FINANCE BILL.

HC Deb 19 May 1927 vol 206 cc1403-515

Order for Second Reading read.

The FINANCIAL SECRETARY to the TREASURY (Mr. Ronald McNeill)

I beg to move, "That the Bill be now read a Second time."

In some ways the Second Reading of the Finance Bill differs from the ordinary Second Reading of a Bill to which the House is accustomed, because as a rule the Second Reading is the first opportunity that the House has of learning of some particular line of policy of the Government, or at all events some particular proposal for giving effect to that policy. But in the case of the Finance Bill, the conditions are very different. It is only one stage, and not the first stage, in a long and elaborate process by which the House of Commons examines and controls the financial Measures of the year. The contents of this Bill do not come before the House as a novelty. They have been both in principle, and to a large extent in detail, already discussed, first on the Budget Statement made by my right hon. Friend, and also on the Budget Resolutions which have covered a very large part of the ground. I, therefore, cannot pretend that I have anything startling and original to lay before the House in asking them to accept the Second Reading of this Bill. Nor can I say that I anticipate to hear from the opposite side of the House any opinions or arguments with which we are not very familiar already. I have no doubt that some hon. and right hon. Gentlemen opposite will trudge over well-worn ground with no less vigour than usual. I shall be a good deal surprised if they do not wear even thinner than it is already the threadbare theme of their objection to indirect taxation, and I expect that they will attach themselves as enthusiastically as ever to the often exploded fallacy that direct taxation falls upon the rich and indirect upon the poor.

I am prepared for the renewal of the condemnation of the McKenna Duties, a condemnation which is neither modified nor softened by the accumulated proofs we have of the benefits conferred in the way of employment and otherwise. I have no doubt that the Clause which in this Bill makes a single modest addition to the list of Safeguarding Duties will arouse a fresh outburst of Free Trade oratory. Probably it will be most exuberant from hon. Members below the Gangway, the party responsible for the inauguration of these duties, and will be supplemented with varying degrees of enthusiasm above the Gangway where sometimes we hear expressions of misgiving in regard to that condemnation. The Bill also, of course, gives further opportunities to hon. Gentlemen who are hostile to the whole system of Imperial Preference. I remember that in a recent Debate the hon. Member for Greenock (Sir G. Collins) told us that a policy of economy could be pursued by sweeping away the whole of this pernicious system, as he thinks it, of Imperial Preference. I tried to ascertain from him whether he was expressing the opinion of the party of which he is an ornament, but he was too cautious to allow that he spoke for anyone but himself. I have no doubt that we shall hear, in the course of this Debate, what the views of the Liberal party are on this question of Imperial Preference, which we have done our best to stabilise in our fiscal system, and which, again, I may remind hon. Members opposite, was first placed upon our Statute Book by a Government of which the right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George) was the head. It will come before the House in the Clauses dealing with the taxation of wines and tobacco, and we shall look with interest to see how it is received by our opponents in the House. Then I wonder if any hon. Member will be resourceful enough to find anything completely novel to say about the transfer of the Road Fund surplus to the Exchequer, or whether the old absurdities about robbery, larceny, violation of pledges——

Mr. ERNEST BROWN

May I ask the right hon. Gentleman a question? Is he not aware that the phrase about larceny was used by an hon. Member behind him, the hon. Member for Bridgwater (Mr. Crompton Wood)?

Mr. McNEILL

What in the world has that to do with it? I am speaking, as the right lion. Gentleman the Member for Colne Valley (Mr. Snowden) Knows perfectly well, of expressions which have been used by him. He speaks with great authority in this House, and I shall be interested to see whether these old absurdities are brought out again to have another trot round the course for a final lap. The right hon. Gentleman the Member for Colne Valley has such a rich vocabulary of invective that I hope we may count upon him, even if he does not give us anything new in the way of arguments, at all events to entertain us with some fresh epithets of abuse. If he does, we shall listen to them with complete equanimity, because we know very well that, whatever may be the view of the right hon. Gentleman, the taxpayers who have provided the £12,000,000 of surplus, and to whom the money belongs, would infinitely prefer that that money should be employed to relieve the general needs of the State rather than that fresh burdens should be laid upon their own shoulders. There is one other respect, if I may say so, in which I am counting on the right hon. Gentleman the Member. for Colne Valley, and I hope my confidence will not be disappointed. In the Finance Debates of last year the right hon. Gentleman complained of what he holds to be the gross and culpable under-taxation of agriculture, and, in reply to an observation of mine, he levelled at us what no doubt he considered to be the deepest possible reproach. He said, "The farmers are the pampered darlings of the Tory party."

Mr. SNOWDEN

Is that an exact quotation?

Mr. McNEILL

I am speaking from memory.

Mr. SNOWDEN

The right hon. Gentleman says he is speaking from memory, and that is not an exact quotation. I am speaking from memory also, but I think, if he will refer to the OFFICIAL REPORT, he will find that I said "agriculture," and not "the farmers." The reason why I say that is that that alleged expression of mine has been used on hundreds of Tory platforms, and it is always "the farmers" and not "agriculture."

Mr. McNEILL

I am quite ready to accept the correction, if the right hon. Gentleman thinks there is really a dis- tinction, but I am quite clear about this, that, at the time when the right hon. Gentleman used the expression, we were discussing the taxation of farmers. He and the right hon. Gentleman the Member for Central Edinburgh (Mr. W. Graham) had both been saying that the farmers were under-taxed because of the method by which Schedule D is applied to them, and it was in answer to an observation on that point from myself that the right hon. Gentleman said—I accept his term—that agriculture was the pampered darling of the Tory party. The right hon. Gentleman says it has been helped a great deal, and that is quite true. I certainly have been trying to help the right hon. Gentleman in that respect. No doubt he wishes that his views should be known as widely as possible, and I have been doing a little propaganda for him; and I have found that when his views are quoted, as he says they have been, and as I can confirm, they always excite great interest. In fact, I have never alluded to them without being greeted with laughter and cheers. The reason why I mention this is because the present Bill gives the right hon. Gentleman an opportunity, which I earnestly trust he will not neglect, to repeat that expression of opinion, and, possibly, to expand it, because in Clause 11 of this Bill we are making a small alteration in the scale of duty on heavy motor vehicles, the effect of which is to give a certain measure of relief to those employed solely in agriculture. It is quite true that this is no more than is strictly just to a very sorely tried industry, but I am confident that that will not deter the right hon. Gentleman from repeating his bitter complaint that agriculture is the pampered darling of the Tory party.

At the end of the first part of the Bill, immediately following the Clause to which I have just alluded, hon. Members will find three or four Clauses the contents of which were not discussed, either in the general Budget Debate or on the Budget Resolutions. They are Clauses dealing with an Amendment of the law in regard to the manufacture of spirits, and, as the subject has not been referred to before, I would like to say a few words with regard to the necessity for those Clauses.

Mr. WHEATLEY

Which Clauses are they?

Mr. McNEILL

Clauses 12, 13, 14 and 15. When the Spirits Act was passed, half a century ago, practically the only use to which alcohol was devoted was the refreshment and nourishment of the inner man, or, as some people think, the poisoning of the inner man. At that time, about half a century ago, spirits were really only a beverage. They were, no doubt, put to other uses in small quantities, but they were quite sufficiently dealt with for purposes of taxation, when applied to other objects, by a system of remission of duty on the quantities so used. In more recent times, however, alcohol has come to have an increasing use for other purposes than that of drinking—much more important and beneficial purposes. It is used extensively and increasingly, not only as a fuel for generating power, but also in a great number of industrial processes of manufacture. The restrictions imposed upon the manufacture of alcohol and spirits under the old Act are, therefore, in an increasing degree hampering industry and proving a difficulty in the development of some manufacturing processes.

The House must bear in mind that the Spirits Act does a great deal more than merely impose taxation upon alcohol. That is not the worst part of it, because it imposes very rigid rules on the manner of producing spirits, and on the ways in which they may be handled when produced. For example, under the Spirits Act, spirits may only be moved from a distillery in casks—a very appropriate way so long as it is merely a question of a beverage; but to insist now, when spirits are used for industrial purposes, that they shall only be moved in casks, is not only extremely inconvenient, but adds greatly, in some cases, to the cost of production. It is now desired that it shall be permissible to carry spirits about in tank wagons and, in some cases, even by pipe-lines, and it is in order to remove those hampering and obsolete restrictions upon the use of alcohol for industrial purposes that we are now proposing the alterations in the Clauses to which I have referred. Of course, I need not say that they also contain carefully thought out safeguards to provide that there is no loss of revenue, and that the freedom given shall not be taken advantage of in any improper way, either to the detriment of the Revenue or of anything else.

Mr. HARDIE

With regard to Clause 13, I should like to ask whether, where distilleries manufacture spirits required for industrial or power purposes, the Regulations will be so relaxed as to prevent the necessity for shutting down at the end of three working days, and to allow a complete working week, in order that the bulk of the crude washings may be got right through for use for power purposes.

Mr. McNEILL

I could not answer that question in quite such precise detail at the present moment. What we are proposing to do is to give the Inland Revenue authorities power to make regulations which will enable alcohol to be used in the way I have described without at the same time involving any loss to the Revenue. Whether it would have the exact effect that the hon. Gentleman puts to me at this moment, I am not prepared to say. That is a point which he and I can, of course, discuss when we get to the Clause in Committee; but, as regards Clause 13, to which the hon. Gentleman refers, the purpose of that Clause is to make modifications in the restrictions which have been placed upon the process of distillation itself. What happens in modern times is that distillation takes place as a mere incident in other processes, and it is not the main object of the manufacture concerned. It is when it arises in that form that these provisions in Clause 13 deal with it. I have not the least doubt that these provisions will commend themselves to the House, because, if necessary, there will be no difficulty in showing that they are really required in the interests of the promotion of manufacturing processes in this country. Until these changes are made, there is a very serious handicap placed upon certain trades.

But, undoubtedly, the Clauses to be found in Parts II and III are the most important part of the Bill. I should like to remind the House of what was said on this subject by my right hon. Friend the Chancellor of the Exchequer in his Budget Statement in anticipation of these Clauses. Of course, at that time, the Bill had not been drafted. My right hon. Friend was outlining his intention with regard to the simplification of Income Tax and Super-tax, and he used these words: The details of the scheme will be set forth in the Clauses of the Finance Bill in language which I may say with safety very few people will understand."—[OFFICIAL REPORT, 11th April, 1927; col. 84, Vol. 205.] How far that particular prophecy will be fulfilled, as these Clauses are studied, I am not in a position to say.

Mr. WHEATLEY

It applies to all your Bill.

Mr. McNEILL

I think it is very probable that hon. Members who are lawyers will find, in relation to the study of these Clauses, that their technical training equips them with an advantage which other hon. Members will probably envy in trying to master Clauses 17 to 44. Several of these rather formidable-looking Clauses deal with points that were raised last year, when hon. Members called attention to various cases of hardship which they foresaw could arise in the transition which was then announced from one system of Income Tax assessment to another—from the existing three years' average to the basis of the previous year. For example, Clauses 26 and 27, I think, are designed to meet criticisms which were made last year by several hon. Members, but especially by the hon. Member for Reading (Mr. H. Williams). I remember that he brought forward these cases, and I said I was advised that they did require consideration and that they would receive consideration before the Debates of this year. But it is quite unnecessary, I think, in the Debate on the Second Reading of the Bill, to go into the rather intricate and technical details contained in these Clauses; when we reach Committee they can be discussed more fully. I hope it will be found, when we do discuss them in Committee, that the points raised by the hon. Gentleman the Member for Reading and other hon. Members have been, and that they will admit they have been, satisfactorily and reasonably provided for.

Speaking in quite general terms, the main purpose of those two Parts of the Bill are twofold. The first is, to carry further the system of simplification of Income Tax and Super-tax, which was begun by the Finance Bill of last year when the basis of assessment for Schedule D was changed to the income of the previous year. My right hon. Friend the Chancellor of the Exchequer intimated last year in outline what the scheme of simplification was to be, and some of the Clauses with which we have now to deal are designed to carry that system into effect. For example, in Clause 42, hon. Members will see that the intention is to change the basis of assessment for income falling under Schedule E from its present basis of the current year to the basis of the previous year, so as to bring it into line with Schedule D. Hon. Members will see that we are, by removing the disparity between those two Schedules, taking a big step towards the complete simplification which we have in view, because the effect of that provision will be that practically all income, except that which is taxed by deduction at the source, will uniformly be charged on the single, simple basis of the income of the previous year. That is one main object of those two Parts of the Bill.

The second main object is, to stop up certain loopholes which lead to the legal avoidance of taxation. The ingenuity which is shown in avoiding taxation is, of course, perfectly legitimate so long as it is merely taking advantage of the provisions of the present law; but, nevertheless, it is the duty of the Revenue authorities, as far as they can, when they discover the use which is being made of them, to stop up these loopholes in the interests of the Revenue and in the interests of other taxpayers. It is quite clear that if one individual, by the exercise of a particular ingenuity in relation to the existing law, manages to escape certain burdens of taxation to which he otherwise would have to submit, that that deficiency has, pro tanto, to be made good by other people who are not in a position to take advantage of the same loopholes.

I referred to one or two of these devices in the Debate on the Financial Resolutions on which the Clauses of this Bill are founded, and I do not propose to refer to them again on the present occasion; but there are one or two others to which I might allude. I think probably the largest gaps through which a coach and four, to use the old expression, or perhaps I should now say a motor car, can be driven through an Act of Parliament, are those which are dealt with in Clauses 29 and 30. One of the devices used by the taxpayer is to make use for his own purposes of the general company law of the country. Clause 29 deals with what is commonly known as the one-man company. Of course, it must not be thought that those loopholes are now discovered for the first time. They have been known for some time to the Revenue authorities, who have been watching them, and who are always prepared, when the gap gets to dimensions menacing to the revenue, to propose the necessary amending law. This particular device of the one-man company was, in fact, dealt with by the Finance Act, 1922, but the provision that was then made has not proved as effective as it was hoped, and that is why we have to ask for this amendment. By the Finance Act, 1922, it was provided, in the case of certain companies which were defined for the purposes of the Act, that if a reasonable proportion of the profits of the company were not distributed to the shareholders as income, then the Inland Revenue authorities were given power to treat the whole of the profits which accrued to the company as if they had been distributed, and to follow these profits to the shareholders and charge the shareholders the Super-tax to which they would become liable if these profits raised their income above the limits on which Super-tax was chargeable.

