position is tax free. The man with a salary of £800 in this country pays £65 18s. Income Tax; the American figure is £4 10s. That is a colossal difference, and this additional burden on the industry of the country handicaps it in competition against the United States. The figures relating to the taxation of married men in Canada, United States and this country and not less interesting. The following are the proportions of Income Tax paid by married men in the three countries: United Kingdom 20 per cent., Canada 10 per cent., United States 5 per cent. These are astounding figures, and demand the attention of the Chancellor of the Exchequer. This proportion can only be adjusted, and the industry of this country given a chance if the spending departments of the Government are vigilantly observed by the Chancellor of the Exchequer.

Mr. GILLETT

In the very interesting discussion which has taken place on the income Tax, the accusation has been paid that we on this side are opposed to any reduction of Income Tax. The hon. Member for Keighley (Mr. Lees-Smith) said nothing of the kind in the speech with which he opened the Debate, but he pointed out that what we object to is the fact that Income Tax is being relieved while many other things which ought to be done are left undone. We had very prominent support of that view in a letter which appeared a few weeks ago in "The Times" from Mr. Pease, the chairman of Pease Partners, who would not be accused of being a Socialist or of being connected with our party, and he complained that the Chancellor was giving relief to the people who least needed it. In other words he was, broadly speaking, support- ing the plea which we put forward that to relieve the Income Tax payer this time was a mistake. There is an additional mistake. Mr. Pease no doubt is very well aware in connection with his large business, that the whole Budget must be taken in connection with the new charges that are being imposed on the worker and upon industry. It would be quite impossible to try to explain to the hon. Member the Member for York (Sir J. Marriott) the arguments which we have used that relief of Income Tax does not, to a large extent, mean relief of industry. We had supplied to us in answer to questions a short time ago, figures which show that out of £260,000,000 that has to be raised this year by Income Tax, supposing the reserves that are left in business could be relieved of paying their share of Income Tax, the nation would lose about £46,000,000. If we were to take the full amount of £32,000,000, which a relief of 6d. means, the amount this represents as a relief to real business—that is in the money which is being put back again into business, or kept in business on which the company would be paying Income Tax—is something like £5,500,000 from what the Chancellor is giving. After that, I wish to suggest that, in view of the figures quoted by the hon. Member for York, in which he pointed out that about 83 per cent. of industry is now carried on by limited liability companies, you cannot be certain at all that the other £26,000,000 will necessarily go back in the relief of trade.

My reason for saying so is this: I think we often fail to recognise the great changes that are taking place throughout the business world to-day, and that have taken place in the last 50 years. In those times you had a man with a private business, and the man who made money put more of it into his business, but now, in your big concerns, you find that, generally speaking, the management is divorced from those who own the money. If I look at the banking world, with which I am most acquainted, I see that some 50 years ago you had your private banks, and at the head of them, directing the policy of the banks, were the men who owned the money. When first I went into the City of London, the men who were directing the policy of the great banks were those whose names appeared amongst the list of partners of those banks, but look at the banking system to-day, and consider how many of the chief men who are directing the banks, the men whose names appear most prominently in the banking world, belong to the old banking families who originally started the banks. The same principle applies in all industries to-day.

Therefore, when you are organising your business, the amount of the tax becomes a secondary object to those who are really trying to make a profit. They know perfectly well that they are out to make £10,000, or £20,000, or £100,000, or as much profit as they can; they want to report to their shareholders that they have made that amount of profit, in order to justify the work they have done; and if the Government take 2s. 6d. or 4s. or 6s. as tax, they know they are in no way liable, whatever the amount of that taxation may be. Therefore, I suggest that what might in the old days have been something of an incentive to industry has to a large extent been removed, and that you have your business men who are directing industry only to a very secondary extent Income Tax payers themselves or affected by what the Income Tax may be. In the second place, as soon as a limited liability company has paid its dividend, the money has absolutely gone from the concern. It may go back in some form or other if the company puts out some appeal for money, but, generally speaking, that money has gone.

I then want to point out the next important question, and that is this: The theory in regard to Income Tax relief is that you are going to put the money back into the pockets of people who, as the hon. Member for Ilford (Sir F. Wise) said, are going to use it in what is termed savings, but I think it better to call it surplus income. Here, once again, I think we come up against the old theory that you want to have wealthy men in the country, and some 50 years ago there was a good deal to be said for the belief. You looked at a district and saw that a wealthy man brought money into that district, but to-day your joint stock system of industry has to a large extent eliminated the need for wealthy men, in the sense in which they might be said to have played their part in the organisation of society 50 years ago. To-day you have a company that wants money, but it need not go to wealthy men for it. It makes its appeal, and you have people of all classes of society, with small or with large savings, putting their money into that concern, and there is no need for the Chancellor to try to make the rich man wealthier under the delusion that he will get more savings.

As a matter of fact, he is making the mistake of not considering who are the people who really, according to the hon. Member for Ilford, are the people who save best. You apply to the man who has an income of between £500 and £1,500, and they are the people who save more in proportion to their incomes than any other section of society. The working classes save to a certain extent, but it is doubtful whether any of them have any justification for saving, if you consider what the cost of any savings amounts to. The wealthiest classes of all certainly are not the people who save, in the sense of saving to the point of sacrifice on their part. The middle-class people are those who save most of all, and if the Chancellor of the Exchequer really wanted to give his money out to those who are likely to save, he ought to have seen it go to the pockets of the middle-class families. I am now talking about Income Tax people in the first place. The Chancellor of the Exchequer, instead of removing the 6d., might have increased the allowances to those who are bearing the responsibility of a family. In regard to education, I am not criticising those of the working classes who are unable to get the full education that they need, but I suggest that you will find to-day that those who spend the largest amount on education are the classes to whom I refer, and if the Chancellor of the Exchequer really wanted to spend his money in the best way, I suggest that he should have given his relief to those Income Tax payers who have families. When you consider the amount of relief given in regard to Income Tax to a man who has a wife, and, say, three children, as compared with the relief given to a single man, each receiving an earned income of £2,000 a year, you will find that the difference in the amount of taxation is only the small sum of £40, and you will see that we have not in any way begun to touch the question of what might be done in the way of relief for men with families.

There is another point, and a very important point, in connection with savings, upon which so much stress is laid by hon. Members opposite, and that is the very serious question as to whether the savings are going in the best direction when you have got them. This also has to do with the way in which your taxation is being levied. I think it is a mistake to hand back this money to Income Tax people, because I doubt very much whether they are the people who are most capable of using the money in the form of savings. We have had figures as to the amount of money raised on the London money market in the last five years, apart from money raised by Government loans—a sum of about £1,200,000,000. Of that amount over £500,000,000 has gone abroad. What consideration is given by those who are raising the money as to whether it is best for this country that the money should go abroad? What consideration is given by your wealthy people as to how they are putting out their money? As a matter of fact, the history of the money market is strewn with the results of investments that have failed. Large sums of money have been lost all over the world by those who are supposed by hon. Members opposite to be specially qualified to have this money under their care. Therefore, I think that this idea that the money is going back into the best hands for saving is, first of all, a mistake, because you ought to have put it in the hands or pockets of the middle classes if you wanted it saved. In the second place, I am surprised at the speech of the hon. Member for Ilford, because one would have got the idea from him that it did not matter how money was being spent. To my mind, the whole crux of the position is the manner in which you are going to spend your money.

Sir F. WISE

My point was that you could either do one thing or the other; you could either save or you could spend.

Mr. GILLETT

That is the mistake that I think the hon. Member makes. You can do that, of course, but you can spend the money well or ill, and that makes all the difference, and that is the great difference that lies between the hon. Member and us. We say that, if you put the money into the pockets of these people, many of whom will spend it on new motor cars or in some other form of luxury—quite harmless, it may be, but luxury in some form—that is what you do not need to-day. In the first place, you want to see that any relief of taxation—and that is why we are so strongly in favour of the relief of food taxes—goes first of all to the working classes of this country, because I am fully convinced that they are the key to the whole position. The figures given by the Minister for War, in regard to the physical health of the soldiers who came up to be recruited in the Army, are the condemnation of our financial system. When we find that the Chancellor of the Exchequer comes here quite prepared to propose that the working classes should pay more for insurance, and that the business world, that can least afford it, should pay more for insurance, and then selects a set of people who are doing fairly well, at any rate, who do not specially need this relief, and, quite regardless of all the urgent claims of poverty, housing, and so forth, hands this money back to them, and says that it will act as a kind of golden shower falling upon the country, I say that it is a delusion from which the right hon. Gentleman, along with many other hon. Members of this House, is suffering. It may be a golden shower to the people who receive it, and a very pleasant and acceptable one, too, but if he believes that it is a golden shower that is going to be beneficial to the condition of trade, I believe that the Chancellor of the Exchequer is, broadly speaking, absolutely wrong, and that there are many other ways of relieving trade which would be more effective.