Mr. DENNIS HERBERT

The Super-tax under Section 21 of the Finance Act, 1922, is payable, not by the shareholders but by the company. It is an important point.

Mr. McNEILL

The point I am dealing with is that where the profits are not distributed but are retained, the Revenue authorities have the right to consider these profits as if they had been distributed.

Mr. RADFORD

I think the Section of the Act of 1922 provides that a notice of the charge of Super-tax under that Section was, in the first instance, to be served on the member of the company, and if that member does not within 28 days pay the tax, it can be claimed from the company.

Mr. HERBERT

He would not pay, and need not.

5.0 p.m.

Mr. McNEILL

That point is not of importance from the point of view of what I am now saying. It is a minor point as to the way in which the tax is recoverable. The real point of importance is that the tax should be recoverable even although the profits have not been distributed. The reason why that Act proved ineffective for its purpose was on account of the definition that was given of the companies to which it should apply. It was confined to companies which were registered since 1914, and they had to be companies which had less than 50 shareholders and which offered no share capital to the public. It is clear to us now that those pro visions were open to evasion and have been evaded, because it was not found impossible to get over the condition about nominating or securing 50 shareholders, each one of whom had some quite nominal amount of capital. A shilling share to each of 50 shareholders was sufficient to get over that provision. In the same way it was quite easy to get over the provisions with regard to capital offered to the public. All it was necessary to do was to offer some nominal sum, say £5 or £10 of capital, to be subscribed for by the public and the condition was satisfied. Therefore, we are now proposing to make an alteration and bring all companies within the purview of that Act if they are bona fide controlled by not more than five persons, and the effect, which was impossible by the earlier Statute, should be effectively secured by this. Clause 30 aims at rather a different device of people who take advantage of company law. It is not an uncommon device. I do not say device in any offensive sense—it may be perfectly legitimate—but it often occurs that there is a whole succession of companies—there may be only one or two or there may be more—each one holding the shares of the company above itself in the succession. We will say Company A's shares are held by Company B, and Company B's shares are held by Company C. Then when the profits made are distributed, they do not go to individual shareholders at all, because the shareholder of Company A is not an individual but a company, and by that means ingenious people have undoubtedly escaped taxation to which they otherwise would have been liable. We propose in the Bill that in such cases the Revenue authorities should be able to track down to the ultimate actual individual shareholder, who is the real beneficiary, through no matter how many intervening companies, and when they have found the person who is to enjoy the actual income from the profit, to make him liable to taxation.

Another matter to which I ought, perhaps, to allude is the device of those who hold debentures in companies. It is possible by selling the debentures, on the eve of payment of interest, cum dividend, and repurchasing them afterwards when the dividend has been extracted, to avoid having the benefit he derives from the debentures coming to him in the form of taxable income, and by that means there has also been a good deal of avoidance of taxation. That, again, is a matter with which we are dealing, and when we come to the Clause in which it is embodied, hon. Members may be able to make some suggestions with regard to it. There are other Clauses, but I only want to give the general intention of the purpose in view. They will all be subject to examination, and hon. Members who find the truth of what my right hon. Friend said about the power of understanding language will possibly have to take expert advice as to the meaning of the language. My present purpose is really to do no more than indicate generally the purpose in view of these very formidable-looking provisions in this formidable Bill. I do not think any of them, so far as I have been able to follow opinions expressed in the House in the past, are likely to excite much hostility in any part of the House. Nevertheless, one must bear in mind that hon. Members opposite, who have given notice that they are going to move the rejection of the Bill as a whole of course, cannot escape the responsibility for manifesting their opposition, nor can they avoid the opposition they are showing to the scheme of simplification which is embodied in the Bill, and which is, indeed, really the most important part of the Bill. The actual modifications that are made in taxation are quite inconsiderable, and I have not seen, either from the Debates in the House or from comments in the Press, that the proposals have excited any great amount of opposition. On the contrary, both in principle and in detail my right hon. Friend's proposals for dealing with an extremely difficult financial situation have been recognised as bringing great relief to people who apprehended a much worse state of affairs. I think public opinion outside has been very emphatic in approval of the financial proposals for the year, and I ask the House with confidence to give a Second Reading to the Bill.

Mr. LEES-SMITH

I beg to move, to leave out the word "now," and at the end of the Question to add the words "upon this day six months."

The House, I am sure, is greatly obliged to the right hon. Gentleman for the careful and detailed explanation he has given of highly technical matters, which was very interesting and very necessary, and will greatly facilitate our discussions in Committee. But he began by making a number of statements, which were highly controversial and provocative of debate, with which I should like to deal. He said he had no doubt the arguments we intended to use would cover well-worn ground which he had heard dozens and hundreds of times. I regret the more that we must have entirely failed to make him understand them, as his speech has shown not only that he made no attempt to answer them, but that he, apparently, does not know what they are. Let me take the main example he quoted. Perhaps the broadest issue between the two sides of the House now is that as to the relative place in our system of taxation of direct and indirect taxation. He ascribed to us as our reason for prefering direct taxation the argument that we believe in the exploded fallacy that direct taxation falls only upon the rich, and indirect taxation only upon the poor.

Let me once more put to him our argument on this question, and put it to him not as an argument between those who stand for the interests of the poor and the rich, but on the ground of the industrial progress and efficiency of this country. What is the present position? We have a million people unemployed and yet the Report of the Ministry of Labour points out that there are great industries which, in spite of all the difficulties of last year, increased in prosperity, particularly in the Midlands and the South and the West. That means that our unemployment and our industrial stagnation are getting concentrated in certain particular industries and certain staple industries, those dependent mainly for their prosperity on holding their own in our export market, such as iron and steel, engineering, coal mining and so on. The object of the Chancellor of the Exchequer should be to frame this Bill so as to give special assistance and nourishment to those industries that are struggling against the greatest difficulties.

This is a very different argument from the kind of thing he ascribed to us. Go to any of these industries, and ask what they want, and they all reply that what they want is a reduction on their standing charges, so that they can bring down their costs and their prices and compete on more level terms with their rivals in foreign markets. A reduction of Income Tax and Super-tax does not help them. It helps people who are living on debentures or War Loan or the shares of great companies, but it does not help these industries. They are not making a profit, so they are not paying any Income Tax. But the results of the reduction of Income Tax, the increase in rates and insurance contributions actually increase their standing charges and add to their difficulties. That is our argument. It has never been answered yet. The purpose of the Chancellor of the Exchequer to-day ought to be to give the greatest assistance to those industries which are struggling against the greatest difficulties. This Government for three years has so framed its Budgets as to injure them, and give the greatest assistance to those sections of the population who already enjoy the greatest share of the national wealth.

The right hon. Gentleman says these are well-worn arguments. They may be. Our well-worn arguments and the well-worn arguments used from the other side of the House have lately been submitted to a very impartial tribunal consisting of a large majority of Members entirely opposed to the views of the Labour party. They have been submitted to the Colwyn Committee. The Majority Report is signed solely by the most representative industrialists, financiers and accountants, whom the Chancellor of the Exchequer, assisted by the Treasury, consulted. That Majority Report has confirmed the arguments that we have put before this House for years. What is our position I We say this. First of all, the Budget should assist those depressed industries by reducing rates and standing charges. It ought also to provide for the increase of the Sinking Fund to at least the £75,000,000 a year laid down by the Colwyn Committee, and it ought also to provide the financial margin which is essential for the social expenditure necessary to raise the people's standard of civilisation and of life. These should be the three purposes of a Budget to-day. These purposes cannot be fulfilled by any Budget introduced by the Conservative Government, because they are in conflict with this continuous attempt to reduce direct taxation, which is the main objective of Conservative finance. I mentioned the Colwyn Committee. I notice that the Chancellor of the Exchequer is not very ready to refer to the Colwyn Committee. He has begun to treat it as a joke, and the only reference he made was to the effect that he was very grateful to the Committee because it had afforded a dignified burial to the Capital Levy.

I wish to say a word or two on that subject. The Colwyn Committee, as a matter of fact, examined the ordinary arguments against the Capital Levy and came to the conclusion that what I may call the electioneering arguments—the arguments which hon. Members opposite used on public platforms—broke down upon close examination. The fact which did determine the minds of the Colwyn Committee was, that a Capital Levy, in order to be carried out, would need the co-operation of the banks and other great financial institutions, and that it could be wrecked by those financial institutions by creating financial embarrasment which they had it in their power to create. That is to say, the argument against a Capital Levy which impressed the minds of the majority of the Colwyn Committee was that the possessive classes were in a position to take action calculated to coerce the Government in a manner not covered by the Trade Disputes and Trade Unions Bill. Therefore, the main reason why this body rejects the Capital Levy is the discreditable and disreputable fact that the financial interests in this country—the capitalistic classes in this country—have extra-Parliamentary methods of defeating Acts passed constitutionally through this House. The Committee took it for granted, that, having that power, they would ruthlessly use it while working men were being sent to prison for two years. That was where the Majority Report ended. The Minority Report went on to make proposals to deal with this particular difficulty and I wish to put these proposals shortly to the House, because I was one of the signatories to the Minority Report. As far as the views of the Colwyn Committee on the effects of direct and indirect taxation are concerned, I would very gladly have signed the Majority Report, because they expressed the views we have been expressing here for years. But I signed the Minority Report because it proposed a substitute for a Capital Levy. It proposed that there should be a special surtax on income derived from unearned sources. The surtax was to be paid practically by the same class as would pay a Capital Levy, but it would be capable of defeat by extra-Parliamentary methods. Broadly, the position which they took is this. As the House knows, the Income Tax at present comes broadly from two directions. It comes from income dependent upon personal exertion—earned income; and it, comes from income derived from investment, property and shares—unearned income, which comes from owning instead of from earning.

Mr. CADOGAN

Earnings can be invested, can they not?

Mr. LEES-SMITH

Certainly. The earnings having been invested, the interest is then derived from owning. That is what it means. In discussing this question, I have been surprised that hon. Members on the opposite benches always discuss the effect of Income Tax as if it would be the same for Income Tax on earned income and Income Tax on unearned income. As a matter of fact, the Minority Report of the Colwyn Committee came to the conclusion that the industrial effects would be very different. Why do the Government always urge that it is necessary to reduce direct taxation? The argument they always use is, that the reduction of Income Tax will stimulate the enterprise and the industry of the community. That argument applies to that section of the community which is giving its service to industry and enterprise. It does not apply to the section which receives its income, so to speak, while it sleeps without being under the necessity of giving to industry or enterprise any return. Let me quote a case. The mere fact that you lower the Income Tax on the un- earned incomes of ladies living in the suburbs on, say, debentures or War Loan does not stimulate their industry or enterprise, or that of those living on rents or mortgages, or the shares of great limited companies. The fact is—and I would ask the hon. Member for Ilford (Sir F. Wise) to appreciate the nature of this argument——

Sir FREDRIC WISE

I have already replied, about three years ago, to the argument.

Mr. LEES-SMITH

I am very pleased, but neither the Financial Secretary nor the Chancellor of the Exchequer has replied as yet. I hope we shall have a reply to-night. The fact is, that the economic effects are quite different. You can tax unearned income without having industrial repercussions. The ordinary position is, that by adjusting your taxation so as to obtain a larger proportion from unearned incomes and a smaller proportion from earned incomes, you can obtain a larger total revenue with less injurious results than you obtain by the present method. It would be fairer and more just. There is a great difference between earned and unearned incomes. The man living on earned income has a precarious income. If a man becomes ill, or dies, or grows old, or loses his goodwill, his occupation disappears. Comparatively speaking, unearned income is a secure income. The man who possesses that need not trouble to the same extent about saving, and about insuring his life and his home, hut can indulge in whatever tastes or interests he prefers. That being so, the difference between these two types of incomes is so far-reaching that it should be marked, not by a mere differentiation, but by a special difference in taxation. The Minority Report proposed that there should be, as an alternative to the Capital Levy, a special tax on that portion of income which comes from unearned sources. It would be imposed only upon those who had unearned incomes of over —500 a year, so as practically to bring within its range those who would be included in the Capital Levy. It would not be a flat rate tax. It would be a graduated tax, with exemptions, equivalent to a flat rate tax of 2s. in the £.

The Inland Revenue put forward estimates as to what the result would be, and their estimates were that such a tax as this would give a yield of about £85,000,000, or rather more than the annual savings that would have been effected by the Capital Levy as it was originally proposed. That is to say, this tax would affect the same class as would have paid the Levy. The only difference would be that the annual payment would be slightly more than if the Capital Levy had been imposed. It would be a tax, not on capital, but on the income derived from capital. It would not need any assessement or valuation; it would be carried through by the ordinary machinery of the Income Tax, which, of course, has been tested for 100 years. It could very easily be carried through in the lifetime of one Parliament. The Chancellor of the Exchequer was mistaken when he said that the Capital Levy was dead. The Capital Levy has arisen out of the Colwyn Committee, with its youth renewed. It has arisen in a new shape, and in a shape which cannot be damaged or destroyed by the financial interests which are allied with the Conservative party.

Mr. TOWNEND

I beg to second the Amendment.

The opening remarks of the Financial Secretary, in addition to being provocative in the debating sense, contained something which was alarming, in the suggestion of certain lines that would be followed in dealing with some items in the Finance Bill. I was strengthened in the action which I have to take in seconding this Amendment, by the knowledge that whether the old arguments are to be followed or not, as long as the old arguments are true, they will bear repetition, and they must be repeated over and over again until some kind of appreciation of the truth on the part of the Chancellor of the Exchequer is brought about: perhaps a difficult proceeding.

I do not intend to follow any wide field of discussion, but to concentrate what I have to say mostly on Clause 46. The House will remember that when the Chancellor of the Exchequer introduced this Budget he took us on a journey, a kind of Alpine Expedition, where we travelled from crag to crag, and he asked us to view with him the various aspects of Jordan through his particular glasses. Not only did he paint a certain picture as it related to the additional duty on tobacco, but he was followed on the same line by the Financial Secretary. I mention this, because I was particularly concerned as a pipe-smoker. I wish to emphasise the point that often the benevolent promises of the tobacco manufacturers and the gullibility of the Chancellor of the Exchequer can be demonstrated within the lapse of a short time, and certainly it has been demonstrated to-day. On one of his crags or, rather, on the tobacco plateau, the Chancellor of the Exchequer pointed out to us the countrymen who smoked cheap tobacco, carrying on in the same old way in 1926 and 1927, the additional Duty being paid by the benevolent tobacco manufacturer. That theory has been exploded. I do not, however, expect the Chancellor of the Exchequer to admit that the Tobacco Duty is borne by the person who smokes the tobacco.

As the Chancellor of the Exchequer progressed towards the goal at which he was aiming, nearer and nearer came the margin between the wealth that he was acquiring from certain sources and the figure that he had to balance, and in achieving that balance he arrived at a stage where there was only a difference between the figures of £20,000,000 to £30,000,000. I suppose that I had the same experience as other hon. Members. We sat listening for his next words, with bated breath. There had been various promises made, and the Press had given certain indications of the direction which the Chancellor of the Exchequer was going to take. As I listened to his speech, I thought that his supporters were going to get a surprise. I said to myself, that the right hon. Gentleman had explored every other resource and that there was only one that he could take, and that was that he would be compelled to impose a further 6d. on the Income Tax. What a surprise that would have been to his supporters. I thought that was the direction which he was going to take. The surprise came, but it was not in the direction that I expected, because he bridged the gulf of £20,000,000 to £30,000,000 not by going to his supporters in the direction that I had dreamed of, but by going in another direction.

Once more, in spite of the rightful and healthy criticism to which the right hon. Gentleman had been subjected 12 months' previously, he turned to the Road Fund and raided it, although he must have known in his heart that that Fund had been pledged for other purposes. I do not think that anyone would have prophesied that, once again, he would have met his difficulties by taking the same step that he took in 1926. However, with the audacity for which he is noted, he extended his hand to this particular roost, and withdrew £12,000,000.

The CHANCELLOR of the EXCHEQUER (Mr. Churchill)

Hear, hear!

Mr. TOWNEND

The hon. Member for Barnstaple (Sir Basil Peto), referring to the right hon. Gentleman's capacity for moving in this direction, said that he had shown a finished dexterity in extricating himself from a difficult financial position. Hon. Members on the Liberal benches, who are perhaps better equipped for dealing with this position than I am, may be inclined to refer to the right hon. Gentleman's action as unscrupulous audacity. We on these benches, who are in the habit of calling a spade a spade, say quite frankly that the right hon. Gentleman was guilty of an act of sheer robbery, knowing as he must know that the action he took was to take away money belonging to another Department, which had been collected for a specific purpose. In taking that money and using it in the way he did, he was guilty of deliberate robbery. One can only expect it from the right hon. Gentleman, because he is a law unto himself. He is always prepared to argue every way, according to the position with which he is confronted. His facility for so doing is envied by certain people.

I have heard him condemn very strongly certain Near-Eastern Governments because, forsooth, they are not prepared to subscribe to the pledge of a Government which existed 10 years previously; for instance, the Soviet Government in refusing to stand by the pledges of the Czarist regimé, while, on the other hand, he comes forward and argues that although a promise was given in 1921 that the money of the Road Fund would be exclusively used for the development and maintenance of the roads, yet in 1926 and again this year, applying the well-known law of his own peculiar personality, he disregards that pledge because the National Exchequer requires the money. I suppose he is prepared to argue that the ends justify the means. I have never been able to find him indulging in any other policy than that, whenever he has been endeavouring to justify action which he may have taken in respect of financial proposals submitted by him as Chancellor of the Exchequer. One may sum up his arguments in this way. He says, in effect, here is a Fund in regard to which large liabilities have been contracted; but despite the fact that they have been contracted and despite the fact that, resolute efforts to spend the accumulated wealth of the Fund have been made, the coffers of that Fund are overflowing, and although they are but sufficient to carry out the great undertakings into which the Road Fund has entered, sound finance demands that the money shall be taken from the Road Fund and handed over to the National Debt Commission. From his point of view sound national finance justifies the taking of this money and its use for whatever purpose is thought desirable by the Exchequer.

In 1921, the Road Fund was clearly established for a specific purpose. Year after year the returns of the Road Fund have increased to the extent of thing like £2,000,000 per annum. From 1922 to 1926 the receipts from motor-vehicle taxation had increased from something like £12,500,000 to £18,500,000. At the same time the demands upon that money have greatly increased. The number of motor vehicles, in respect of which licences have been taken out has increased by 100 per cent., with the result, as the Chancellor of the Exchequer knows, that the roads are used to an extent never before experienced. He knows of the ever-increasing stream of traffic that is passing along the roads. We have the one-way traffic outside this House. In the place where I live we have a regular stream of traffic passing in the early morning out into the lovely Cheshire country for a day's pleasure, and we have a similar stream coming back at night, until there is no chance of getting across the road.

These vehicles are all making their demands upon the roads, and they are contributing their quota to the Road Fund and calling upon the Road Fund for far better consideration than they have received hitherto; but the money has been denied to them simply because for the last three years the Government have been responsible for a deliberate policy—despite the claims that have been made upon them by the county councils and the town councils to provide the wherewithal to improve the roads—for the specific purpose of enabling the Chancellor of the Exchequer to get out of his difficulties. Bearing in mind the pledge made in 1924 by the Government, and considering that at the present time the commitments of the Road Fund far exceed the balance which stands to its account, surely the Chancellor of the Exchequer is guilty of something which some day he will regret. According to the reports to-day the number of unemployed in this country has been reduced. While we are all pleased that it should be so, we also know that figures are most misleading, and it is part of the policy of this Government to force thousands of people from the Employment Exchanges on to the boards of guardians, compelling them to impose additional burdens on the local rates, and thereby preventing local authorities from providing their share of the money necessary for the improvement of the roads.

If the Chancellor of the Exchequer will cast his mind back on the last 12 months, he will know that there have been many appeals from local authorities for money for the development and maintenance of existing roads, and the creation of new roads, and if this money had been granted it would have found work for thousands of unemployed men. Is it possible for the Chancellor of the Exchequer to turn his attention to other avenues rather than continue this raid on the Road Fund? He must admit the arguments which have been adduced here and in other places, and he will appreciate the fact that in putting them forward we do so in all sincerity. Despite what the Parliamentary Secretary has said, we are compelled to reiterate them, and to remind the Chancellor of the Exchequer that he has been guilty of almost criminal neglect of his responsibilities to other sections of the community in his desire to present a balance sheet which he should have balanced by those other means of taxation which have been suggested by the Mover of the Amendment.

Sir ROBERT THOMAS

The hon. Member who has just sat down has flung a challenge to the small party of which I have the honour to be a member in which he desires us to accuse the Chancellor of the Exchequer of unscrupulous audacity. May I remind the hon. Member that we do not depend, like some of his colleagues, upon that sort of language for our reputation? We are able to substantiate our position in this House by argument, not by rowdyism. I have the highest possible respect for the Chancellor of the Exchequer, although I do not happen to be a member of his party. At all times I enjoy listening to his dialectic skill, and I hope it will be many a long year before this House is deprived of his presence. The Financial Secretary to the Treasury has surely done the Chancellor a great injustice in the speech he delivered earlier this afternoon, when he advised hon. Members to obtain expert advice on the meaning of the language of this Bill. I have always regarded the Chancellor of the Exchequer as a past-master of language, and surely it is not to his credit that we should be advised in this House to get expert advice in order to understand the language of the right hon. Gentleman.

The Financial Secretary to the Treasury, however, is perfectly correct. I have puzzled over the taxation Clauses of this Finance Bill, and I should want not one but a hundred experts to explain what they mean. I confess that I am completely bewildered. It is impossible to understand these Clauses, and, apparently, it is becoming the practice of the Conservative Government to introduce into this House Bills which nobody can understand. We have just had the Trade Disputes and Trade Unions Bill, and I do not think any lawyer in this House yet understands what Clause 1 of that Bill means. We are confronted with the same difficulty in considering the present Bill. The right hon. Gentleman has a great imagination, and in connection with some of the provisions of this Bill he has let his imagination attain the highest possible flights, I presume for the purpose of finding a way to balance a very difficult financial situation. He has done one ill-service to the community in connection with the Road Fund—I am sure he will pardon my saying so. Probably he did not mean to do it, but he has been led by a difficult situation to commit what is, in my humble opinion, a grave injustice upon the unemployed in this country. I will try to prove what I am saying, and I hope I shall be able to prove it to his satisfaction. I say that in connection with the Road Fund he has put out of employment no less than 80,000 men, at a time when every thoughtful citizen is trying to put forward suggestions in order to get a more profitable return for the money which is being paid out in the dole.

The Chancellor of the Exchequer, by the raid on the Road Fund, has added to the unemployed list in this country no less than 80,000 men per annum. This means the diversion to the Exchequer of no less a sum than £25,000,000 in two years. Last year £7,000,000 was taken out of the Road Fund reserve and £3,500,000 out of Revenue. The Chancellor of the Exchequer also took a sum of £800,000 per annum for 15 years to repay the Exchequer in connection with loans to local authorities. This year the Chancellor again takes one-third of the taxation coming in from pleasure vehicles, £800,000, and £12,000,000 from reserve. That gives you an approximate amount of £25,000,000. I have it on good authority that on every sum expended on the roads 50 per cent. of it goes in the payment of labour on the job. A large percentage also goes in materials, and, therefore, it may be said that out of £25,000,000 it amounts to a direct loss in wages of not less than £3,000,000. This, at an average of 10s. a day per man, means 26,000,000 man days, or employment for 80,000 men for a whole year. Therefore, it is not unfair of me to accuse the Chancellor of the Exchequer of having placed this vast number of 80,000 men on the unemployment list.

Mr. CHURCHILL indicated dissent.

Sir R. THOMAS

I shall be glad to hear the right hon. Gentleman explain away these facts.

Mr. CHURCHILL

If the £12,000,000 had had to be found from some other source it would equally have been withdrawn from the fund from which the wages of labour have to be found.

6.0 p.m.

Sir R. THOMAS

I am afraid I cannot quite follow the right hon. Gentleman. That is a way of putting it which I really do not understand. I rather expected the right hon. Gentleman to say that local authorities had no schemes which could employ such a large number of men. I expected him to put forward an excuse of that kind, and to say, "It is all very well to accuse me of putting 80,000 men out of work, but where can you employ 80,000 men?" That is the reply I am anticipating he will make later on in the Debate, although he has not said it yet. The best reply to a statement of that kind, whether from the right hon. Gentleman or anybody else, is this. It is a resolution—I do not know whether it has yet come to the right hon. Gentleman's knowledge as it was only passed yesterday—of the standing joint committee of the Mechanical Road Transport Association. It sat in London yesterday under the chairmanship of Mr. Shrapnell Smith, and after a long discussion the following resolution was unanimously passed: (1) That having regard to the unsatisfied needs of local authorities and to delay in dealing with agreed schemes of road improvement the Committee takes the strongest exception to the appropriation of £12,000,000 from moneys avowedly raised for the purpose of road improvement and maintenance. (2) That the Committee seek assurances for the future as to the constitution and application of the Road Fund, and join in the organisation of the 2,500,000 owners, owner-drivers and drivers of road motors, and other persons interested in the roads; in order to secure satisfactory assurances. The right hon. Gentleman surely cannot say that there are not sufficient requests from local authorities for schemes. In the county of Anglesey, which is not a very big county but has many roads, including an old Roman road, a deputation was appointed recently to wait upon the Road Board and ask for funds for the carrying out of a road scheme. The members of the Road Board raised their hands in dismay, and said they were not allowed by the Treasury to sanction any scheme. That was the reply received by a deputation from my own constituency. There is a concrete case. I make the statement here, and the right hon. Gentleman can prove it or disprove it. Am I not entitled to say that schemes submitted by local authorities for badly needed road improvements all over the country have been not merely damped down or suppressed, or rejected, but hamstrung?

Mr. CHURCHILL

I do not mind what epithet the hon. Baronet uses, but every desirable scheme cannot be carried out at once, and no scheme can be carried out which will bring the expenditure of the Road Fund beyond the very large and increasing limits provided.

Sir R. THOMAS

The right hon. Gentleman must be fair. He has a sense of fairness, and I put it to him in all sincerity that these schemes are being held up, and that all initiative and all desire and ambition on the part of the local authorities are being paralysed in consequence. The Treasury is putting the screw on the Ministry of Transport to such an extent that no scheme can be sanctioned.

Mr. CHURCHILL

I spend my life in endeavouring to resist desirable schemes not only in regard to transport but many other matters.

Sir R. THOMAS

That was because the right hon. Gentleman had not the money in those cases, but in this case he has the money for this specific purpose. We complain that the right hon. Gentleman has received the money for a specific purpose, but is devoting it to another purpose. That is quite different from any other problem which the right hon. Gentleman has had to face. It seems to me that in the action of the Treasury one can trace the hidden hand of the big railway interests. Make no mistake about it. There are interests behind a scheme of this sort, and it is something which has come into existence quite lately, because I think nobody was more bitter in denunciation of raiding this Fund than the Financial Secretary to the Treasury last year. I think he was the hon. Member who called it larceny. [HON. MEMBERS "No!"] I am informed that it was the right hon. Gentleman the Member for Wells (Sir R. Sanders). However, one Member opposite is as good as another. It was said by a responsible Gentleman opposite last year that this was robbery and larceny. He called it all the names that he could think of. Now the right hon. Gentleman comes forward and says that he has had to deal with problems like this before and has had to discourage spending Departments from asking for money to carry on necessary works. He cannot deny that this sum of money was meant to maintain the high roads of this country in good order. He cannot deny that those roads are not in good order, and he ought not to use this money for any purpose other than that for which it was specifically voted. As I say, there is the hidden hand of the great railway interests behind this matter, and I think the use of the Road Fund has been artificially held up during the past year by the Ministry of Transport under Treasury instructions. The Chancellor of the Exchequer in his Budget speech said that the £12,000,000 reserve of the Road Fund would be transferred to the general funds of the State and that the Exchequer would, in return, assume responsibility for financing expenditure on roads in the regular manner during the year. The hon. and gallant Member for Chatham (Lieut.-Colonel Moore-Brabazon) in the course of the ensuing Debate said: We have still the Road Fund, thank God, intact."—[OFFICIAL REPORT, 13th April, 1927; col. 422, Vol. 205.] Here we have two contradictory statements. Is it the Chancellor's intention to retain the Road Fund intact? Will it be kept separate, or will it exist only on paper?

Mr. CHURCHILL

I am not dealing with the Road Fund at all. I am only dealing with the Road Fund Reserve.

Sir R. THOMAS

The right hon. Gentleman is taking away the money all right, and there is widespread concern that, with its disappearance, a very large part of local taxes may be regularly diverted to the general Exchequer. A pledge was given to the country by the Chancellor last year. Will he renew that pledge to-day?

Mr. CHURCHILL

What was it?