Why have we heard nothing about the burden on trade in regard to rates and taxes, which is an infinitely heavier burden than the Income Tax burden to-day? Rates and taxes have increased by something like £70,000,000 compared with pre-War days, and if the Chancellor of the Exchequer had been anxious to relieve the burden on industry, he would have considered the rates and the question of doing something in regard to the reserves in business. If he had been anxious that this money should go back so that it might be used for the very best purpose of all, I am certain he would have said that the first need we have in this country to-day is to give relief to those people who are not getting sufficient food or proper housing, whose children are not getting the bare necessities of life, and he would have seen that the money was put into those quarters which would be likely to bring a, far greater harvest to this country than anything he will get by handing it back to the wealthy people to whom he proposes to hand it.

Mr. J. HUDSON

I wish to join with my colleagues in protesting against the assumption that has been made on the benches opposite and by the hon. Member for York (Sir J. Marriott) in particular, that in some way or other we are pressing, as a matter of principle, for the retention of the Income Tax at the figure at which it existed before the Chancellor of the Exchequer made his reduction. That is not so. We have been objecting to the reduction on this occasion because we have examined this proposal in relation to the general proposals of the Chancellor of the Exchequer. Had the right hon. Gentleman imposed a scheme of land taxation or increased the Super-tax or the Death Duties heavily, or had he been able to make some proposal whereby it would not have been necessary for him to impose the 4d. on the workers who contribute to the Insurance Fund and the 4d. on the employers, we might then have taken a different attitude with regard to this Income Tax.

6.0 P.M.

It is because of the way in which the Chancellor gives a special treat to his friends the hard-pressed Income Tax payers, that we make our objection, and we have tried to make it all the more forcibly because the were so many other sources from which he could have raised the money for purposes of social amelioration. I have been particularly interested duirng this Debate to observe that hon. Members, even those who have the greatest reputation as financial experts, like the hon. Member for Ilford (Sir F. Wise), in pressing their argument with regard to the relief of Income Tax being ultimately for the improvement of trade, have pressed it entirely upon purely academic and theoretical grounds, without advancing any evidence whatever from practical experience to show that there is anything in this case. I think I may say the Chancellor himself, who has discussed this matter both in this Debate and in earlier Debates, has entirely failed, although he has the Treasury behind him—and the Treasury is, I believe, of all Departments the one which would enable a Minister to prove almost anything with the figures they are able to provide if a Minister desire to prove anything—although he has got the Treasury there to give him the facts with regard to the effects that may have been observed in the years that followed the Boer War. He has got the facts there to show what connection there is between a decreased Income Tax and an improvement in trade. There is nothing in recent years to enable him to make the statement he has done. I believe if he would turn back to the period just after the Boer War, when Income Tax was reduced, he would find then, also, that trade was particularly bad following upon the reductions that were then made.

I want to follow this argument a step further. I observed that the right hon. Gentleman smiled, apparently with a certain amount of contempt, when we suggested from these benches that the increase in unemployment observable since his Budget proposals may have some connection with this proposal with regard to Income Tax. If he will take the figures published this week of imports and exports for the month of May he will see that there has been practically a decrease all round of raw materials imported into this country. Now if manufacturers, as the result of the reduction of Income Tax, thought that trade was going to be assisted, they would have shown their hopefulness first in the raw materials they would have ordered for the next three or six months, and if they did not order them those who supply without orders being given, and who have a pretty good capacity to judge what future conditions will be, would have indicated it in the amount they sent to this country, and there would have been an increase in the raw materials that arrived.

What are the facts? Taking the important staple industry of the country for May, the raw cotton imports were down by £1,660,000; and wool imports last month were down by £2,900,000. Certainly, coming from Yorkshire as I do, representing a Yorkshire constituency, I do not see much hope in these figures of an improvement in trade in the wool industry of Yorkshire as a result of the Chancellor's proposals regarding Income Tax. The figures also show that oils and fats are down by £809,000, hides and skins by £675,000, timber by £412,000, and so on. It is with that in mind that we have the right, surely, to ask the Chancellor of the Exchequer to give us some actual facts that would support the general statement that he and others on those benches continue to make regarding this question of the relationship of Income Tax to the development of trade. It is our opinion, backed up by some little experience, that what now takes place in industry, generally speaking, is this At the end of each year, or the end of each half-year, trading companies and trading individuals put aside, in the form of reserve funds and sinking funds, and by other expedients, the money that ultimately they propose to invest in their industries at some future date, and it is after those reserve funds, and so on, have been put on one side, that income is actually paid to those who receive it. If, therefore, you tax that income, it practically makes no difference to the amount of the reserve fund or the sinking fund. Your conditions with regard to industrial investments remain much the same, whether you take 6d. off the Income Tax or leave it on, and it is for that reason we object to the Chancellor's proposals, particularly at a time when he is imposing on unemployed workers, on people who are now at the margin of starvation, as tens of thousands of the working people of this country are, a poll tax of 4d. every week for a particular thing that may bring no benefit to them, and this time, of all times, he selects to give to the Income Tax payers the remission he has made.

Mr. HARRIS

I am not going to deal at any great length with the speech we have just heard, although I quite agree with the hon. Member (Mr. J. Hudson) that it would be much more satisfactory to have a reduction in indirect taxation. But we failed to obtain that concession, although we did our best to persuade the Chancellor of the Exchequer to give us a concession in indirect taxation. I entirely agree that reduction in prices must stimulate trade by increasing demand for all articles in general use by the people, and if we got our reduction in that form, I am sure it would have been better for industry, for trade and employment. But we failed. The Chancellor has not been prepared to listen to any arguments or any reasons. He has dug himself in, and is not prepared to listen to any proposal of the kind. Now we have to try in other directions to get some help for the over-taxed, sorely-pressed citizen. I think it is far sounder to reduce the Income Tax in general than to reduce the Super-tax. It would stimulate trade, help industry in a far better way. I entirely agree with the hon. Member for Finsbury (Mr. Gillett), that the taxpayer can consume only one meal at a time, and the reduction of Super-tax will not be a stimulus to industry. On the other hand, when the small income is less taxed, obviously it must stimulate demand and help industry as a whole. I appreciate, however, that the Chancellor has a difficult task to raise the necessary revenue, and I rather wanted to call his attention to the second part of the Income Tax Clause provides that: The annual value of any property which has been adopted for the purpose of Income Tax under Schedules A and B for the year 1924–25 shall be taken as the annual value of that property for the same purpose for the year 1925–26: Provided that this Sub-section shall not apply to lands, tenements, and hereditaments in the administrative county of of London with respect to which the valuation list under the Valuation (Metropolis) Act, 1869, is, by that Act, made conclusive for the purposes of Income Tax. The Royal Commission on Income Tax called special attention to the unsatisfactory state of the law, the very large loss of income to the Revenue, because of the particular provisions made with regard to land. I have a very shrewd suspicion that people who derive their income from land have been specially favoured for very good reasons, but what the Income Tax Commission specially recommended was that tax should be levied on income derived from land on exactly the same basis as income derived from any other source, and that is very sound at the present time. People who have their money invested in land, are not engaged in industry or trade, are drawing incomes without giving any real return to the community. On the other hand, of course, in the case of people who have invested their money in industry, there is a very good chance, if taxation be reduced, of the money they save being invested in trade and industry, giving employment.

I would point out this very important fact, that in London the Exchequer is losing a very large sum, because of this method of assessment, which is based on an Act as old as the Valuation Act of 1869. The last quinquennial valuation was made in 1920, but for the most part the assessments are based on the assessments of 1915. Consequently, in London practically none of the 40 per cent. increase obtained by landlords under the Rent Restrictions Act is available for Income Tax assessment. The loss of revenue to the Exchequer, I am informed on expert authority—and there is a very interesting article in the "Journal of the Surveyors' Institute"—runs into many millions of pounds. The London County Council appointed a committee to inquire into the matter both last year and this year, and, as a result, they passed a resolution which they sent to the Government expressing their view that gross value should be made conclusive evidence for Income Tax purposes. They passed a resolution to that effect in their desire to help the Government both this year and last year, and the Minister of Health made some reference to that. It falls particularly hard on those landlords who are not taking advantage of the possibility of raising rent. A large number of houses have been decontrolled, and, in the case of the houses that have been decontrolled, the landlords have a free hand to increase their rents over the 40 per cent. limit. That surplus is going into their pockets absolutely untaxed. If the Chancellor of the Exchequer thinks that is fair, I certainly do not. Other increments by people in business are rightly and properly subjected to taxation, but because a man invests his money in land, takes advantage of the demand and the shortness of the supply of land, he pays nothing in the way of unearned increment, and the whole of it goes into his pocket and is not taxed by the Chancellor of the Exchequer for Income Tax purposes.