Sir R. THOMAS

I have just stated it. It was to maintain this Fund intact. Will he renew it; or is this Fund to be kept only on paper and for any future schemes of road improvement are we to be compelled to submit to extra taxation? That will be the case if this money is only to be shown, on paper. What the country is anxious to know is, will the Fund be kept in existence for road improvement so that extra taxes will not be required for such purposes?

Mr. CHURCHILL

Nothing in the present Bill alters the independent status of the Road Fund. All that is happening is that the surplus of the Road Fund, this reserve of £12,000,000, is being transferred to the Exchequer, in return for which the Exchequer is undertaking to stand behind the Fund in financing road expenditure during the year. That is all that is happening. I shall not quarrel with the hon. Baronet on the question of a pledge; but, as far as the future is concerned, I do not know of any proposal to destroy the separate character of the Road Fund, or to terminate the practice by which particular taxes have been allocated for road purposes. Obviously, the growing size of that Fund must from time to time have some relation to the general problems of national taxation and finance. It may well be that in the future some method by which the Road Fund can be made subject to the scrutiny of the House in the ordinary way may be introduced. But I am certainly not going to alter the character of the Road Fund now, and I have never heard of any proposal to alter it.

Sir R. THOMAS

That being the case, is the money going to be applied to discharge existing liabilities, and is it the case that no new schemes can be introduced without fresh taxation?

Mr. CHURCHILL

I made it perfectly clear that existing commitments will be discharged and that in every year of the life of the present Parliament there will be a larger aggregate sum available than there is in the present year, and the present year already shows the largest sum ever made available.

Sir R. THOMAS

If the right hon. Gentleman means by that that he is going to keep in existence a fund derived from the motor taxpayer not merely on paper but in fact, for the purpose of road improvements, it will go a long way to satisfy the country, but the feeling is that this money has been transferred permanently to the Exchequer, and that any improvement in the future will involve the imposition of extra taxation. My point is that local authorities throughout the country cannot afford extra taxation.

Mr. E. C. GRENFELL

This document which we have before us to-day provides for the simplification of the Income Tax, and I am much struck by the difficulties which appear in connection with it. A very short Bill, which was introduced earlier in the month, has given the lawyers a great deal of trouble already, and I only hope that in connection with this long Bill we shall find it plain sailing. I will not spend too much of the time of the House on the question of the control of one-man companies, which is dealt with in the Bill, because that has already given considerable difficulty. I will not spend much time either in asking how much will be saved by Clause 31 on cum dividend sales. From inquiries I have made in the City it seems to be the general opinion that there was nothing much for the Government in this Clause and that it would give a great deal of trouble. I myself believe it will give trouble, but provided that the Government can show a really large recovery, I think it will be worth while. What I wish specially to refer to is Part IV of the Bill, and the question of the Sinking Fund. That is the whole crux of the Budget. This time last year when we were considering the Finance Bill, the country was in sore trouble, and I could hardly believe then that the Chancellor of the Exchequer would get through the year with as few difficulties in finance as he has actually experienced. It seemed impossible at that time that we could have come through without a fall in exchange, or that the £ sterling could have faced the dollar, when our chief and most important export was cut off and we were compelled to replace it by purchasing coal at huge prices from abroad.

Yet only a fortnight ago the Chancellor was able to tell the House that not only had we as much or more gold than we ever had before, but that he had never availed of the credits—he called them cushion credits—which he had established in America. He was criticised for what he had paid for this credit. If he paid a little for the fire insurance, I do not understand the feeling of a man who comes and wants his money back because the house has not been burned down. I congratulate the Chancellor on that, and I congratulate him also on the fact that he has resisted all pressure in the past year to continue one of the worst Acts of the last few years. The Chancellor himself and the Treasury have been cheated of £70,000,000 of valuable money which he should have had available for strengthening his position in refunding the debt. The £70,000,000 trade facilities has really been taken from the Chancellor when he should have had those facilities for refunding the short debt, which has been steadily growing. I only hope that in spite of suggestions from the Labour party to-day that he had a kind heart, which I hope he has not, he will strenuously resist several other things which may be pressed upon him.

I have in my hand what appears to be a moneylender's letter, headed: "Government Guarantee Credits." It might be a milliner's circular from its beautiful appearance, but when you come to read it, it appears to be nothing more than a moneylender's circular, which offers credit, credit insurance, advances, Government guarantee, "guarantees up to 100 per cent.," "arrangements to suit any case"—that sounds rather a cheap offer—guarantees for long credits, long credits extending to five years.

Mr. CHURCHILL

Where does this come from?

Mr. GRENFELL

"Government Guarantee Credits," issued by the Department of Overseas Trade. I got it with my morning mail, with moneylending letters and betting circulars. I can only hope that at the very first opportunity the Chancellor will manage to stop that sort of brochure. The right hon. Gentleman has debt maturing in the next few years amounting to £177,000,000 this year and to £446,000,000 next year. He wants all his resources, and I congratulate him on having taken the Road Fund, or raided it, or whatever particular form of taking he has done. It is essential for him to think of that Sinking Fund, and as the hon. Member opposite, a member of the Colwyn Committee, has emphasised, this country is in grave danger unless the Chancellor can fortify his £65,000,000 this year, by £75,000,000 next year, and gradually increase it up to £100,000,000. I know that that is an unpopular thing to do. I know that on this side of the House it is often said: "Why is it necessary to pay off the home debt?" I can tell hon. Members why. We are flattering ourselves to-day that the Chancellor has established a £50,000,000 or a £65,000,000 Sinking Fund.

My belief is that the uninstructed public believe that he can use that for any purpose, that he can buy with it this loan or that loan, the loan that is cheapest to buy, the loan that is most expensive to continue to pay interest on, but what do we find? We find that practically, if money were dear to-day, or if there was the slightest ripple on the Continent, and our tax-free War Loans were below par, and our 5 per cent. War Loans were at 95, we have not only pawned £65,000,000, but we have actually pawned or pledged £92,000,000. I admit that fortunately the War Loan is not at 95, but we should be prepared for every emergency. The Treasury has some 600 Treasury Bills out, and those Bills are very expensive at times. To-day, I am glad to say, they are cheap, but every 1 per cent. on those Treasury Bills amounts to £6,000,000, and the cost of those to-day is some £22,000,000 per annum. Though I would not ask the Chancellor to reduce those Bills rapidly, it should always be before our eyes that we should reduce those Bills so that there will be more demand for them than there is supply. As the hon. Member of the Colwyn Committee knows, a great many of those Treasury Bills are held by foreigners, and it is always possible that in a difficult time—in fact, it is the reason for which those Bills are held abroad—payment may suddenly be demanded for them. I do not wish that those Bills should be paid off yet. I think there are other more important things to be dealt with.

I feel sure, even though it might involve extra taxation, that it is important to fortify the Chancellor in making his free Sinking Fund strong, so that he may look forward with some hope, if not to being able to pay off the floating debt, yet to converting the short loans debt about to mature, so that whereas to-day he is completely in the hands of the lenders, the time may come when he will be able to call the tune and not be completely at the mercy of the lenders. I am not abusing the lenders, who are rightly in a strong position to-day. If we look back to the time of the Goschen conversion, then was the time when the Chancellor of the Exchequer was able to read the Riot Act to the holder of Consols. The ideal to which we must look forward is the issue of a loan with as small a discount below par as possible. We should also look forward to the time when we should not have to hypothecate to any loan any special sinking fund, and we also would wish that the loan we issued would be, as are Consols, a loan redeemable only at the will of the Government, not at the will of the holder. That is the position in which we were before the War, or at any rate in which our debt was before the War. We have had to give away all these privileges, but we shall not be able to get our debt on a sound basis until that Sinking Fund is available, so that at least a part of it can be used for the Chancellor to pick his bird out of the covey and not take the one that that Sinking Fund is bound to.

At the same time, in order to do that, it is essential that the Chancellor should show none of that human kindness which the Labour party suggested was an attribute of his. I hope he will show stiffness, not only to Members on the other side, but especially to his own colleagues. I can think of only one ideal Chancellor of the Exchequer, who was not known, I think, to anyone I see here to-day. I am thinking of "Black Michael." Black Michael was never known to smile in the Treasury, in the Cabinet, or in this House when finance was in question. This accusation of the hidden hand that we have heard from the party opposite, made the Chancellor smile. That does not matter. I do not mind that smile, but if he yields and shows any smile when accused of good humour, he is not the man I take him for, and not the man we require. I see that that has made him smile.

There is only one thing I would like to say on another topic, and that is a further reference to the economy which is exercising the whole country. If' this Sinking Fund will make for large economy in the National Debt service, there may be savings in other directions. At the same time, the various proposals for economy, such as that suggesting a small body of Cabinet Ministers who should inquire into Government Departments, are, I think, perfectly useless. I believe myself that the Civil Service is as efficient as ever, and that it is entitled to our general respect. During the War, when certain business men and business experts were serving in public offices, they gradually introduced a feeling of confidence and respect between the Civil Service and the commercial element. They contributed to broaden the mind of the expert who came in, and perhaps improve the efficiency of the product of the brains of the Civil Service. I think that might be done again now. Any form of introduction of mechanical devices into Government offices, or in any office, has to be done not only with the greatest tact and care, but very slowly, and in commercial offices in which that has been done, I know the difficulties that have occurred with the old employés. I also know the numbers of mistakes that have been made by the experts who came into old offices and introduced methods that were not suitable.

I believe that a small committee of experts, two or three of whom, I think, might be chosen from this House, who would have knowledge of where to find people in every country skilled in these matters, might do good if they acted slowly. It would be an expensive experiment. This year in the Estimates was a sum of £30,000 spent in introducing various mechanical devices into public offices. I should like to know from the Chancellor whether as yet the new methods introduced have given any real saving. It is a long time before the savings show themselves, and the fact that the Chancellor is considerably reducing the entrants into the Civil Service is, to my mind, going to create just about that gap which could be filled by these new changes which might be made.

I was very much struck by a speech in this House three weeks ago by the hon. and gallant Member for Central Glasgow (Sir W. Alexander), who, I think, has had as much experience in Government offices as any other outsider. I can well believe that the hon. and gallant Member and one or two men here who are connected with other large department stores, and people connected with chain stores, and those forms of business, might be of assistance to the Civil Service. I quite admit they would find they were teaching in the Civil Service some men who were much their superior in many things. I have taken up too much of the time of the House, but I would like to say that I think that is the line on which an economy campaign might be started.

Mr. RADFORD

I appreciate the importance of this Debate, and the limited time available for those Members who wish to take part in it, and so I will endeavour to be very brief and will devote myself to one particular matter in the Finance Bill—the provisions, beginning with Clause 29, relative to the avoidance of Super-tax. Although there are contentious matters in the Bill, I think this is one part of the Bill which will meet with the approval of every Member of the House. We are all fond of fair play, and believe in the broadest backs bearing the heaviest burdens, and in equally broad backs bearing equally heavy burdens; but since Super-tax was first imposed some 18 years ago there is no gainsaying the fact that equally broad backs have not borne equally heavy burdens. From the time when Super-tax was first imposed, those persons who have either owned individually or have been partners in businesses have had to bear Super-tax on the whole of their real incomes, whereas those persons who happen to own the shares of a company which in turn owns the business frequently escape—and perfectly innocently—Super-tax on the greater part of their incomes.

I will give the House a short example. Take two men, equally wealthy, owning parallel businesses, each man having a private income of £5,000 a year from investments, and each of them, in addition, owning a business making £20,000 a year. A owns his business as a private firm, B owns it by means of a limited liability company of which he is the sole proprietor. For the purposes of Super-tax A was assessed on his £5,000 investment income and on his £20,000 income from his private business—a total income of £25,000. B, if he drew out none of the profits of the business which he owned as a limited liability company, was liable to return only £5,000 on his Super-tax form as his income. The Revenue authorities gradually became aware of the serious losses incurred, and then they passed Section 21 of the Finance Act, 1922, which is referred to in this Clause. I said that I am sure hon. Members would be in agreement as to the desirabltiy of these provisions in this Bill, providing always that their meaning was clear and unambiguous, and Clause 29 is only in- telligible if it is read in conjunction with the Section of the Act of 1922 therein referred to.

I hope the House will acquit me of any desire to lecture them, but having the Act of 1922 before me, and having traced this reference, I would venture to explain to the House what appears to be inexplicable and unintelligible at the beginning of Clause 29, namely, the reference to a liability for assessment as available profits of sums which have been applied in or towards the payment for the business or in the redemption of loans and for similar purposes. It seems very extraordinary that there should be those references, that those sums were to be calculated as available profits for the purpose of Super-tax assessment. When Section 21 of the Act of 1922 was passed, it provided, in the case of certain companies to which that Section applied, that in the event of their failing to distribute a reasonable proportion of their profits in such manner as to make the recipients thereof liable to Super-tax, the Inland Revenue authorities should have the right to calculate the profits of the company as though they had been actually distributed; and then these words occur: Provided that, in determining whether any company has or has not distributed a reasonable part of its income as aforesaid, the Commissioners shall have regard not only to the current requirements of the company's business but also to such other requirements as may be necessary or advisable for the maintenance and development of that business. What the new Clause does is to state specifically that the owners of such companies shall not be entitled to plead that they retained their profits within the company's coffers for certain specific purposes which are mentioned in the Clause which will not be purposes for which such a claim can hold good.

I would like to give an example of how the provisions of the 1922 Act were being abused, which will show how necessary are the provisions in Clause 29 of the present Bill. I, myself, saw a case where an individual with investments approximating to £1,000,000 had sold those investments to a limited company of which he was to be proprietor, and he was to be paid in 50 half-yearly instalments of £20,000 each, without interest. It looked an extraordinary transaction. This man with £1,000,000 worth of investments went to the expense of forming a limited company and transferring to it the whole of those investments, incurring considerable expense in so doing; and the purchase price was to be £1,000,000, made by half-yearly payments, spread over 25 years without interest. When this individual owned the £1,000,000 of investments himself they were bringing in approximately £50,000 a year. Out of that £50,000 he had to pay Income Tax at 4s. in the £, amounting to £10,000, and, in addition, Super-tax to the extent of something like £13,000. That makes a total of £23,000, and left him with a net income of £27,000. Having formed this limited company and transferred to it the investments, and having made an agreement with it that he was to be paid for the investments by 50 half-yearly payments without interest—which appears to be a most generous bargain—the investment company, like the late owner, became liable to pay £10,000 a year in Income Tax; but the liability of the company to taxation ceased there. Being a limited company, it was not liable to Super-tax, and it was left with £40,000 a year in its hand. This had all been calculated in advance by the old owner, or his professional advisers, and the £40,000 was then handed to the old owner in half-yearly instalments of £20,000 each. These payments over a period of 25 years paid for the purchase of the investments. In other words, the old owner received the whole of the 25 years' income from those investments free of Super-tax-he received it in the form of capital instead of income.

In the 1922 Act an effort was made to deal with such a case, but, unfortunately, the Section, although willing in spirit was weak in the flesh, and it was so hedged about with provisos and Sub-sections as to be practically inoperative; at any rate it was inoperative against any determined man who was anxious to avoid its provisions and was only effectual against such persons as happened accidentally to come within its provisions. One of those provisions, which I have read to the House, says that the Commissioners had to take into account the current requirements of the company in deciding whether or not the company had failed to distribute the available profits by way of dividend. The reply of the directors in the case I have quoted would be, "We have been absolutely debarred from declaring any dividends. We are under an agreement with Mr. A.B. to pay him £20,000 each half year for a period of 25 years, and therefore we are compelled to keep the whole of this £40,000 income in our hands to pay the purchase price of our investments." That is an instance of how they were enabled to escape from the provisions of the Act of 1922, and in this new Clause it is specifically provided that any sum expended or applied or intended to be so expended or applied out of the income of the company, whether in pursuance of any obligation binding on the company or not, in or towards payment for the business, undertaking or property acquired by the company, or in redemption or repayment of any share or loan capital or debt, or in meeting any obligations of the company in respect of the acquisition of the business, undertaking or property, shall not be taken into account in calculating whether the company's profits have been applied to the current purposes of the company.

I would like to congratulate my right hon. Friend the Chancellor of the Exchequer and his advisers on the very thorough manner in which these new Clauses have been drafted. No doubt on the Committee stage of the Bill they may be the subject of some questions, and I may have the opportunity of dealing with them in greater detail. I have already heard it said that they do not take into account the necessity for a company husbanding its resources for the purposes of development, but, if that is true, it is equally true of a business owned by a private individual in the old days. It is no crime under our Constitution for a man to own his business as a private individual and not as a limited company, and any development required had to be carried out by him after payment of Income Tax and Super-tax. The only fault I find with this new Clause is that to come within its provisions a company has to be under the control of not more than five persons. For my own part I wish the right hon. Gentleman the Chancellor of the Ex- chequer had altered the wording on page 16 of the Bill to say: This Section shall apply to any company within the meaning of the Companies (Consolidation) Act, 1908. with the words which is under the control of not more than five persons omitted. I do not see why we should once again leave even the smallest loophole for persons who are anxious to avoid their just obligations, or give them an opportunity to put their heads together and succeed, possibly by the amalgamation of two companies, in having them under the control of six persons. I wish the right hon. Gentleman had made a clean sweep of the whole thing. I am also glad to see that in Clause 32 he has provided that a taxpayer who receives more than a year's income in any particular year shall have relief in respect of Super-tax thereon. That is only just. While I am dealing with Super-tax I would like to take this opportunity of thanking the right hon. Gentleman for the reference he was good enough to make in his Budget speech to the fact that my representations on this subject had had some little influence on the drafting of this new Clause.

There is one other point on which I would like to say a word, and that is about the right hon. Gentleman's estimate of the yield of Income Tax for the current year. In his Budget speech last month he said: The melancholy result of the trade of 1926, without any mitigating average of three years, forms the foundation of the Estimates of 1927, and inflicts upon our reasonable expectations of a year ago a loss which will amount to 218,000,000."—[OFFICIAL REPORT, 13th April, 1927; col. 60, Vol. 205.] The right hon. Gentleman has estimated that we shall receive £232,000,000 in Income Tax as against actual receipts of £234,000,000 in the previous year, which in turn was against an estimate for the said year of £254,000,000. In the past, or, at any rate, up to last year, Chancellors of the Exchequer, in calculating right at the beginning what they expected the yield of the Income Tax would be, always had the benefit of the three years' average, which enabled the amount for two of the years, and very often the third year also, to be known before making their Budget speeches. Now we have come to the one year basis, and the Chancellor of the Exchequer had to make a statement as to what he estimated would be the yield of Income Tax for 1927–28 based, in the case of trading concerns, in most cases on their actual profits prior to the 5th April, 1927.

The right hon. Gentleman made his speech on the 11th April, 1927, and it is obvious that he and his expert advisers could not possibly have the data available to give them such an approximately accurate figure as they had in previous years. I sincerely trust that the right hon. Gentleman's estimate will be reached and exceeded, and yet, judging by my own experience, and the reports in the Press, I find it hard to believe that the actual results of the year ending somewhere round about September or December, 1926, or March, 1927, which includes in almost every case the whole of the general strike and the coal stoppage, will not show that the right hon. Gentleman's estimate was an unduly optimistic one. I sincerely hope I am wrong, and yet I am bound to voice that view. In conclusion, I particularly welcome the provisions which the Chancellor of the Exchequer has put into this Bill, in regard to the Super-tax, because they are going to remedy the greater part of an injustice and an inequality which has undoubtedly existed since the Super-tax was first imposed.

Mr. PETHICK-LAWRENCE

I feel that a debt of gratitude is due to the hon. Member for South Salford (Mr. Radford) for the way in which he has continually pressed this matter upon the Chancellor of the Exchequer and the Treasury, and if in fact the new Clauses in this Bill succeed in dealing the blow at these practices which have been growing up until now, I believe everyone in this House will be very glad for what has taken place. I was particularly glad to hear the speech of the hon. Member for the City of London (Mr. Grenfell), and to hear him express with all the authority which belongs to him his view with regard to the Sinking Fund. I am quite sure that he has not merely got to keep the Chancellor of the Exchequer up to the mark in this matter, but he has to deal pretty drastically with hon. Members sitting close to him, including the right hon. Gentleman the Member for Norwich (Mr. Hilton Young), who did not hear his speech and other hon. Members sitting around him who took an entirely different view from what he has taken when the Budget was under discussion. I thoroughly approve of what he said in regard to the Sinking Fund, and I hope I shall carry him with me in two extensions I am going to suggest in regard to the points he has made.

My first point relates to the present situation in China. The Budget Estimates take no account whatever of the expense that will be incurred this year in China, and as it seems extremely likely, that the expenditure will be upon a considerable scale, even the £65,000,000 which has been put to the Sinking Fund is likely to be considerably reduced before the financial year comes to an end. The other point I wish to mention is in regard to the National Savings Certificates. We have heard it put clearly before us that while in the forthcoming year only some £9,000,000 of interest is being allowed, the actual liability which will be incurred on behalf of those Savings Certificates will be in the neighbourhood of £24,000,000. Therefore, there is there an item of £15,000,000 of a negative sinking fund which is a legitimate deduction from the Sinking Fund of £65,000,000 which the Budget proposed. I hope the hon. Member for the City of London will agree with me when I say that point is quite as important as other parts of the short term debt, and that there is, first of all, a risk that a large amount of that debt might require to be paid. Secondly, the method of book-keeping is a matter of doubtful accuracy in this respect.

Mr. E. C. GRENFELL

I allowed £10,000,000 for that very purpose.

Mr. PETHICK-LAWRENCE

I am glad to have the hon. Member's Support. With regard to the Finance Bill as a whole, when I read the provisions of this Bill, I cannot help feeling like I do when I see the unhappy sight one sometimes see in the streets of our large cities. A woe-begone figure unwilling or unable to earn an ordinary livelihood is picking up unconsidered trifles from dustbins in the street. It seems to me that the Chancellor of the Exchequer is very comparable with that, for, instead of making an honest effort to make both ends meet, and raising taxes in a straightforward way, he has found all sorts of little odd bits and put them together in the hope that he will get away with the idea that he has constructed a sound Budget. I do not think that is the case. It seems to me that this Budget is one of the series in which the whole financial system of this country has been complexified—I am not referring to the Clauses about the Income Tax, because I have said already that in so far as they stop up loopholes they are sound.

If we go back for a number of years we shall find that our finances were framed on broad lines. We had direct and indirect taxation, but it was not pettifogging taxation and the indirect taxation taxed things in bulk and did not involve harassing Customs regulations. Every Budget which the present Chancellor of the Exchequer has introduced has complexified the Customs regulations of this country, with the result that we are now burdened with a multitude of small taxes. A constituent of mine has written to me describing travellers coming back from France. They had got merely handbags and hat boxes and all the things they had they bought in England before they went away, and they brought them back again. These travellers were held up so long getting those goods through the Customs that they missed their trains and were put to very great inconvenience. The revenue of the country is not benefited a single penny by these pettifogging proceedings. It is a well-known maxim that the worst tax you can have it that which is not paid, because it creates all the inconvenience without any correspondingly good results to the Exchequer. That is the case both as regards travellers and the trade coming into this country. Our trade is harassed by taxes producing only a comparatively small amount of revenue.

One example in the present Budget of these pettifogging taxes is the new Pottery Duty. I am glad that we have the Financial Secretary to the Treasury present because when such duties as these are being discussed in detail we never have any representatives of the Treasury present. In regard to these taxes what is the defence of the President of the Board of Trade? He does not argue that the Pottery Duty is a good tax, but he says "Here is a procedure setting up a committee of three persons; this duty has been passed by them, and it has been accepted, and therefore we place it before the House of Commons." I feel that we ought to have during the Second Reading of this Bill, or at a later stage, a real defence by someone representing the Treasury of this new and additional pettifogging burden which is interfering with the trade and the convenience of the people of this country.

I desire to make a reference to the change in Schedule A which I do not think has yet been referred to this afternoon. When that proposal was first put forward I was inclined to be sympathetic towards it, but after thinking it over I have come to the conclusion that it would cause a very great deal of hardship and inconvenience. While the burden of the Income Tax is such a considerable amount in the £, I am inclined to think it would have been much better to have left the system of payment by two instalments which existed before. I am going to tell the Chancellor of the Exchequer how a considerable sum could have been raised under Schedule A in quite a different way. There is a great deal of property in London at the present time which does not pay a tax under Schedule A anything like in proportion to the actual rents which are being received. Instead the tax is based upon the assessable value. It is notorious that at the last quinquennial valuation figures were taken which do not represent the actual rents received. When taken for a rating purpose there is no hardship involved, because if the assessment is in all cases based in proportion to the rent it makes very little difference if a certain sum has to be raised for London as a whole whether the properties are taken at 100 per cent., 75 per cent. or 60 per cent. of their value. But when it comes to taxing purposes, a very great difference is involved, and those who have studied this question know quite well that in a very large number of cases an amount is being collected which is far short of the amount which would and should be collected if the full rent was put down instead of the assessable value. I suggest that as a reform which mighty well be looked into and that by merely changing the method of assessment for taxing purposes a great addition to the revenue under Schedule A might be obtained.

7.0 p.m.

I do not know how far that applies to other cities, but it certainly applies to London. I suggest that in the fixing of the assessment for Schedule A the method of fixing it by the quinquennial valuation should be discontinued and that the collectors should have power to demand from the occupier tax upon an amount not less than the rent paid; and further that the declaration of income should require the actual amount received to be stated as well as the assessment value. I believe that as far as Schedule A is concerned, that would have been a much better method of raising revenue for the current year. It would have had the advantage of also applying to future years, and of putting our financial position in a much better state than it will be by this makeshift scheme which forms the basis of this Finance Bill.

Mr. D. HERBERT

Before I say a word on the two Clauses with which I would like to deal, I hope that it will not be thought a piece of impertinence on my part to say how much I and other Members welcomed the speech of the hon. Member for the City of London (Mr. E. C. Grenfell). It is a speech which many of us would have liked to have made if we had had the experience to enable us to do so, and had the weight of his authority behind it. I want to direct my remarks particularly to Clauses 29 and 30 of this Bill, which deal with the extension or alteration of Section 21 of the Finance Act, 1922, the so-called one-man company Clause. If the Chancellor of the Exchequer had followed the wishes of my hon. Friend the Member for South Salford (Mr. Radford) and had made this apply to every company under the Companies Act, then one, at any rate, of my objections to the present form of the Clause would have been removed, because it would at least have been treating all companies equally. I imagine the Chancellor did not do so, because he felt that to put an extra tax of that kind on every company in the country would be putting a burden on industry which was not advisable at the present time. I suggest, as a fact in the case of the hon. Member for South Salford, and as a probability in the case of Members of the House generally, and of members of the Government, including the Chancellor and Financial Secretary, that they do not realise the effect of those Clauses in this Bill. The Financial Secretary has already explained to the House what is the working of the old Section 21 of the Act of 1922 and made a mistake in doing so. It is a Section which imposes Super-tax upon undistributed profits of certain companies. This tax is imposed not upon the shareholders as the Financial Secretary said, but upon the company. That is what the Section does, and under that. Section any company with more than 50 shareholders was not affected. It was made perfectly clear at the time when that Section was passed that it was intended to apply only to what were generally known as private companies, companies which were formed with the express intention of avoiding the tax.

It is proposed in this year's Bill to extend that to all companies where there is a bare majority of the voting power vested in not more than five persons. I want for a moment to consider to where that leads us, and what extra companies will be brought within the operation of Section 21. Let the House remember, first, that these five persons are to be calculated in a rather unusual way. Not only for the purposes of this Section does the word "person" include a corporation, for instance a trust company holding a large number of shares, but it includes as one single person any particular shareholder whom you choose to pick out, all his ancestors, all his lineal descendants, all his brothers and sisters and their husbands and wives if they are also shareholders. I have no hesitation in saying, and any hon. Member with any experience of business in the City will agree, that there are a very large number indeed of companies whose shares are quoted on the Stock Exchange and are dealt with freely every Stock Exchange account, absolutely public companies, which will come within the Clause. I could give many examples of companies of which I know that are in that position. I do not like, as a rule, to mention a number of companies by name, but there is one company to which, as the Government are concerned, I can refer. It is a company of no mean importance, known as the Anglo-Persian Oil Company, which is controlled, if not by the Government, at least by the Government and one other company which holds a large block of shares. The result is that that company, one of the biggest in the country, whose shares are dealt in every Stock Exchange settlement, comes within the operation of this Bill.