If the right hon. Gentleman is looking about for new sources of revenue it would be wise, right, proper- and just to follow the recommendations of the Royal Commission on Income Tax, and make income derived from land subject to the same rate of taxation as income derived from any other source. It does give the im- pression to the public outside—no doubt it is the wrong impression—that Governments think more of the landlords than they do of the trading interests. In centuries gone by this House of Commons has very often been spoken of as the House of Landlords. That does not apply to-day. Surely, then, it is about time that we should remove this anomaly of giving a privileged position to people who have invested their money in land as opposed to those who have risked their money in business and in trade. When the Chancellor is busily engaged at the present time looking for new sources of revenue he might consider some of these things, and at the same time do what will not discourage the people who are investing their money in business. In this connection, surely, the right and proper thing is not to impose fresh taxation, but to put the burden on the tax bearers on an equal basis, and make the taxpayer who gets his money from land subject to the same rate of Income Tax and the same taxation as other taxpayers. I hope the right hon. Gentleman will allow an Amendment to this. Meantime, I do want to make this protest, because, after all the inquiries that have been made by Royal Commissions and by experts, this reform would appear to some of us to be long overdue. If the Chancellor of the Exchequer wants to do something practical, not very showy perhaps, but which would bring millions into his coffers, here is a suggestion for him.

Mr. LANSBURY

I want, first of all, to say a word about the unemployment figures that were quoted a little while ago. It is perfectly true that a quarter of a million more men are unemployed to-day than there were this time last year. It is equally true that there are another quarter of a million of men who should be added to this number, because they have been struck off the unemployment pay book since last August. The point here that I want to make, in reply to the interjection of the hon. Gentleman opposite, the Member for Reading (Mr. H. Williams), is that although it is true to say that some of these 260,000 men that have been indicated by me have been registered, it is also quite true to say, as the hon. Gentleman knows, or should know—for we do in my constituency at any rate know it—that there is a large proportion—90 per cent.—of those cut off who are still off and who will never have the chance of getting on again. These are the people who are 55 and 60 years of age. They have been told that they have no longer any chance of insurable employment.

Mr. H. WILLIAMS

They can register.

Mr. LANSBURY

The hon. Gentleman says they can register. What is the use of registering if they know there is neither work nor anything else for them? I am speaking of what I know from actual experience, and, therefore, the number that has been spoken about this afternoon, the large number of men, women, and young people must have a considerable number added to them in the way that I have suggested. The position is not properly represented by the figures which have been given us this afternoon. That is the first point I want to make. The next is that in all these arguments about helping trade and business by reducing Income Tax it seems to me that the people who talk that way forget that if you knock off indirect taxes that the working people pay week by week without knowing what they are paying, the money so knocked off is spent by the workpeople in buying the necessaries of life, and in thus making trade better. The woman who could save the tax she pays on sugar, tea and other things, the husband who pays on tobacco, beer and so on—these together out of whatever they might save from the reduction in indirect taxation, would buy perhaps a pair of boots one month and something else that was required the next month, and that would stimulate real trade rather than what has been suggested. I want to repeat that nobody pays Income Tax until they have got an income. I know perfectly well that taxes are levied on small incomes which I think ought not to be levied on at all. I think the scale of exemption should be much higher than it is to-day, for a variety of reasons.

Mr. MacLAREN

At the bottom.

Mr. LANSBURY

I mean, of course, at the bottom. There should be a larger class exempted because of the smallness of the income at the present time. The further point I want to make is that those who pay a large Income Tax, and even those of us who pay a small Income Tax, should be very glad in these days if they have any income to pay a tax upon at all. I have never myself grumbled when I have had to pay Income Tax. I have been very thankful I have had an income on which to pay it. I am rather sick of hearing people who represent mainly the very rich people talk as though they ought not to be taxed in this fashion. I want to repeat what I said on the last occasion, that taxation ought to be levied according to ability to pay, and that when people are able to pay they should pay up and look happy instead of grumbling.

The other thing to which I wish to call attention is this continual talk about injuring the people at the top, this continual talk about the sacrifices the rich people have made—sacrifices of money and in other ways. It was my good fortune to stand in the Mall the other day and to watch the ladies going through. I was astonished, in this time of "hard-up-ness" to see the manner in which the women, and many of the men too, were dressed, to note the wealth of jewellery and diamonds. If I could not believe the evidence of my own eyes I can believe the evidence of the picture newspapers which are continually telling us that this season is the most gorgeous season Britain has ever had, or seen. And this in the midst of all the poverty. You have house parties being given and all sorts of extravagance in the West End which gives the lie to the suggestion that the rich are making sacrifices. They are making no sacrifice at all.

This week we shall see in the newspapers all about the brilliancy of Ascot, and this while a couple of million of people cannot get jobs to earn their bread. The well-to-do, we are told, make all these great sacrifices. These people will be out at Ascot. We shall have the Royal Procession just in the same fashion as before; and there will be people dressed and overdressed, certainly many of the women and men will be wearing clothes the cost of which would clothe scores of the very poor children of the people. When you are talking about expenditure in the country, or talking about expenditure of individuals, it is not a question of the actual spending of the money; it is how you spend it, and on what it is spent. Every penny that will be spent at Ascot, every penny spent in connection with a drawing room or a levee, every penny spent by the rich anywhere, and every penny I spend—that I do not earn—is earned by the work folk in some way and at some time. No amount of argument will get over that. In this House some hon. Members, and the Home Secretary amongst others, talk about the horrors of Bolshevism. What will more make Bolshevists in this country than the fact that in the midst of dire poverty and destitution there is to-day a luxury which flaunts itself as it is doing in the West End of this city every day of this summer season. Any one who knows anything at all about the misery that accompanies riches in the West End—as Ruskin has somewhere said—if a man realised all the miseries that are around him he would wish to be blindfold because he could not be easy in the circumstances. Many are blind in this London of ours, because they do not realise the suffering and the destitution.

During the War luxury was taboo. During the War everybody said: "We must live plain and simple lives and not riot when other people are sacrificing health and life itself; we ought not to flaunt luxury about, we ought not to go to the moors, or to Goodwood, or to Ascot." All that was done. If this House really now believed in and felt what many of us feel as to the unemployed, and about the poverty-stricken millions of this country, we should say to ourselves that in these days there should be no such thing as luxury, no such things as levees and Goodwood and Ascot while the poor are suffering like they are at the present. It is because I feel that, that I propose to give a vote against this reduction of Income Tax and Super-tax. It is because I think that the people of this country have a right to demand from the rich and from the governing class the same standard that they put up when we were trying to beat the Germans, and that we should engage in something like the same strenuous campaign against poverty and destitution, that I am going to vote against this proposal.

Sir ALFRED MOND

I do not propose to follow the hon. Gentleman who has just sat down. His speech was better designed for a discussion on the sumptuary laws, and had not much relevance to the subject we are discussing at the present time. If Income Tax were only paid by a small number of wealthy people in the country to-day who attended Ascot and Goodwood, we might take a different view of the proposal to take sixpence off the Income Tax. But Income Tax is paid to-day by a very large number of people whom I know cannot afford luxury, and have a difficulty in their struggle to live. We have heard arguments from both Benches to-day, which, to my mind, show an extraordinary misconception as to how Income Tax is levied. We have the hon. Member for Huddersfield (Mr. J. Hudson), in the course of his speech, telling us that a limited liability company at the end of the year or half-year puts aside certain sums that he specified. Is he unaware of the fact that a company pays Income Tax on the amount put to reserve? With Income Tax at 4s. in the £, the money cannot be put to the reserve fund, and that is one of the things which is crippling industry at the present time. The arguments we have heard, that high taxation has no effect on industry, are manifestly incorrect. I do not say that it is the best way to do it, but there is an Amendment on the Paper by which we might concentrate the Income Tax more directly on industry. Let me point to another matter which will be perhaps interesting to hon. Gentlemen who take an interest in agriculture. The farmer does not go to Goodwood, and his wife is making butter, not going about in silk dresses and dining with the rich. The farmer is paying Income Tax, and this reduction will be of great benefit to the distressed agricultural industry throughout the length and breadth of the country. It will mean that the farmer will have more capital for his business.

It is useless to contend that direct taxation, of whatever weight it is, has no effect at all on the prosperity of the country. The arguments which have been laid down by some hon. Members to-night are contrary to the whole history of taxation—canons of taxation which have lasted not for a few years, but throughout all time. It is an elementary fact, known to all who have studied the subject, that high taxation depresses enterprise and induces poverty. That has been proved not once but a hundred times in the history of the world. The reason is an obvious one. You take away from a man the stimulus to earn if the little that remains to him is insufficient to induce him to make the effort, and that must depress enterprise. If you make the Income Tax so high that people have a feeling that the demands upon their earnings have reached the pitch where it becomes a case of "heads you win and tails I lose," they are reduced to the view that it is not worth while to make any effort, and they will place their money in securities which give them a fixed rate of interest, taking it out of industry to do so. All these things have happened and are happening. Therefore, there is a direct reason why the reduction of Income Tax is regarded as a valuable stimulus to trade. It is perfectly useless for hon. Members to get up and ask whether trade has improved since the last reduction of Income Tax. There is no sequitur there at all. They have got to prove that trade would not have been much worse if the Income Tax had not been reduced.

Mr. BATEY

It could not be worse.