There is another alteration proposed in this Bill, for it says that any sums applied in the acquisition of the business or property acquired by the company or in redemption or repayment of any debt are to be deemed as funds which ought to be distributed. Let the House understand what that means. Under the original Section, if a company does not distribute as much as the Commissioners think it ought to do, the company has to pay Super-tax, not on the amount which the Commissioners think it ought to distribute, but on the whole undistributed profits. It is admitted to be a penal Section. Take in connection with that the provisions of the Clause in this Bill. Consider the case of the Anglo-Persian Oil Company. It has an issue of debentures, I think. At any rate, I will assume so, and that the proceeds of those debentures were partly used for the acquisition of the property. The company is under an obligation to pay off a certain number each year. If it complies with that obligation and pays for those debentures out of profits, what happens? It has ipso facto and necessarily refrained from distributing profits, which the Section says it should distribute, by dealing with them in this way, and it is at once liable to Super-tax on the whole of these undistributed profits.

I have been discussing this with representatives of the Revenue before to-day, and before my speech now. I know that hon. Members in some parts of the House may say: "Quite right, why not tax them?" Let me admit that for the sake of argument, and then let us see where we stand. Assuming that the Anglo-Persian Oil Company should be taxed on all the profits that it does not distribute, there is another company, a competitor of the Anglo-Persian, the Shell Transport and Trading Company. That, I believe, would not come within the Section. The result is that the Anglo-Persian Oil Company might have to pay anything from 1s. to 4s. in the £ on its undistributed profits, while the Shell Company would not have to pay a penny. My own view about it is that the Government never intended, and never meant, to tax these great public companies where there was never the slightest intention of avoiding Super-tax. If they intended to tax all these companies with Super-tax on what they had not distributed, why do they not follow the wish of my hon. Friend the Member for S. Salford and tax all the companies under the Companies Acts? Surely we have here the clearest evidence that the Government draftsman did not know what the effect of his Clause was going to be when applied to the facts of everyday commercial and business life in the City. You have either got to make it apply to all companies in the same position or none. If you are merely trying to stop an unfair evasion of tax, it is clear that you have gone a great deal too far.

Let me come to another aspect of the case. I took a very prominent part in the Debate on what is now Section 21 of the Finance Act, 1922. It was on my plea that the then Chancellor of the Exchequer withdrew the original Clause. I had many consultations with him on the subject before it went through. Some Members of the House who were here then will remember that on that occasion I pointed out a variety of loopholes, one very serious one being one that has been referred to this afternoon by the Financial Secretary, namely, that a man who wanted to evade the Section would qualify 50 crossing-sweepers with 50 shares of 1s. each, which would make no difference to anybody Another was that he would register abroad. There were various others which my hon. Friends and I did not give away in the House, at the request of the Chancellor of the Exchequer, for the benefit of the Revenue. I do not want to give away the many methods which there are still of evading it. What I do say is that his Clause, which is going to bring about the unfair discrimination which I have already mentioned, and hit a number of companies which it was never intended to hit, will certainly be as ineffective for the case which the Government wants to meet as the old Section was without this alteration. You are simply driving the man whose particular device you are meeting by this Clause to adopt some other method. You are even hinting to him one way of doing it, because you are providing now that it shall apply to a public company with lots of shareholders which happens to be controlled within particular limits. When a man comes to think of the companies that will be hit by that, he will realise that many of them issue bearer shares.

How are the Government going to discover where the control is in cases where there are bearer shares? You may harass every registered shareholder and every director of a company and cross-examine him as to what shares he owns, but you will never, if a man wants to defeat the taxpayer, discover where the control of that company is, if the shares are in bearer form. I will not go further into the methods that might be adopted for avoiding this particular issue, but let me point out another evil in regard to this, and another difficulty which arises on the Clause. To come within the Section a company has to be within the control of not more than five persons. Is it necessary for that company to be under that control during the whole of the financial year? If it is not, of course everyone who wants to defeat it will see that for a short part of the time he is not in control. But in these big companies which will be hit, the control varies in some cases every single Stock Exchange settlement. The five biggest holders hold at one time nearly half the shares. I can picture to myself a board of directors who are obliged to watch very carefully where the control of the company is, because if one day some big shareholder acquired a few more shares, it would mean that five shareholders would own just over half, and that means that the company would have to pay a very large sum of Super-tax. The directors will watch that very carefully, and will see that they are a little way off, and that the five biggest shareholders only hold 45 per cent. But then a director may come in one day and say, "Do you see the marriage in the paper yesterday of Mr. Brown to Miss Jones?" Miss Jones holds 15 per cent. of the capital of this company and Mr. Brown another 15 per cent. of the capital. They now become one person, and their marriage has brought us under the provisions of this Section, and we shall have to pay Super-tax this year." My right hon. Friend the Chancellor of the Exchequer smiles. He would be smiling then and congratulating himself on the acquisition to the revenue. But it would be a bitter blow to him when the next bit of news came in. Just before that, Mr. and Mrs. Smith, of Ohio, had been divorced, and their holdings had become separated.

Mr. MacLAREN

Who was the co-respondent?

Mr. HERBERT

I do not know whether he was a shareholder or not, but he would not count as one of the family. May I be quite serious about this very important subject in my closing words. When this matter of avoidance of tax by one-man companies was under discussion in 1922, I, like most, if not all, Members of this House, approved entirely of the attempt, which has turned out to be an unsuccessful attempt, to prevent the avoidance of tax which a man in all fairness ought to pay, thus throwing the burden on other people. My objection to the original Clause in 1922 was that it would be ineffective, and would hit the wrong people. The Chancellor of the Exchequer was then bound by his Financial Resolution, and he admitted in this House if that had not been the case that he would have drafted the Section in an entirely different way. I made a proposal to him then which he for that reason was unable to accept, and I make a suggestion again to the Government now that they should deal with this matter in the only way in which the sinner, as we may call him, can be effectively dealt with, while at the same time avoiding interference with the legitimate business of these great industrial undertakings. The method is to make every Super-tax payer divulge upon a form, as he divulges information in the case of his Income Tax returns at the present time, particulars of every company in which he holds or controls a substantial part of the voting power. Having got that from him, you can then get from him the accounts of the company and you can find out whether from the information you have got he is unfairly avoiding the tax, and, if he is, you can make him liable and levy the tax upon him.

That method would be effective in many ways in which this Clause could not be. To a great extent it would be effective where it is now avoided by a man who has registered his company abroad, and it relieves the actual company, in which there are other innocent shareholders, absolutely from interference, and gets over all your difficulties which arise under this particular Clause where, apparently you are going to tax one company heavily while another in exactly the same position is by mere chance free of tax. I do most earnestly ask that the Government will very seriously consider this Clause and have regard, as I know the Chancellor of the Exchequer must have, to the effect it is going to have upon trade and industry and the City generally, and I ask the Government to see whether upon some such lines as I have suggested, they would not have a much more effective weapon to their hand, and one which would not harm the people my right hon. Friend has no wish to harm.

Mr. VARLEY

I only intervene to call attention for a moment to Section 5 of the Act which perpetuates the principle of Imperial Preference. There are those on this side of the House who, while they have no fondness for tariffs in general, do recognise that while tariffs form part of the fiscal policy of this country, it is to the interest of all that we should give preference to our own kith and kin beyond the seas, because in addition to the bond of relationship, we do recognise that in these Colonies and Dependencies the labour conditions and the standard of life more closely approximate to ours than do the conditions in many of the other foreign nations. But we have always understood that Imperial Preference was based upon the idea of reciprocity. In Clause 5 there is proposed an addition to the wine duty in future to be levied upon imported wines coming into this country, and under Sub-sections (2) and (4) of Clause 5 there is perpetuated the idea of giving the Colonies a preference. No one can say that such duties as have been levied upon wines hitherto, and such increases as are now proposed, will have the effect of keeping wines out of the country. But even so, a preference is to be given to Australian wines. I should like to be able to believe that the Colonies are animated by a similar desire in such tariffs as they are imposing against home-produced goods. Until quite recently—within about 18 months—the duty upon woollen underwear imported into Australia was 35 per cent. ad valorem. Without consultation, as far as we know, with anyone in this country, whether the Government or otherwise, that tariff was suddenly altered to 30 per cent. ad valorem plus a per capita tax of 12s. a dozen on cotton underwear and 30s. a dozen on woollen underwear.

In the city and county of Nottingham there are struggling industries which since the failure of the lace trade have had to turn their hand to the manufacture of hosiery. Whereas they did for some time overcome the effect of the 30 per cent. ad valorem duty, the imposition of an additional per capita duty, amounting in many cases to 100 per cent. all told, has absolutely placed them outside the Dominion market. Now we understand that there is in contemplation, especially in Australia, a proposal to extend the duty which some months ago was levied against woollen goods to hosiery. That is to be the policy of Australia. Representations which have been made by the Board of Trade and the Colonial Office have only elicited the reply that we have nothing to do with the fiscal policy of the Dominions. A letter which I have recently received from a man who has spent many years in Australia says: A perusal of the propaganda in Australia discloses quite clearly that a great body of protectionist opinion in that Dominion boldly states that they require protection mainly against British manufacturers and that they have been supported and are still supported by the vast majority of the town population, and they are likely to continue to raise the duties on all goods likely to compete with them or likely to be manufactured in Australia. I believe that is to be their policy. They say nakedly and unashamedly that their object in levying these duties is to keep out British goods. If that is to be the policy, irrespective of the blood bond, self-preservation is still the first law of life for us, and if we cannot make them see the reasonable view, namely, that the more they buy from us the more we are likely to buy from them, then the time is almost ripe for us to force it on them by taking away from them such Imperial preference as is contemplated in this particular Bill. I do not know whether any consultation has taken place between this country and the Dominions upon this question. I do not know whether this question will figure upon the agenda of the forthcoming Imperial Conference, but what I do fear is that before that Imperial Conference, and before the hand of the Dominions in this matter to levy duties against British goods can be stayed, we shall have perpetuated the principle of Imperial preference, and we shall be kissing the hand of the murderer. Is it too late for the Chancellor of the Exchequer to bring to the notice of the Dominion Parliaments the real harm they are doing to the cause of Imperial preference and to the cause of Empire trade? It is a most ironical circumstance that in Nottingham quite recently when we had a shopping week, at the very moment when the city was being placarded with such slogans as "Empire buyers are Empire builders," certain firms in that city were in the possession of information that in addition to the impost that they had to surmount in the past, they were likely to have to face something far more severe than anything which they had hitherto known.

I beg the Chancellor of the Exchequer seriously to consider how far we can continue with this policy of Imperial preference to the Dominions if this is the treatment we are likely to receive. In my own town of Mansfield, there are at least two factories making a very high grade of hosiery, which, being high grade, can find no possible market in Europe or anywhere in the Eastern countries, and the only outlet for which, as to 80 per cent. of the production, has been America and the Colonies. If this further impost which has been levied upon woollen underwear is to be placed upon hosiery, those manufacturers will have no alternative but to go out of business almost entirely, or close down one-half of their manufacturing resources. It seems that we have no right through the Colonial Office or the Board of Trade to interfere in the fiscal policy of the Dominions, but we should retain the exclusive right to determine our own, and, if we see that the pursuance of this policy is greatly to our detriment, I venture to submit that we have no recourse except to withdraw such Imperial preference as we have given.

Lieut.-Colonel V. HENDERSON

The hon. Member for the City of London (Mr. E. Grenfell), in the very excellent speech that he made earlier this afternoon, made some reference during the latter part of it to the question of economy, and I also would like to de- vote a few moments to that question. So long as Budgets are as big as they are at the present time, and taxation is as heavy as that imposed in the Finance Bill which is now before us, it is quite natural that people should demand economy on the part of the Government, and it is also quite natural that there should be a certain amount of criticism of the work of the Estimates Committee of this House, of which I have the honour to be Chairman. I would like to try to point out some of the difficulties with which anyone who is striving after economy is faced. The Chancellor of the Exchequer, in his Budget speech, devoted a certain amount of time to trying to explain how expenditure was divided up. For instance, he, roughly speaking—I am not quoting from his speech, but am speaking from memory—tried to point out that the National Debt and the service of the National Debt absorbs something like one-half to one-third of our expenditure, that the services of defence absorb something like one-seventh to one-eighth, that the expense of the Revenue Departments and their salaries absorbs something like one-ninth, while the rest of the civil expenditure, including Ireland and contributions to local authorities, amounts to something between one-third and one-fourth.

One of the first things that strikes anyone in examining the expenditure of the country is that the bulk of our expenditure is either in the service of the Debt or in the service of defence, or is the result of legislation passed in this House. It is quite right to say that the Estimates Committee are unable to deal with questions of policy. If we were able to deal with questions of policy, we should be taking on ourselves a power which ought to be reserved to the Government of the day, and, to a larger extent, reserved to this House. But there is another point to be observed with regard to expenditure which is due to legislation, and that is that a very large proportion of it is still due either to the War, like war pensions, or to legislation passed by the Coalition Government, which came into office immediately after the War. It has often been stated that the War resulted in people putting a lower valuation on life than was the case before, and I think that that is quite true; but it is equally true that the War resulted in our putting a lower valuation on money than was the case before the War, and there is no doubt, if you examine the amounts that we are spending now as the result of housing legislation and of various legislation which was passed by the Coalition Government, that we did not appreciate the value of money or the enormous amounts we were spending in the years 1918, 1919 and 1920. The fact that we had to appoint the Geddes Committee was in itself a sufficient proof of that.

The public at large seem to be under certain definite misapprehensions with regard to our expenditure. One of the most common misapprehensions is that we are spending many millions every year in what is known, quite wrongly, as the dole. The vast bulk of our expenditure on unemployment insurance is not paid by the State at all, but is paid either by the employer or by the employé; and what is still less known is that the whole expenditure of the Ministry of Labour on rebuilding Employment Exchanges is financed, not by the Exchequer, but out of the Unemployment Insurance Fund. Therefore, it is entirely wrong and very unfair to imply that we are spending enormous amounts every year in giving away money to people who, as many people say, will not work, which also in many cases is equally untrue. The actual expenditure of the State on unemployment insurance is, I think am right in saying, £12,500,000 a year, and not £50,000,000, £60,000,000, or £80,000,009, as many people suggest. In the same way, the expenditure of this country on widows' pensions and health insurance is, relatively speaking, comparatively small so far as the State is concerned, the vast bulk of that expenditure being the result of contributions; while in this case also, as in the case of the Ministry of Labour, the administrative cost is borne by the funds themselves, and not by the State. Therefore, the big increase in the staff of the Ministry of Health which has taken place this year, and the size of the staff of the Ministry of Labour, which to some extent depends on the state of employment, are not in themselves fields for economy, because actually they do not directly cost the taxpayer anything at all, and they are a necessary part of schemes which have been sanctioned by this House.