Sir A. MOND

Certainly it could be worse. At one time we had 2,000,000 unemployed, and at present the figure is 1,200,000. [Interruption.] It is not so serious. A few years ago, I remember, the unemployment figures were 800,000 worse than they are to-day. Those figures are on record. Unemployment was worse and trade was worse than to-day. It cannot necessarily be demonstrated how much better or how much worse industry would have been if the Income Tax had been lower or higher, but one can assert that the lower taxation becomes the greater is the stimulus to industry. Hon. Members in the Labour party have been arguing the merits of reducing the body of taxation on large consumers as compared with more limited consumers, but if we defeat this proposal we are not relieving taxation on anybody. We are merely increasing it. If I vote for this Amendment I am not giving any reduction of food duties; I am merely refusing to afford any relief to a large body of people in this country who very badly want it and who are all consumers. Even the richest man, if you give him more money or credit, must do something with it, unless he takes it and buys gold bullion and buries it in his back garden.

Mr. LANSBURY

Puts it in China.

Sir A. MOND

Well, if he does that it will induce trade in this country. Hon. members have been arguing about redistribution. That is not the point we are arguing to-day, but whether we should reduce Income Tax or leave it where it is, not whether we should redistribute it. If we reduce Income Tax we shall increase the consumption of a considerable number of articles. Does anybody say that a man who buys a motor-car is not finding employment? He is giving a large amount of employment in a community where a good deal of industry is depressed and there are a large number of unemployed. He is providing a certain amount of work for steel makers and for other depressed industries. Some hon. Members may think it is wicked to own a motor-car, but surely they cannot object to a man finding employment for people. [Interruption.] In buying a motor-car a man might give a larger volume of employment even than if he bought other articles. Buying a motor-car might find more employment than buying boots, though boots may be more necessary than a motor-car, but the point I am making is that you cannot argue that a man furnishes no employment if he spends money on a motor-car in this country.

I want to get a clearer conception of what hon. Members on the Labour benches really think, because while pretty well all economists are agreed that a reduction of Income Tax will stimulate trade, they always look upon that as a delusion. But they never show us how it is a delusion. How can it be a delusion? If a heavy taxation depresses enterprise the relief of taxation must benefit enterprise. [Interruption.] The history of the world has proved it, and the world existed before 1913. I lay down a general canon of taxation which has existed from the time of the ancient Egyptians, and the hon. Member cannot upset history by talking of what happened in a four years' period. The general canon of taxation that heavy taxation depresses enterprise will be found in every elementary textbook.

Mr. HARDIE

May I ask why it is that the right hon. Gentleman refuses to take into consideration the figures of 1913–14 as compared with 1923–24. In 1913–14 the superabundant wealth was estimated at £951,000,000, and in 1923–24 it was £2,300,000,000, and if his argument is correct why cannot he show that there has been more trade?

Sir A. MOND

No figures of 1913 are comparable with the figures of 1923–24 unless you reduce the figures of 1923–24 by 50 per cent. in order to get equal money value.

Mr. HARDIE

I did not think it would be necessary to have pointed this out to the hon. Member, because he has got sufficient ability to deal with figures. The figures I have given were taken out of the OFFICIAL REPORT, and I thought he would have taken sufficient interest in those figures to know that it was stated that the figure was of money reckoned as at the same value as in 1913–14. The volume of trade is practically the same, although there has been 180 per cent. increase in the money.

Sir A. MOND

I am sorry, but I cannot follow the point of the hon. Member.

Mr. HARDIE

I thought you had more acumen.

Sir A. MOND

I am sorry if my acumen is so much less than the hon. Member's, but I cannot follow exactly the point he is trying to make. I was simply stating, and it is an irrefutable proposition, that heavy taxation depresses enterprise, and therefore a lightening of taxation must increase it. Of course, there might be other countervailing factors which would make it quite possible to show that there has not been an increase of trade even though taxation has been reduced. Because other factors of a larger and bigger character have masked the process, the fact that a reduction of taxation last year has not resulted in an improvement of trade cannot be an argument to prove that the general proposition I have stated is not correct. If the hon. Gentleman had a toothache it might be no argument, if he had a much more serious disease which killed him, to say that the toothache did not. Hon. Members have admitted more than once that industries suffer if one takes away from them those large reserves which are required for development and the reserves required to meet depreciation, and it cannot be denied that a high rate of Income Tax does diminish those reserves. The hon. Member for Huddersfield based his whole argument on a misconception of how the Income Tax was levied. I am sure he would agree that it was not a good thing that the woollen industry of Yorkshire, or any other industry, should have more than 25 per cent, of its money for building up reserves for development and for depreciation taken away from it.

Mr. J. HUDSON

My point was that the figures of the imports of raw wool since the last reduction of the Income Tax have been against the argument that the right hon. Member is putting forward that trade would improve.

Sir A. MOND

I have tried to point out three times, and I am afraid of taking up time by repeating it, that it is quite possible that, in spite of a reduction of Income Tax, the woollen industry may be more depressed than it was 10 years ago—as a result of other causes. But what would have happened if the Income Tax had been higher? Does the hon. Member say that the woollen industry would have been any better off if the Income Tax had been 19s. in the £? Obviously, that is not the case. If you believe that taking money out of an industry which otherwise would have been used for the development of that industry is a bad thing, then a high Income Tax is a bad thing, because it certainly achieves that object. It is a bad thing for the farmer, because if he had not to pay so much on his Income Tax he would have more money with which to buy artificial manures and for other purposes.

The arguments which hon. Members have been putting forward are much more applicable to the Super-tax, which I cannot discuss now, than they are to the Income Tax. We have heard denunciations of people who form a large part of the picture papers and a small part of the population, but the consideration of their incomes is not really relevant to the discussion which we have been pursuing all this time. I hope when we come to a later stage of the Budget the Chancellor of the Exchequer may see his way to apply his reduction so that it will assist in a more direct way the development of industry and the provision for depreciation, making it more certain that the money which remains in the industrial pool shall be applied to that end rather than be distributed and used for purposes Which hon. Members submit would not be so meritorious as if it had remained within the ambit and the direct circle of industry. Even as regards the interest on War Loan, all this money must go back somewhere. Even taxes come back into industry sooner or later. The money which is taken away by taxes does not disappear into the blue, it comes back, only it comes back by a more remote and less direct channel into the trade and industry of the country [Interruption]. Yes, that is so. Taxation usually comes back very directly on to the London money market; and the less we interfere with the way in which the subject spends his money and the more freedom we give him the better it is for the community, and the quicker the response you get. From that point of view, all taxation should be as low as possible. The most prosperous countries have always been those which have had not the highest but the lowest taxation.

Mr. H. WILLIAMS

I did not intend to take part in the Debate, but I wished, while the hon. Member for Bow and Bromley (Mr. Lansbury) was speaking, to correct what I thought was a misapprehension on his part, and, as he did not give me the opportunity, I will take it now. His contention is that the number of unemployed people is vastly in excess of the figures reported week by week in the Press. He quoted figures showing that the extent of unemployment is something over 200,000 more than the corresponding figures for a year ago. The figures were perfectly correct, because they took Whitsuntide into account, whereas the previous years' figures did not. There were 60,000 persons temporarily on the roll who were not unemployed in the full sense, but had simply stood off for the Whitsuntide holiday. It has been contended that only those people entitled to benefit had registered, but I have a higher opinion of my fellow-countrymen than that. I believe people go to the Employment Exchanges to get a job, and not primarily to draw unemployment pay. If hon. Members will examine the returns, they will find the actual figures given are those registered, although not all drawing benefit.

The statistics which appeared in the April number of the "Labour Gazette," show all obtaining benefit from the guardians in respect of unemployment. Any hon. Member who examines these figures will come to the same conclusion as I have, that the total number of unemployed is not materially different from that given in the papers, because they always include a large number of people not totally unemployed, but working on a system of organised short time. If hon. Members will consider the various set-offs, they will find that the figures are not materially wrong. I also want to deal with, a point raised by the hon. Member for Springburn (Mr. Hardie), who quoted figures this afternoon which he has quoted before, and they have always been misleading. The hon. Member said that, in 1914, the Income Tax-payers had an income of £951,000,000. In that year, 1,200,000 persons were assessed to Income Tax.

Mr. HARDIE

I quoted my figures directly from the report. I want to know if it is in order for any hon. Member to make additions to that part of the OFFICIAL REPORT.

Mr. WILLIAMS

The hon. Member quoted from the Report of the Commissioners of Inland Revenue, from which I am now taking the estimated number of Income Taxpayers. The 1,200,000 Income Taxpayers in those statistics referred to people with incomes over £160 a year and their total income was £951,000,000. In the year 1923–24 the Income Tax-payers had an income of £2,300,000,000, but the number assessed to Income Tax was 5,000,000. The increase in the number is due to the change in the value of money and the lowering of the Income Tax limit to £135 per year.

Mr. HARDIE

I want to ask you, Captain FitzRoy, if it is in order in this House for an hon. Member to leave out the basis of my argument when he is quoting my remarks, because the figures I gave came from the Department of the Chancellor of the Exchequer?

The DEPUTY-CHAIRMAN (Captain FitzRoy)

I do not think there is any point of Order involved.

Mr. HARDIE

I am being misquoted.

Mr. WILLIAMS

When these figures were being quoted by the hon. Member for Springburn, I tried to interrupt him, and I was told by an hon. Member opposite not to do so. Let us now come back to the figures. We were told that the Income Tax-payers in 1913–14 had an income of £951,000,000, and that in 1923–24 they had £2,300,000,000; but the number of persons in 1913–14 was 1,200,000, while in 1923–24 it had increased to 5,000,000. It was most misleading for the hon. Member for Springburn to quote the figures in the way that he did. I would like to point out to those who are opposing this reduction in the Income Tax that those industries which are suffering from the most acute unemployment are those producing what are known as capital goods. You have only to analyse unemployment to find out that anything which stimulates saving brings further capital to the iron and steel industries and all industries producing capital goods, and for that reason I rejoice in the reduction of the Income Tax.

Mr. PETHICK-LAWRENCE

When the Chancellor of the Exchequer unfolded his Budget and announced a reduction of the Income Tax, I knew he was becoming very popular with hon. Members opposite, and with those hon. Members who belong to the right wing and the half-backs of the Liberal party. The Chancellor of the Exchequer made a great claim for a balance, and when it comes to a question of balancing the Income Tax, my mind goes back to the Budgets of the last few years. I remember very well, when the right hon. Gentleman the Member for Hill-head (Sir R. Home) introduced his Budget and took something off the Income Tax, he balanced it, although not completely, by a reduction of the tax on tea. When the Prime Minister in the following year was Chancellor of the Exchequer he made a further cut in the Income Tax, but he balanced that by a reduction in the tax on beer. When the right hon. Gentleman the Member for Colne Valley (Mr. Snowden) was Chancellor of the Exchequer last year he made reductions in the duties on tea and sugar, and he balanced that to some extent not by a reduction of the Income Tax but by reductions in other forms of direct taxation. For example, he took off the Corporation Profits Tax and the Inhabited House Duty, both of them taxes falling upon the income tax-paying classes

Now it has been left to the Chancellor of the Exchequer to make this cut in the Income Tax without any corresponding cut in indirect taxation. Not only this, but the Chancellor of the Exchequer has actually put a tax on the working people in regard to artificial silk and upon their cheap lace and clocks, watches, gramophones and so on. I would like to ask how has he managed to get away with it? Simply by proclaiming that he was giving them a great boon in the shape of a Pensions Bill, when, as a matter of fact, not a single penny comes out of this Budget from the national exchequer in support of that Measure.

The Chancellor of the Exchequer defended his scheme on the ground that, although he was making these reductions in the Income Tax and the Super-tax, nevertheless the percentage of direct and indirect taxation only differed by some minute decimal point from the percentages which had been established by his predecessor the right hon. Gentleman the Member for Colne Valley. At first that sounded a very good argument, but what does it really mean? Owing to the great increase in the revenue received by persons who pay Income Tax and Super-tax, although they pay at a smaller rate, nevertheless approximately they pay the same amount. If the right hon. Gentleman had examined the amount that was left to them he would have seen that they were paying a lower rate, and that what was left to them was larger than was left to them before, and therefore what has been said on this point is really no argument at all. As a matter of fact, these particular taxpayers are richer, and, although it may be true that they are contributing nearly as much out of their increased wealth, that is no ground for arguing that they should be asked to contribute at a lower rate.

We are asked to compare the high rate of Income Tax to-day with that of 1913, but we must not forget that in between we have had a tremendous War. A great many hon. Members opposite and up and down the country are claiming that when the Income Tax went up to 6s. in the £, and the Super-tax went up accordingly, during the War the Income Tax payers were really paying for the cost of the War, and that when the War was over it was only natural that the Income Tax should be put down again—not to what it was before, but something in that direction. The real fact is that the rates of taxation levied during the War did not pay for the War at the time. Only a miserably small proportion of the cost of the War was met at the time, and, therefore, there is an enormous burden and a huge war debt remaining on our shoulders because of the very false finance adopted during the War. It is on that account that we have to meet such heavy expenditure to-day.

It has been said, I think by the Chancellor of the Exchequer, that we are paying heavier direct taxes in this country than anywhere else in the world. The right hon. Gentleman the Member for Hillhead pointed out that the direct taxpayers had contributed £2,000,000,000 since 1918 to the revenues of this country. That is quite true, but why is it that we are having to face this enormous direct taxation, which is much greater than is being faced in any other country in Europe? I will tell the Committee why. The reason is that alone among all the belligerent countries in Europe this country has done nothing to take away directly the burden of the debt. In every other belligerent country some direct step has been taken. Russia has adopted repudiation, a principle which I have often pointed out was a false and injurious system. In Germany and Austria, they have adopted inflation to a point which practically means a confiscation of the whole of their internal debt. In France, Belgium and other countries there has been an inflation which may be regarded as a repudiation, because they have repudiated between three-fourths and four-fifths of their National Debt. Under the proposal of a Capital Levy, only one-fourth or one-third of the wealth would have been taken to get rid of our burden of debt, and I ask hon. Members to compare this with France, Belgium and Italy, where they have an inflation of four-fifths, and they have repudiated four-fifth of their debt. If you take the other countries like Czechoslovakia, Poland and Italy—

The DEPUTY-CHAIRMAN

I hope the hon. Member will not continue that discussion.

7.0 P.M.

Mr. PETHICK-LAWRENCE

In two sentences more I shall have finished. In Czechoslovakia, Poland and Italy they have got rid of their burden of debt, partly by means of the capital levy. We have done none of these things. On the contrary, we have deflated our currency, and the burden of debt and interest is not only as great as, but greater than when the War came to an end. In consequence of that we have got this heavy direct taxation. One can put it in another way, We have got to meet the interest on the debt to the extent of £270,000,000 a year for internal interest arising from the debt. The total is £350,000,000 a year, but part goes in sinking fund, and part goes abroad. When you consider the Income Tax which the Chancellor of the Exchequer estimates will produce £262,000,000 this year, you will see that the whole proceeds of the Income Tax are to repay the interest on the debt. It is not true to imagine that the Income Tax is being used to support the public services of the country; it is being used to pay the interest on the debt. For that reason, we on these benches do not think that the Income Tax ought to have been reduced to the figure which the Chancellor of the Exchequer proposes, because the money is required not to spend on public services, but to transfer in the main to the well-to-do classes of this country in the shape of interest on the bonds that they hold.

I would like to deal with the speech of the right hon. Member for Carmarthen (Sir Alfred Mond) and with what he said with regard to reduction of taxation. No one in their senses disagrees with the general proposition that if taxes are imposed, and the money is frittered away, it is injurious to the trade and prosperity of the country. If it were proposed to put another 2s. on the Income Tax in order to use the money to throw into the sea, that would be bad for trade. If you could reduce wasteful expenditure in this country, and make use of that reduction in waste to reduce the Income Tax, that would be a great benefit to the prosperity of the country. That is not the question involved at all. We are not discussing the expenditure of the country or its character; we are discussing the form in which the money that has to be expended is to be raised. It is there we say that it is quite a mistake to suppose that the reduction in Income Tax is the right way to effect this. The hon. Member for Ilford (Sir F. Wise) said that those who receive the benefit of the reduction in Income Tax will either spend it or save it. He seemed to think that all their spending was beneficial to the country. We think that they spend a lot of money out of this country altogether, or in a way that is not at all beneficial. With regard to providing capital, I would remind him that there is no lack of capital at the present time, because up to quite recently foreign Governments came to us and obtained a large amount of capital.

The real questions with regard to taxation are, in whose pockets the money is placed, how the taxation is going to be raised, and how it is going to be spent. If the State were to take the money from the Income Tax payers and waste it, that of course would be an injurious thing. But, if instead of reducing the Income Tax, you were to use the money in order to reduce the burden on the working people in this country, or to use it on social services, such as pensions, or on the extension of important national enterprises like the creation of a great electrical undertaking, then you would be using your money in ways much more serviceable to the community than by making a reduction in Income Tax. You would not only be doing that, but you would be helping industry. We contend that it is not the fact of taxation, but it is how you raise the taxation, and how you spend the proceeds that matters. For that reason, we are opposed to the reduction that the Chancellor of the Exchequer is proposing.

Mr. CHURCHILL

May I renew the appeal that I ventured to make to the Committee a little earlier in the afternoon. We really shall be getting into a difficulty with our business having regard to the period we are going to devote to it if we cannot bring this Debate to a close very soon, and get on to the other Clauses. We may have to sit very late to-night, or alternatively have a mass of business on our hands on Wednesday.

Mr. SNOWDEN

So far as we are concerned, we have no objection to the Division being taken now. Then we can go on to the Debate on the Super-tax, which is of very nearly the same nature.

Captain BENN

The Debate on this Clause has been unusually brief and perfectly relevant. I do not remember any Income Tax Clause that has been discussed when the Chair has selected no Amendments. I make no complaint about that. I myself handed in an Amendment to reduce the Income Tax by 3d. The right hon. Gentleman has no reason to complain of the Debate as to this arrangement to finish by a certain time; what sacro sanctity is there about it? The right hon. Gentleman is getting anxious because he has crowded the Order Paper with his own Amendments. He has to-day many Amendments put down on the Paper.

Mr. CHURCHILL

They are drafting Amendments in the main, and there is only one of importance.

Captain BENN

There are Amendments to the schedule of the silk duty, which is the important thing. The right hon. Gentleman will admit that although I do not want not to respond to what the ex-Chancellor of the Exchequer said—

Mr. CHURCHILL

Or the Chancellor of the Exchequer.