When we come to the question of staffs, we come to the question of the size of the Civil Service, and one of the most common criticisms of extravagance made against the Government of the day and against this House is that we here do not pay sufficient attention to the large size of the Civil Service, and do not take sufficient trouble to try to see that reductions are made. It is quite true that the Civil Service is very much larger than it was before the War, and it is equally true that much of that increase is due to legislation such as I have mentioned, like health insurance, unemployment insurance, and widows' and orphans' pensions; but a great deal of it is also due to facts which are not immediately apparent. You will get a case of some of these smaller Departments, like, for instance, the Public Works Loans Department, which, although its staff has increased, is actually, as compared with the size of the staff, doing far more work than it was before the War with a smaller staff; that is to say, the staff, though much larger, is, relatively speaking, doing a very much larger volume of work, and it is quite unfair, therefore, to take some of these smaller Departments, as people do, and say that, because their staff is bigger, therefore, they must be extravagant. In many cases, if you take the volume of work they are doing, they are actually being more economical in staff than they were before the War. You also get other criticisms. One is that what people choose to call the Whitehall staffs—the headquarters of Government Departments—are costing an enormous amount of money. It is quite true to say that the total cost of the Civil Service of this country is a very large figure, but the bulk of it—more than half of it—is accounted for by the Revenue Departments, which themselves earn far more than they cost. If you take only what are known as the Whitehall staffs—the headquarter staffs—their cost is somewhere in the neighbourhood of about £11,000,000, and not £30,000,000, £40,000,000 or £50,000,000, as many people suggest.

It has been said that the Estimates Committee does not do its work properly because it does not produce sensational results. It is not the business of the Estimates Committee, or of the Public Accounts Committee, to produce sensational results. If they were able to produce sensational Reports once or twice in a Session, then there would be something radically wrong, not only with the Department of the Comptroller and Auditor-General, but also with the whole of the Civil Service. The vast bulk of the work of both these Committees must be to produce negative results, and, if they can produce satisfactory negative results, then they are doing the work which they were primarily appointed to do, that is to say, to ensure to this House that not only is money spent in the way in which this House wishes it to be spent, and for which it voted the money, but also that, from an administrative point of view, there is no serious or gross extravagance.

There are, however, one or two directions in which I think it may be possible for the Estimates Committee still to help the Government. Last year they put forward certain suggestions in regard to re-classification of the Estimates, and those suggestions were carried out by the Government and have been adopted in this year's Estimates. One of the most difficult questions which always faces any Committee that is endeavouring to examine the question of staffs is the fact that the Estimates of different Departments are drawn up in different ways, and it is extremely difficult to compare the size of a particular branch of one Department with the corresponding branch in another Department, because the Estimates are not drawn up in such a way that they can be compared. That is a question which receives, and will be receiving, the attention of the Committee, and, if it would be possible to make a suggestion for what one might describe as a model Estimate, there is not the slightest doubt that it would help very much in making comparisons which might lead to economy.

I also think—I am speaking purely from my own personal point of view—that it might be helpful if we were able to tighten up the procedure with regard to Financial Resolutions. I am convinced that a great deal of money is spent without our realising why we voted it or without our realising that the legislation we had passed would entail the spending of it. If our procedure with regard to Financial Resolutions—which has been altered certainly within the time during which I have been in this House, as you, Mr. Speaker, will remember—could be tightened up still more, I believe we might help ourselves by doing so. There is a third suggestion that I would like to make, and that is with regard to the Financial Secretary's Annual Statement. The Financial Secretary issues a somewhat voluminous statement on the Budget at the beginning of April every year. It is extraordinarily interesting, but it is also extraordinarily lengthy and detailed, and, with the enormous and increasing amount of work that is placed on Members of this House every year, it is very difficult for the average Member to wade through that statement and remember it, or pick out from it points of interest. I would like to suggest to the Financial Secretary that it might be an advantage if he could summarise that statement in some way. I have had a summary of it made, and it is extraordinarily interesting For instance, I find that there are 129 Votes in the Estimates, and of those Votes 50 are increases of over £1,000 as compared with the Estimates of last year, nine are increases of less than £1,000, 14 show no change, and 56 are lower. When you come to examine these 50 which show a large increase, more than 30 of them are directly due to legislation or to action taken by the House itself. The others all have reasonable explanations, such, for instance, as the increased number of pay days in this financial year compared with last year. When you get a statement summarised like that, it is much easier to pick out a particular point where you think criticism may be applied than if you have to go through this immense statement which the Financial Secretary to the Treasury issues every year. I suggest to the right hon. Gentleman that it might be worth while considering that point.

One other suggestion that I would like to make is in reference to the size of the Cabinet itself. When the Estimates Committee or the Public Accounts Committee makes any recommendation in criticism of a particular Department, that recommendation is taken up by the Treasury with the Department concerned. It is quite possible that the Department may object; then the Treasury persists and carries its point because it considers that the recommendation is good. If the point is carried, it eventually becomes a question for the Cabinet. Now, the larger the Cabinet the more inclination there is for every member of the Cabinet, human nature being what it is, to support the Department which is criticised rather than the Treasury, on the simple principle that it may be their turn next. I do not say that is always the case, but it is certainly a temptation, and I have not the slightest doubt that a small Cabinet is much more able to enforce economy than a very large one. I am perfectly convinced you will never get any great economy which, to a large extent, is based on policy, unless you have smaller Cabinets.

I should like to refer to the speech of the hon. Member for Anglesey (Sir R. Thomas). He spent the whole of his time in referring to the Road Fund. He made one very extraordinary statement. He suggested that the Chancellor of the Exchequer was keping out of employmen—I think he said—some 80,000 men, because he had taken, for general Revenue purposes, some £12,000,000 out of the reserve of the Road Fond. May I draw the hon. Member's attention to two facts. One is that he suggested that the £12,000,000 is part of the normal revenue of the Fund, but it is nothing of the kind. It is the capital reserve, which has been utilised for the purpose of financing the Fund for the first nine months in every financial year, because the bulk of the money due to the Fund comes in after 1st January. I think the Chancellor of the Exchequer is perfectly right in taking that money for general revenue purposes and in financing the Fund in future from the general pool, like the other Departments are financed. There is another point. If the Chancellor of the Exchequer is keeping out of employment these 80,000 men, may I point out to the hon. Member that his own Leader is equally, though perhaps in a less degree, responsible for the same default because, ever since the Road Fund was formed—originally, as the right hon. Member for Carnarvon Boroughs (Mr. Lloyd George) win remember, it was called the Road Improvement Fund—it has always had a reserve. It is true that it has been an increasing reserve as the revenue of the Fund has increased and the expenditure has increased. It has never spent its revenue in any one year. When the right hon. Gentleman the Leader of the Liberal party was Chancellor of the Exchequer, and when he was Prime Minister, he was responsible for maintaining that reserve and for not spending the whole of it on roads, in the same way that the present Chancellor of the Exchequer has not spent it. Therefore, if one right hon. Gentleman is responsible, every previous Chancellor of the Exchequer since the Fund was formed is equally responsible. Before the War, the reserve averaged somewhere round about £3,000,000. Since the War it has been considerably more, partly due to the fact that in 1919–1920 this House voted £8,250,000 to the Road Fund because, for one or two years during the War, the Fund was in a state of suspense. That £8,250,000 was not all spent on the roads. A vast amount of it was put to reserve. Therefore, it is nonsense to suggest that the Chancellor of the Exchequer is doing something that no previous Chancellor has ever done. It has always been the custom to maintain the reserve, and never to spend all the money in the Road Fund in any one year on the roads. I think that the Chancellor of the Exchequer is perfectly right in the action he has taken, and that he is quite capable of being able to justify it.

Mr. SMITHERS

The hon. Member for the City of London (Mr. E. C. Grenfell) touched upon the question of the Sinking Fund in general. I want, for a few minutes, to refer to the Sinking Fund as applicable to certain Government issues. In the next few years the Government will have to make several large conversion or new loans, and I appeal to them to maintain, in any new issue they may have to make, the principle of a Sinking Fund. The House will remember that the Colwyn Committee maintained the principle of the Sinking Fund, and recommended a large increase in it. In my opinion, it is not in the best interests of the finance of this country that the Government should only assure the interest on the loans; they should also do something to make sure that the capital of those loans will be looked after and that, sooner or later, the loans will be redeemed. There have lately been issued what is known in the City as 4 per cent. Consols. The provisions of that loan provided that there should be a £10,000,000 Sinking Fund for 10 years. It should also be noticed, however, that the Government, as far as I read the prospectus, can, if they so desire, increase the amount of the loan without increasing the amount of the Sinking Fund. I believe that the Financial Secretary to the Treasury would be doing a great thing for the credit of this country if he found it possible, even now, to apply a small Sinking Fund which would begin to operate when that £10,000,000 Sinking Fund at the end of 10 years is finished with. It would only be 4¼ per cent. per annum, which would give a redemption date to that loan. If we can afford to pay 4 per cent. for interest, we can afford to pay 4¼ per cent. in order, in time, to get rid of the principal. From my own experience, I can testify to the fact that when there is no Sinking Fund the best class of investor is kept away. After all, the trustees, and the experts who have to advise trustees in regard to long and permanent investments, are the very backbone of our investing public and are the people on whom, in the end, the Government have to rely to take their issues.

Again, the Government have to fix quite soon the redemption or the renewal of the £2,000,000,000 of the 5 per cent. War Loan. I appeal most strongly to the Financial Secretary to do something to prevent that becoming a permanent debt. Whatever form that renewal takes, some provision should be made for a Sinking Fund. In my opinion, the placing of a Sinking Fund, however small, on a loan is sound finance, and the omission of a Sinking Fund is unsound finance. A Sinking Fund, however small, would pay the Government over and over again, because it would enable them to obtain a much higher price for their loan. The Government insist upon a Sinking Fund—I believe it is to within 60 years—on all municipal loans; also, I understand, there is some form of control, and that the municipalities have to render an account of their Sinking Funds, either annually or bi-annually, to the Government. Something of this kind should be applied to Government finance. If Sinking Funds were made part of the policy of the Government, it would do much to raise the price of Government stocks in the market and thus raise British credit. In his opening speech on the Budget, the Chan- cellor of the Exchequer pointed out that there was a particularly small area over which he could effect economies, if any. I suggest that if he can do something to raise the whole level of prices of Government stocks he can really begin to save and economise, and to talk in millions.

8.0 p.m.

There is one other point worthy of the Chancellor of the Exchequer's attention. It is rather a technical point, and I will get through with it as quickly as I can. It is a question of shares of no par value. In recent years, there has been a growing tendency to introduce into this country, chiefly from America and Canada, shares of no par value. There is a two-fold object in issuing shares of no par value. First, it does, in effect, enable a company in some measure to disguise its dividend distribution, but that is not the point which I wish to bring to the notice of the Chancellor of the Exchequer. The point is that by issuing shares of no par value there is no Inland Revenue Duty stamp payable upon those shares. All bearer shares and bonds representing paid-up values have to be stamped, before they become a legitimate transfer from the buyer to the seller, with an appropriate Inland Revenue stamp. Shares of no par value, as they represent no actual denomination, escape that Stamp Duty, though their market value may be very considerable. This is a fruitful avenue to explore. A commencement might be made by taking the valuation of all shares issued which have no par value on a certain given date, and before they can become a good delivery they should be impressed with the Inland Revenue stamp, and suitable arrangements should be made for any new issues. I have in my hand a long list of companies, which runs into a value of many millions. The aggregate value of these companies must be enormous, and the holdings in this country are of very considerable value. May I give one example? The American Cellulose Company has recently issued 206,000 shares of no par value which at the present price of about £25 a share gives a value of £4,300,000 in respect of which no Stamp Duty has been paid. If anyone buys a share Which has a par value, whether it is £1 or £10, an ad valorem stamp duty has to be paid, and it seems extraordinary that the Inland Revenue should favour securities coming from foreign countries or from the Colonies by permitting them to be dealt in in this country without any initial or subsequent payment. I should like the right hon. Gentleman to look very carefully into the size of these transactions. Why are these foreign and Colonial shares to benefit, and benefit very considerably, by having the use of the London market without paying a substantial contribution to the Exchequer?

There is another point to which I should like to draw attention. A case was recently heard before Mr. Justice Talbot. I give the sentence imposed, because it shows to what penalties people are liable, and they may or may not be quite innocent of the crimes they are about to commit. The man was sentenced to six months' imprisonment and a heavy fine. He was defended by Sir Henry Curtis Bennett and Mr. Walter Monckton. He had a balance on deposit at the bank and omitted to pay Income Tax on the interest, his defence being that he thought the bank paid it for him. May I draw attention to Mr. Justice Talbot's remark? I do not know why that is not done. I hope there is some reason against it, because it is obvious to a plain man that it would save an enormous amount of trouble and bring in a good deal of money. Many people have money on deposit, not only with banks but with commercial and trading companies. I should like to suggest the appointment of a small committee of experts—and by experts I mean ex-bank managers or people who have had the expert handling of bank arrangements—because once this policy is decided upon it is only the working out which will present any difficulty. I should like the committee to inquire as to the possibility, even if the banks have to be paid a small poundage for the trouble to which they are put, of money on deposit having Income Tax deducted at the source, the bank making a return and giving the depositor a certificate of deduction of tax. That would obviate cases such as I have quoted, and I am certain a large revenue to the Exchequer would be obtained. Another point upon which I should like to touch is the question of Income Tax being paid by co-operative societies. I cannot do better than quote a short resolution sent to me by a very intelligent and expert body upon this subject: While it is the opinion of this committee that the profits of co-operative societies should be liable to Income Tax, they are emphatically of the opinion that while they are exempt from this liability co-operate societies should also be prohibited from contributing to any funds of any party.

Mr. A. V. ALEXANDER

I shall be disappointed if the hon. Member is not going to give his opinion of the resolution and tell us from whom it comes, and develop his case.

Mr. SMITHERS

I would not dare to argue the case with the hon. Gentleman, because he is the biggest expert in England on the subject, but I am always getting complaints from private traders that while they are carrying on their business and having to pay Income Tax and Super-tax upon their profits, the co-operative societies get off free.

Mr. HARDIE

Who are the committee?

Mr. SMITHERS

I do not want to give the name. It is a private committee of very intelligent business and expert people. I congratulate the Chancellor upon the extremely clever way he has got the country out of its difficulty. We cannot repeat the performance many more times, but it is encouraging to remember that in spite of all our difficulties, in spite of the industrial disturbances of last year, step by step we are overcoming our financial difficulties, and it is a most remarkable thing that we have been able to keep our American exchange at parity while dispensing with the American credits.