Captain BENN

I have not the same desire to follow the Chancellor of the Exchequer that was exhibited on these benches on Friday. I wish myself to make a few remarks. I do not want to take advantage of the fact that I rose on this point, and if any hon. Member rises I will sit down. The very brief observations that I wish to make on this tax are to the following effect. I believe that the best way we can check the expenditure of the Government is by refusing to permit them to levy taxes, and excessive taxes. I consider that the aggregate of taxation this year is grossly in excess of what is really wise or necessary. I would prefer to see the reduction in taxation made upon articles of consumption. All that, however, is past, and we cannot help ourselves. The Sugar Duty is a perennial; the Tea Duty is annual, and has been voted. As we cannot do what many hon. Members across the Gangway desire and get a reduction of indirect taxation, the only thing we can do is to get a reduction of direct taxation. Although my name did not appear, I was associated with the Amendment that was handed in to reduce the tax by 3d.

I would like to point out what has not been touched upon so far, that we do not know what the total sum of indirect taxation this year is going to be. The Chancellor spoke of fractions, and argued about a decimal point with the ex-Chancellor in an earlier Debate. Since the introduction of the Finance Bill a new duty has been proposed on lace, the yield of which they will not tell us, although they have been constantly pressed. It may be that other forms of indirect taxation may be levied. There are four or five other inquiries going on—superphosphates and gas mantles, with others like iron and steel awaiting their turn. If this be the occasion to discuss the balance between direct and indirect taxation, then we are entitled to ask from the Chancellor of the Exchequer what the total burden of indirect taxation is going to be. We might at least have been told what addition has been made to the total burden by the Lace Duty. We might at least be told whether he proposes to go beyond these inquiries to an increase in indirect taxation.

My purpose is, if it were possible by a vote, to check expenditure which is wasteful by reducing the power to levy taxes. In the present time of peace we are spending £120,000,000 on armaments as against £89,000,000 before the War. I know there is an adjustment on account of prices, but the Chancellor cannot justify £120,000,000. So far as we object to new construction for the Navy which is proposed by a Cabinet Committee, we take the view that if we did not give the Government the taxation they could not build the ships. Those are some of the reasons that have actuated me and some of my friends in this matter.

If we vote against the Clause to-day, technically we abolish the Income Tax altogether. I do not know if that is the object of my hon. Friends across the Gangway, but that is the technical effect. [HON. MEMBERS: "Why?"] Because it is an annual tax. On the other hand, if we vote against the Clause we are associated with the resistance to this reduction of 6d. I, for my part, do not wish to be associated with that resistance. I would like to see an economy in expenditure which would justify an even greater reduction, but we cannot get it, although we would like to prevent the Chancellor getting his fingers on the money. Therefore, the course that I propose to take, although it may not be a very manly one, is the only logical course. I propose to cast no vote at all.

Mr. THURTLE

I want to say a word or two about this humbug as to a reduction of Income Tax stimulating industry. We have had a long lecture from the right hon. Gentleman the Member for Carmarthen (Sir A. Mond) on the benefit that industry is going to derive from this reduction of Income Tax, and I want to inquire into that for a few moments, to see whether there is any justification for that assumption. Four or five of our great staple trades in this country are suffering very acutely from depression, and, if it were true that a reduction of Income Tax would stimulate those industries, it must be because they are short of capital. Take the great coal industry, in which there is tremendous depression; is it seriously suggested for a moment that the coal industry is looking round for further capital? Is it not the fact that the reason why the coal industry is so depressed is that there is no market for its products? Again, take the iron and steel industry, which is in a state of unparalleled depression at the present time. Is the iron and steel industry depressed because there is not sufficient capital for it? We know very well that there is an abundance of capital in this country for the iron and steel or any other industry which will provide an adequate return for that capital; but, as a matter of fact, the iron and steel industry, like the coal industry, is depressed and stagnating because there is no demand at all for the products of that industry.

We can take every industry in the country that is suffering from acute depression, and we shall find that there is absolutely no shortage of capital for it; it is simply that markets cannot be found for our products. One has only to look at the various new issues from time to time on the Stock Exchange, and see the amounts to which subscriptions are made to them, to see the humbug of this contention that industry at the present time is short of capital and needs a reduction of the Income Tax in order that that capital may be accumulated. A great issue is to take place, I believe, on Wednesday in connection with the Dunlop Rubber Company, and, although I am no prophet, I guarantee to say that, although it is only going to carry a return of, I think, 5½ per cent., that tremendous issue will be amply oversubscribed on the London Stock Exchange. In face of these facts it is sheer absurdity to say that industry is in need of this reduction of Income Tax.

I speak for the poor people of this country. The Income Tax at the present time does not affect the working man, with a wife and two children, if he is getting as much as £6 per week. I happen to represent a constituency where, I should say, there are 70,000 adult people, and I do not suppose that more than 2,000 out of those 70,000 are affected in the slightest degree by the Income Tax, because not only do they not get more than £6 a week but they get infinitely less. This reduction in Income Tax is, therefore, absolutely meaningless, so far as they are concerned. The people whom the reduction is going chiefly to affect are the holders of ordinary shares in industrial concerns, and I say that those people, in the main, have a very comfortable margin between their cost of living and their income, and if any people ought to derive benefit from a reduction of taxation, it is not those people, who have this comfortable margin between their necessaries and their income, but the very poor people who have no such margin at all.

The right hon. Gentleman the Member for Carmarthen himself, in the course of his speech—it may be that he was put off the line of his argument by interruptions—really went on to traverse the very point he had made, that this reduction in Income Tax was necessary for industry, because he said in effect that all taxation, in course of time, and sometimes almost directly, came back into industry. I would suggest to him and to the Committee in general that, if they wish to find a short and effective method by which money acquired by means of taxation can go back into industry, they can find no better method than by some great social service, such as the pensions scheme, which is going to put that money into the pockets of the ordinary wage-earners of this country, because those people do not save up their money in banks in order to invest it later on in gilt-edged stocks or industrial shares; they use this money as it comes to them, to buy the bare necessities of life, and, by the very fact that they have this extra money with which to buy those necessities, they must inevitably stimulate trade. I do not wish to detain the Committee at any length, because I know a Division is required, but I did want to make my protest against this calm assumption on the part of the great industrial magnates that we who represent the working classes are going to accept their dictum that a reduction of Income Tax is necessary for industry We do not believe that it is necessary; we do not believe that industry is going to derive any real benefit from this reduction; but we do believe that, if you have a surplus of money coming into the national Exchequer, and want to use that surplus to the best advantage of the whole country, you can use it best by distributing it in such a way that it reaches the masses, and not a particularly small section of the community.

Mr. LLOYD GEORGE

I do not wish to prolong the Debate, but, as I propose to vote for the Clause, I should like to say one word as to why I propose to take that course. Unfortunately, owing to the forms of the House—I was not present when there was a discussion as to the Amendments, and, therefore, do not know the reasons that prompted the Chair to rule out certain Amendments, and I certainly do not in the least challenge that decision—it is impossible to raise certain issues which my hon. and gallant Friend the Member for Leith (Captain W. Benn) and others wished to raise with regard to further reductions and with regard to the method of reduction; and although, technically, the question is whether the Income Tax should be imposed or not, the real issue has taken the form of a question whether there should be a reduction of 6d. or not. I shall certainly vote in favour of the reduction of 6d. That seems to be the question underlying the Debate so far as I have heard it.

As to whether there should or should not be a reduction, I have absolutely no doubt. If the Chancellor of the Exchequer were in a position to give a reduction of 6d., it would not only be a mistake, but would be very wrong of him, not to afford that relief to the Income Tax payer. I am not going into the question of the effect of an increase of taxation upon industry; I think it depends very largely upon what you spend your money upon. You might very well spend your money in a way which would fructify and add to the development and resources of the country, and, therefore, I do not go to the extent of saying that taxation always means a depression in the power of the community to enrich itself, and, by enriching itself, to enrich all the individuals in it. But that is not the issue now; the issue is whether upon this occasion the Chancellor ought or ought not to reduce the tax by 6d. I speak as an old Chancellor of the Exchequer, and I think the very greatest danger of a high Income Tax is that it destroys the Income Tax as a weapon for raising a great revenue. There is a limit beyond which you can not go, and, if you keep the Income Tax at a high figure when you have the means of reducing it, the result will be that in the end you will stimulate the ingenuity of the community to avoid it. That is what is happening in other countries to such an extent that Finance Ministers have always found themselves disappointed at the end of the year in their estimate of the yield. Up to the present it has not happened in this country to a very large extent, but there is no doubt that ingenuity is being stimulated, and that new methods of evasion are being cultivated. If Chancellors of the Exchequer were to give no hope to the Income Tax payer that his case would be considered, I think that would ultimately be the effect, and that the revenue would suffer from that far more than it would by an appearance from time to time of meeting his case and giving him his turn, which is all that the Chancellor of the Exchequer is doing on the present occasion. The indirect taxpayer got his turn last year and the year before, and I think the Income Tax payer has had his turn, but I think the time has come to consider his case now, and for that reason I shall vote for the Clause, because I consider the vote to be taken now is a vote in favour of a reduction of 6d.

Mr. MacLAREN

I do not want to detain the Committee very long, but I want to say from these benches that I consider that all Income Tax, if injudiciously imposed, is detrimental to industry, and whatever can be don6 to reduce Income Taxes which are detrimental to the industry of this country I would support. I merely intervene to say that in order to meet the economic arguments used by the right hon. Gentleman the Member for Carmarthen (Sir A. Mond), because the arguments he was using, though economically sound, were rather casting reflections on the economic thinking of the party on this side of the Gangway. The hon. Member for Bow and Bromley (Mr. Lansbury) pleaded for exemption of incomes of a low standard, and I think the right hon. Gentleman forgot that during his remarks. If it be true, as the right hon. Gentleman pointed out, that taxation on industry is bad, then, surely, it is the duty of any man in this House to use whatever powers he can to remove that impost if it be detrimental to the development of the State; but, while saying that, I cannot forget that at the same time there are many other taxes which are detrimental to industry, and about which hon. Members opposite and on this side are enthusiastic. I will mention them another time.

There is just another point that was made, I think, by the right hon. Gentleman the Member for Carmarthen, upon which I should also like to touch. He said that it is not so much a question of the nature of your taxes, but really a matter of how you spend the taxation. I wish to challenge that as an economic theory which is not sound. The suggestion is that you can impose heavy taxation and fructify industry by the way in which that taxation is spent. I want to protest against that as fallacious. It is not the function of the State to over-tax industry with any benign view, and I would go so far as to say, if a beneficent Government to-morrow raised an enormous amount of money in taxation, that under the present system, while monopoly holds this country, as it does, the only thing that would ultimately be fructified would be the enormous values recorded for the land of this country. Therefore, it is not enough merely to say that we are going to consider how we are going to spend the money; we must also try to appreciate the conditions under which we would spend that money. I have, I hope, contributed something to the Debate. I daresay even some of my colleagues on these Benches will challenge what I have said, but I think after Friday's vote my heresy will be tolerated.

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

The Committee divided: Ayes, 296; Noes, 112.

Division No. 154.]	AYES.	[7.30 p.m.
Acland-Troyte, Lieut.-Colonel	Davies, Sir Thomas (Cirencester)	Lister, Cunliffe-, Rt. Hon. Sir Philip
Agg-Gardner, Rt. Hon. Sir James T.	Davison, Sir W. H. (Kensington, S.)	Locker-Lampson, G. (Wood Green)
Ainsworth, Major Charles	Dixey, A. C.	Locker-Lampson, Com. O. (Handsw'th)
Albery, Irving James	Doyle, Sir N. Grattan	Looker, Herbert William
Allen, J. Sandeman (L'pool, W. Derby)	Drewe, C.	Lord, Walter Greaves-
Amery, Rt. Hon. Leopold C. M. S.	Eden, Captain Anthony	Luce, Major-Gen, Sir Richard Harman
Applin, colonel R. V. K.	Edmondson, Major A. J.	Lumley, L. R.
Ashley, Lt.-Col. Rt. Hon. Wilfrid W.	Elliot, Captain Walter E.	Macdonald, Sir Murdoch (Inverness)
Astor, Maj. Hn. John J. (Kent, Dover)	Elveden, Viscount	Macdonald, Capt. P. D. (l. of W.)
Atholl, Duchess of	England, Colonel A.	Macdonald, R. (Glasgow, Cathcart)
Atkinson, C.	Erskine, Lord (Somerset, Weston-s-M.)	McDonnell, Colonel Hon. Angus
Baldwin, Rt. Hon. Stanley	Erskine, James Malcolm Monteith	Macintyre, Ian
Balfour, George (Hampstead)	Evans, Capt. Ernest (Welsh Univer.)	McLean, Major A.
Balniel, Lord	Everard, W. Lindsay	Macnaghten, Hon. Sir Malcolm
Banks, Reginald Mitchell	Fairfax, Captain J. G.	MacRobert, Alexander M.
Barclay-Harvey, C. M.	Falle, Sir Bertram G.	Maitland, Sir Arthur D. Steel-
Barnett, Major Sir Richard	Fanshawe, Commander G. D.	Malone, Major P. B.
Barnston, Major Sir Harry	Fenby, T. D.	Manningham-Buller, Sir Mervyn
Beamish, Captain T. P. H.	Fielden, E. B.	Margesson, Captain D.
Bellairs, Commander Carlyon W.	Finburgh, S.	Marriott, Sir J. A. R.
Benn, Captain Wedgwood (Leith)	Fleming, D. P.	Mason, Lieut.-Col. Glyn K.
Bennett, A. J.	Ford, P. J.	Meyer, Sir Frank
Bentinck, Lord Henry Cavendish-	Forestier-Walker, L.	Milne, J. S. Wardlaw-
Berry, Sir George	Forrest, W.	Mitchell, S. (Lanark, Lanark)
Betterton, Henry B.	Foster, Sir Harry S.	Mitchell, W. Foot (Saffron Walden)
Birchall, Major J. Dearman	Foxcroft, Captain C. T.	Mond, Rt. Hon. Sir Alfred
Bird, E. R. (Yorks, W. R., Skipton)	Fremantle, Lieut.-Colonel Francis E.	Monsell, Eyres, Com. St. Hon. B. M.
Bird, Sir R. B. (Wolverhampton, W.)	Ganzoni Sir John	Moore, Sir Newton J.
Blades, Sir George Rowland	Gates, Percy	Moreing, Captain A. H.
Boothby, R. J. G.	Gee, Captain R.	Morris, R. H.
Bourne, Captain Robert Croft.	George, Rt. Hon. David Lloyd	Morrison, H (Wilts, Salisbury)
Bowyer, Capt. G. E. W.	Gilmour, Lt.-Col. Rt. Hon. Sir John	Morrison-Bell, Sir Arthur Clive
Brass, Captain W.	Grant, J. A.	Nall Lieut.-Colonel Sir Joseph
Briggs, J. Harold	Greene, W. P. Crawford	Nelson, Sir Frank
Briscoe, Richard George	Gretton, Colonel John	Neville, R. J.
Brittain, Sir Harry	Grotrian, H. Brent	Newman, Sir R. H. S. D. L. (Exeter)
Brocklebank, C. E. R.	Guinness, Rt. Hon. Walter E.	Newton, Sir D. G. C. (Cambridge)
Brooke, Brigadier-General C. R. I.	Hacking, Captain Douglas H.	Nicholson, Col. Rt. Hn. W. G.(Ptrsf'ld.)
Broun-Lindsay, Major H.	Hall, Lieut.-Col. Sir F. (Dulwich)	Nield, Rt. Hon. Sir Herbert
Brown, Maj. D. C.(N'th'I'd., Hexham)	Hall, Capt. W. D'A. (Brecon & Rad.)	Nuttall, Ellis
Brown, Brig.-Gen. H. C. (Berks, Newb'y)	Hamilton, Sir R. (Orkney & Shetland)	Oakley, T.
Buckingham, Sir H.	Hanbury, C.	O'Connor, T. J. (Bedford, Luton)
Bull, Rt. Hon. Sir William James	Harland, A.	O'Neill, Major Rt. Hon. Hugh
Burman, J. B.	Harris, Percy A.	Ormsby-Gore, Hon. William
Butler, Sir Geoffrey	Harrison, G. J. C.	Penny, Frederick George
Cadogan, Major Hon. Edward	Hartington, Marquess of	Percy, Lord Eustace (Hastings)
Campbell, E. T.	Harvey, G. (Lambeth, Kennington)	Perkins, Colonel E. K.
Cassels, J. D.	Harvey, Major S. E. (Devon, Totnes)	Perring, William George
Cautley, Sir Henry S.	Haslam, Henry C.	Peto, G. (Somerset, Frome)
Cayzer, Sir C. (Chester, City)	Hawke, John Anthony	Phillpson, Mabel
Cayzer, Maj. Sir Herbt. R. (Prtsmth. S.)	Henderson, Capt. R.R.(Oxf'd, Henley)	Pielou, D. P.
Cecil, Rt. Hon. Sir Evelyn (Aston)	Henn, Sir Sydney H.	Pownall, Lieut.-Colonel Assheton
Chadwick, Sir Robert Burton	Henniker-Hughan, Vice-Adm. Sir A.	Preston, William
Christie, J. A.	Herbert, Dennis (Hertford, Watford)	Ramsden, E.
Churchill, Rt. Hon. Winston Spencer	Herbert, S. (York, N. R., Scar. & Wh'by)	Reid, Capt. A. S. C. (Warrington)
Churchman, Sir Arthur C.	Hilton, Cecil	Reid, D. D. (County Down)
Clarry, Reginald George	Hoare, Lt.-Col. Rt. Hon. Sir S. J. G.	Remer, J. R.
Clayton, G. C.	Hogg, Rt. Hon. Sir D. (St. Marylebone)	Remnant, Sir James
Cobb, Sir Cyril	Holbrook, Sir Arthur Richard	Rhys, Hon. C. A. U.
Cochrane, Commander Hon. A. D.	Holland, Sir Arthur	Rice, Sir Frederick
Cohen, Major J. Brunei	Holt, Capt. H. P.	Roberts, Samuel (Hereford, Hereford)
Collins, Sir Godfrey (Greenock)	Hope, Capt. A. O. J. (Warw'k, Nun.)	Robinson, Sir T. (Lancs, Stretford)
Conway, Sir W. Martin	Hopkins, J. W. W.	Ruggles-Brise, Major E. A.
Cooper, A. Duff	Hopkinson, A. (Lancaster, Mossley)	Russell, Alexander West (Tynemouth)
Cope, Major William	Horlick, Lieut.-Colonel J. N.	Rye, F. G.
Couper, J. B.	Hudson, R.S. (Cumberl'nd, Whiteh'n)	Salmon, Major I.
Courtauld, Major J. S.	Huntingfield, Lord	Samuel, A. M. (Surrey, Farnham)
Courthope, Lieut.-Col. Sir George L.	Hurd, Percy A.	Samuel, Samuel (W'dsworth, Putney)
Cowan, D. M. (Scottish Universities)	Hutchison, Sir Robert (Montrose)	Sandeman, A. Stewart
Cowan, Sir Wm. Henry (Islington, N.)	Inskip, Sir Thomas Walker H.	Sanders, Sir Robert A.
Craik, Rt. Hon. Sir Henry	Jackson, Lieut.-Colonel Hon. F. S.	Sandon, Lord
Crawfurd, H. E.	James, Lieut.-Colonel Hon. Cuthbert	Sassoon, Sir Philip Albert Gustave D.
Croft, Brigadier-General Sir H.	Jephcott, A. R.	Savery, S. S.
Crook, C. W.	Jones, G. W. H. (Stoke Newington)	Scott, Sir Leslie (Liverp'l, Exchange)
Crookshank, Col. C. de W. (Berwick)	Jones, Henry Haydn (Merioneth)	Shaw, R. G. (Yorks, W.R., Sowerby)
Crookshank, Cpt. H.(Lindsey, Gainsbro)	Joynson-Hicks, Rt. Hon. Sir William	Shaw, Capt. W. W. (Wilts, Westb'y)
Curzon, Captain Viscount	Kidd, J. (Linlithgow)	Sheffield, Sir Berkeley
Dalkeith, Earl of	Kindersley, Major G. M.	Shepperson, E. W.
Dalziel, Sir Davison	King, Captain Henry Douglas	Simms, Dr. John M. (Co. Down)
Davidson, J. (Hertf'd, Hemel Hempst'd)	Kinloch-Cooke, Sir Clement	Simon, Rt. Hon. Sir John
Davidson, Major-General Sir John H.	Lamb, J. Q.	Sinclair, Major Sir A. (Caithness)
Davies, A. V. (Lancaster, Royton)	Lane-Fox, Colonel George R.	Skelton, A. N.
Davies, Maj. Geo. F. (Somerset, Yeovil)	Leigh, Sir John (Clapham)	Slaney, Major P. Kenyon

Smith, R.W.(Aberd'n & Kinc'dine, C.)	Thomson, F. C. (Aberdeen, South)	Wilson, Sir C. H. (Leeds, Central)
Smith-Carington, Neville W.	Thomson, Sir W. Mitchell-(Croydon, S.)	Wilson, R. R. (Stafford, Lichfield)
Smithers, Waldron	Thomson, Trevelyan (Middlesbro. W.)	Windsor-Clive, Lieut.-Colonel George
Somerville, A. A. (Windsor)	Thorne, G. R. (Wolverhampton, E.)	Winterton, Rt. Hon. Earl
Sprot, Sir Alexander	Tinne, J. A.	Wise, Sir Fredric
Stanley, Col. Hon. G. F.(Will'sden, E.)	Titchfield, Major the Marquess of	Womersley, W. J.
Stanley, Lord (Fylde)	Tryon, Rt. Hon. George Clement	Wood, B. C. (Somerset, Bridgwater)
Steel, Major Samuel Strang	Vaughan-Morgan, Col. K. P.	Wood, Rt. Hon. E. (York, W. R., Ripon)
Storry, Deans, R.	Wallace, Captain D. E.	Wood, E. (Chest'r. Stalyb'dge & Hyde
Strickland, Sir Gerald	Ward, Lt.-Col. A. L. (Kingston-on-Hull)	Wood, Sir Kingsley (Woolwich, W.).
Stuart, Hon. J. (Moray and Nairn)	Warner, Brigadier-General W. W.	Wood, Sir S. Hill- (High Peak)
Sueter, Rear-Admiral Murray Fraser	Warrender, Sir Victor	Worthington-Evans, Rt. Hon. Sir L.
Sugden, Sir Wilfrid	Wells, S. R.	Young, E. Hilton (Norwich)
Tasker, Major R. Inigo	Wheler, Major Sir Granville C. H.
Templeton, W. P.	White, Lieut.-Colonel G. Dairymple	TELLERS FOR THE AYES.—
Thomas, Sir Robert John (Anglesey)	Williams, Com. C. (Devon, Torquay)	Colonel Gibbs and Major Hennessy.
Thompson, Luke (Sunderland)	Williams, Herbert G. (Reading)

NOES.
Adamson, Rt. Hon. W. (Fife, West)	Hayday, Arthur	Salter, Dr. Alfred
Adamson, w. M. (Staff., Cannock)	Henderson, Rt. Hon. A. (Burnley)	Scrymgeour, E.
Alexander, A. V. (Sheffield, Hillsbro')	Henderson, T. (Glasgow)	Sexton, James
Ammon, Charles George	Hirst, G. H.	Shiels, Dr. Drummond
Attlee, Clement Richard	Hirst, W. (Bradford, South)	Short, Alfred (Wednesbury)
Baker, J. (Wolverhampton, Bilston)	Hudson, J. H. (Huddersfield)	Sitch, Charles H.
Baker, Walter	John, William (Rhondda, West)	Smillie, Robert
Barker, G. (Monmouth, Abertillery)	Johnston, Thomas (Dundee)	Smith, Ben (Bermondsey, Rotherhithe)
Barnes, A.	Jones, Morgan (Caerphilly)	Smith, H. B. Lees (Keighley)
Barr, J.	Kelly, W. T.	Smith, Rennie (Penistone)
Batey, Joseph	Kenyon, Barnet	Snell, Harry
Bowerman, Rt. Hon. Charles W.	Kirkwood, D.	Snowden, Rt. Hon. Philip
Bromley, J.	Lansbury, George	Stamford, T. W.
Clowes, S.	Lawson, John James	Stephen, Campbell
Cluse, W. S.	Livingstone, A. M.	Sutton, J. E.
Connolly, M.	Lowth, T.	Thomas, Rt. Hon. James H. (Derby)
Cove, W. G.	Lunn, William	Thurtle, E.
Dalton, Hugh	MacDonald, Rt. Hon. J. R. (Aberavon)	Tinker, John Joseph
Davies, Rhys John (Westhoughton)	MacLaren, Andrew	Trevelyan, Rt. Hon. C. P.
Day, Colonel Harry	Maclean, Neil (Glasgow, Govan)	Varley, Frank B.
Duncan, C.	March, S.	Viant, S. P.
Dunnico, H.	Maxton, James	Wallhead, Richard C.
Edwards. C. (Monmouth, Bedwellty)	Montague, Frederick	Watson, W. M. (Dunfermilne)
Gillett, George M.	Morrison, R. C. (Tottenham, N.)	Watts-Morgan, Lt.-Col. D. (Rhondda)
Gosling, Harry	Murnin, H.	Webb, Rt. Hon. Sidney
Graham, D. M. (Lanark, Hamilton)	Naylor, T. E.	Welsh, J. C.
Graham, Rt. Hon. Wm. (Edin., Cent.)	Palin, John Henry	Westwood, J.
Greenall, T.	Paling, W.	Wheatley, Rt. Hon. J.
Greenwood, A. (Nelson and Colne)	Parkinson, John Allen (Wigan)	Whiteley, W.
Grenfell, D. R. (Glamorgan)	Pethick-Lawrence, F. W.	Williams, David (Swansea, East)
Griffiths, T. (Monmouth, Pontypool)	Ponsonby, Arthur	Williams, T. (York, Don Valley)
Grundy, T. W.	Potts, John S.	Wilson, C. H. (Sheffield, Attercliffe)
Guest, J. (York, Hemsworth)	Richardson, R. (Houghton-le-Spring)	Wilson, R. J. (Jarrow)
Hall, F. (York, W. R., Normanton)	Riley, Ben	Windsor, Walter
Hall, G. H. (Merthyr Tydvil)	Ritson, J.	Wright, W.
Hardie, George D.	Robertson, J. (Lanark, Bothwell)	Young, Robert (Lancaster, Newton)
Hartshorn, Rt. Hon. Vernon	Robinson, W. C. (Yorks, W. R., Elland)
Hastings, Sir Patrick	Rose, Frank H.	TELLERS FOR THE NOES.—
		Mr. T. Kennedy and Mr. Warne.