Mr. WHEATLEY

The first impression anyone unfamiliar with our financial methods would get from a glance at the Bill is that there is extreme difficulty in raising the national requirements. We have on the title page references to all sorts of duties which are little pickings obtained from national and individual expenditure and which must be very costly in collection. I find on examining the national finance that we have a section of the community who get very large pickings from the national income as their share of the national output. We have the statement from the Treasury that a small number of people, 97,000 I believe, take £558,000,000 a year in excess of an individual income of £2,000, in other words, in addition to the £40 a week of what we might describe as the minimum wage for Super-tax payers they take this enormous sum.

Mr. HERBERT WILLIAMS

That is not in excess of the £2,000.

Mr. WHEATLEY

If it is not in excess of the £2,000 it would still leave something between £350,000,000 and £400,000,000 a year which they take in excess of the £2,000. I am subject to correction, as I am speaking without the figures. One would have expected if the Chancellor of the Exchequer wanted to get money easily he would go where the money was, and the money is certainly in the pockets of the people who are drawing these surplus incomes. It is generally agreed that the Finance Bill has two objects. The primary object is, of course, to raise the necessary finance. But there is a secondary or subsidiary object, and that is to organise the trade of the country. I am not in agreement with those who think that the trade of the country should be left to the tender mercies of competition among individuals. I go the length of saying that it ought to be the first duty of the State to organise its trade. The national trade is of the most vital importance to the population, and that which is of most vital importance to the community should, certainly, be the first duty of the State. If I thought that the policy of the Government was helpful in that direction, I should have no hesitation whatever in supporting the Government. I do not agree with the Members below the Gangway who say that if a commodity can be produced cheaper abroad we should purchase it from abroad and not produce it here, because the logic of that is that if everything could be produced cheaper abroad we should not produce anything here.

Mr. MacKENZIE LIVINGSTONE

Would you get them for nothing?

Mr. WHEATLEY

My hon. Friend asks, "Would we get them for nothing?" I have no doubt he would get them as cheaply as the cheapest labour in the world could produce them, and that if I invited him to give to the British workers the standard of wages that would enable them to maintain a decent standard of existence he would tell us that they could not have that decent standard of wages because the goods with which they were competing in the home market had been produced by labour employed at less than half the wages that they were seeking in Great Britain. I think it is all nonsense to think that you can have one standard of living here and another standard of living in that part of the world which is competing with you, while the incomes of the people here are necessarily decided by the selling prices in a free competitive market. As I have said, if I saw any serious attempt here to organise trade, I would have no difficulty at all, I think, in supporting the Government. But there is none. I think the whole Empire basis of organisation is fallacious. You have no economic Empire; you have only a political Empire. The people from whom we buy goods in the Colonies may be Germans, Belgians or Americans. There is no such thing as Colonial trade with Great Britain. There is a trade between people in the Colonies and people residing in Great Britain, but the trade is all individual for individual profit. It is not conducted by a colony for the benefit of a colony, or by Britain for the benefit of Britain. When you come to consider the Empire you get all sorts of conditions. If you want to get goods produced under decent conditions you will undoubtedly obtain them from Australia. If you want to keep up your standards here, you will give preferences to Australia on the ground that they are keeping up their standard there, and that you want to have something in the nature of reciprocity. But you will find the very cheapest labour in the world within the Empire. You will find the very worst working conditions in the world within the Empire. So that you are driven back to the fact that being in the Empire is no guarantee that it is going to help us raising our standards of living here, or raising the general standards of living in the world.

When you come to consider this question, if you are viewing it from the mere standard of raising conditions, all this idea that you can raise conditions by imposing tariffs or duties, or whatever term you like to use, is, I think, wrong. It is the old Free Trade argument. It is one of the few Free Trade arguments with which I agree. The imposing of a duty or a tariff designed to protect your trade at home does not do so, because the article is in before the duty is payable. If you want to protect your trade you want to keep your article out, and if you keep the article out it will not pay any duty, and it will not pay any tariff. The only way to keep it out is, having ascertained your national or trade requirements, to proceed by a system of licensing to prohibit the importation of the undesirable goods or the goods likely to interfere with your conditions at home. When you turn from what we might term the foreign trade aspect of this Bill to the home trade aspect of it, you find exactly the same thing. The object of your Bill, in so far as it is not a revenue collecting Bill but helpful to industry, should be to relieve industry at home. Everyone admits that under the present competitive system your industry requires considerable relief at the present moment, in order to enable the country to attain even to the pre-War standard of prosperity. If you proceed on the assumption that you are helping industry when you cut down the Income Tax, may I remind the House and the Financial Secretary that people were more prosperous here when the Income Tax was high and when wages were higher than they are to-day? Industry was doing better when the Income Tax was at 6s. in the £ than it is with the Income Tax at 4s. in the £.

The whole idea of relieving Income Tax emanated from conditions that have now disappeared. In the earlier years of the development of this country trade suffered from a shortage of capital, and there grew up in those conditions the idea that if the people who were to provide the capital, or who were to own and control the capital, were given more of it, they would invest more deeply or seriously, and that industry would benefit and that trade would prosper. I believe that there might have been some slight foundation for that half a century ago, but there is no foundation at all for it in Britain to-day. There is no industry to-day that is depressed because there is a shortage of capital in the country. Every industry in this country is depressed because there is a shortage of markets for the goods produced or the goods that might be produced in that industry. The trouble of manufacturers or merchants, to-day is not to find capital for the goods that they can sell, but to find a market for the goods that they cannot sell. Therefore, the national effort to-day should be directed, not to providing more capital for that section of the com- munity who have already more than they can employ, but to finding a market, an outlet for the goods that our factories could produce if they were allowed to run freely, were allowed to employ all our people and were allowed to devote all their brains and energy to more production.

To-day, we want to relieve industry. Our industries are burdened, and we want to find markets. Our industries are burdened largely by local rates. Local rates do much more injury to industry than would a high Income Tax. The Income Tax, like a tarff, is not imposed until the goods are delivered; that is to say, you have made your income before you pay your Income Tax; but you have to pay your local rates before you are allowed to make your income. I have no doubt that a careful analysis of the industrial situation would show that in the depressed industries, in our heavy industries, the burden of local rates goes a long way to handicap them in the competitive markets. The object of the Government should be to reduce these burdens on the localities, with a view to relieving industry, and that could be done by reducing the local rates; but the whole policy of the Government is in the other direction. They are more and more throwing burdens upon the localities. That would be excusable if there was no other way of finding the money, but when we have this surplus national income to draw upon, there is no justification for continuing to increase the burdens that are already handicapping locally the struggling industries of the country.

If we want to help our industries in getting markets, we must not proceed on the assumption that we should, as far as possible, reduce the Income Tax. We should render assistance to the people who to-day have unsatisfied wants. We have an industrial population, I suppose running into two-thirds of the whole, who would consume more goods to-day if they had the power to purchase those goods; but we have a national situation in which those people cannot buy the goods, and our industries cannot find a market because the people cannot buy the goods. It all comes back to that. It is the purchasing power of the people at home that is the governing factor in trade. No nation will continue to produce more goods than it can sell, and no nation will continue to import more goods than it can sell. Our foreign trade is not the consumption of goods but merely the exchange of goods. It is the purchasing power of our people at home, no matter how long you analyse it, that is the determining factor in the trade of the country. We find that two-thirds of the people could buy more goods if they had the purchasing power. I cannot see how you are gaining by not giving them the purchasing power. We have a million unemployed people standing idle, who have to be fed, whether you like it or not, for doing nothing. Would it not be much better so to frame your national policy that the product of the labour of those million people would be available for the nation in raising the general standard of living of the toiling masses?

In so far as a Finance Bill can contribute to that policy, it should do so. If you wish to contribute to that policy, you should not go along the lines of this Finance Bill. I do not think taxation should begin until we have had our breakfast. I do not think that you should tax a man in a country like this, with all its surplus wealth, until after breakfast. You ought to abolish all the taxation which is now imposed on the daily lives of the working classes. I think from the capitalist point of view there would be great advantage and from the point of view of the people who have to depend upon industry in this country, apart from a small group of financiers, it would be sound national policy to abolish the taxation now imposed on the daily lives of the working classes. Instead of putting taxes on tea, sugar, and the piffling and pilfering things that are done in the Finance Bill, you ought to relieve these people from the burdens of taxation altogether. To that extent you would increase their purchasing power, and to the extent to which you increase their purchasing power, you will provide an outlet for the goods which we can produce in ever-increasing quantities.

I take a very serious view of the present situation, I can see the whole outlet for British goods being closed up. During the nineteenth century we had a great outlet for our goods in the development of the country itself, in putting down railways, in constructing docks, in sinking mines, and in the general development of the nation, but in the twentieth century we have no outlet for goods in that direction. The door is closed, bolted and barred against us. We have now to find an outlet for our goods somewhere else, and the only way in which we can get that outlet is by a general raising of the standard of life of the working classes of this country. That ought to be the first object of any Government, and that is why I cannot agree with those who think that everything in regard to the standard of prices and wages should be fixed by free competition. We want national organisation. The Government is grappling for Empire organisation, but they are going the wrong way about it. Instead of making their basis the standard of living of the majority of the people, they are making their basis a geographical one. I think they are on entirely wrong lines.

I am opposed to this Finance Bill because it does nothing at all to relieve the very serious difficulties that confront British industry to-day. Those difficulties arise entirely from an insufficient outlet for our goods. They do not arise from any difficulty in producing all that we need, or in importing in exchange all that we require. We can only get that greater market by organising the purchasing power of our own people, and controlling prices in such a way as will provide that any advantage granted to them in wages is not taken away by profiteering in the way of high prices. If the Government in this Finance Bill gave us a glimmer of hope that we might expect them, in view of the difficulties of British industry, to do something in the way of the national organisation of industry and trade, I could sympathise with their proposals, but, as things are, they give no indication that they have the slightest appreciation of the troubles, difficulties and obstacles that confront the nation, and therefore I and my party will oppose this Finance Bill.

Sir PHILIP PILDITCH

Although I want to confine myself to one point in this discussion, I cannot resist the temptation to say a few words in regard to the speech to which we have just listened. I welcome the right hon. Gentleman as a full-blooded Protectionist. I hope that before long he will toe the line completely, and go so far as to be an Imperial Protectionist, and make it a mutual matter of trade between parts of the same Empire all trading together. He said there was no such thing as Colonial Trade with us. Does he say that is so in regard, for instance, to the 6,000,000 Australians of the same blood as ourselves.

Mr. WHEATLEY

What about India?

Sir P. PILDITCH

I cannot say that the blood sympathy is the same, but the interests of both countries are identical. I wonder why the right hon. Gentleman thought he was bringing an argument in favour of a high Income Tax when he said that we had a high rate of Income Tax during the time when trade was booming after the War.

Mr. WHEATLEY

In 1920.

Sir P. PILDITCH

What is there in that? We know perfectly well that we had then an ephemeral boom period based on inflation, but does he imagine that the short-lived prosperity of that period had anything to do with the high Income Tax which was in force then? He will have to go much further into the then circumstances before he can convince the House that that is the case. There is one other point upon which I should like to touch, and that, is his perfectly correct statement with regard to the influence upon industry of high local rates. I was glad to hear the right hon. Gentleman's speech on that point, and I hope he will hand on his views on this subject to those of his friends around him who have to deal with local and civic matters, because hon. Members of his party, whenever they get possession and control of local government in any district in this country, at once set to work to send up the rates. There is some difference between the right hon. Gentleman's views with regard to high local rates and the action of members of his own party——

Mr. WHEATLEY

May I make this point clear? I do not object to high local expenditure. What I object to is the burden of the expenditure being thrown on the locality when it is largely in the national interest.

Sir P. PILDITCH

I, of course, accept any disclaimer which the right hon. Gentleman makes, but I rather understood him to say that high local rates were really more against trade than a high Income Tax, and I put it to the right hon. Gentleman that he should advise his friends, in those districts where they have local control, to take care that the rates are kept at a moderate level.

Mr. PALING

And put it on the Income Tax?

Sir P. PILDITCH

That is another matter. The right hon. Gentleman's speech was so interesting on these various points that I could not help following him for a moment or two. On the occasion of these Debates we all follow the particular hare we have in our minds, but if I had followed the hon. and gallant Member for Bootle (Lieut.-Colonel Henderson) I should have been in the position of creating a record and precedent in these debates, because I wanted to say a word on the same subject that he spoke on. I want to say a word or two on a question which has been dealt with by many speakers in various Debates in connection with the Budget—the question of economy. My hon. Friend the Member for the City of London (Mr. E. C. Grenfell), to whose admirable speech most Members of the House were extremely interested in listening, made a reference at the end of his remarks to a matter on which, I think, he is under some misapprehension. Incidentally, I hope the Chancellor of the Exchequer or the Financial Secretary will tell us whether their views coincide with the views of the hon. Member for the City of London on the question of the Sinking Fund. At the end of his speech my hon. Friend said, dealing with the question of the heavy taxation which this Finance Bill envisages, that we must have economy, and he proceeded to deal with one or two suggestions which had been made as to how economy might be effected. One of the things to which he referred was the proposal that there should be a Committee of the Cabinet which should go into the various Departments of State and do their best to effect reforms. He said that that was a very admirable thing to do. That is not what has been proposed. I do not know to what my hon. Friend was referring. I have not heard that particular proposal made.

A suggestion was made during the Debate on the Budget, about a fortnight ago, by the right hon. Member for Norwich (Mr. Hilton Young) in a most illuminating speech on the question of expenditure. He was examining the machinery which might be set up for effecting economy and the reduction of expenditure. I am sorry my right hon. Friend is not in his place at the moment. In the course of that speech he pointed out—it interested me very much because I said the same thing a year ago—that the various means that were in existnce now were, for one reason or another, rather ineffective for this purpose. There are the Public Accounts Committee and the Comptroller and Auditor-General, who conduct post-mortem examinations into expenditure already made. The Estimates Committee, referred to by the hon. and gallant Member for Bootle, who is the Chairman of the Committee, does not deal with expenditure in a post-mortem way. It is supposed to deal with Estimates before they are brought before the House of Commons, but, as a matter of fact, the examination of the Estimates Committee is almost a post-mortem examination, because it cannot get Estimates before it until they are ready to come before this House; in many cases it is dealing with Estimates which are on the point of being presented and in some cases with Estimates that have been passed by the House. There is exceedingly little that these bodies can do.

The right hon. Gentleman the Member for Norwich asked the question as to whether this House could effect economy, and he came to the conclusion that it is a very inadequately equipped body for such a purpose. A Committee was set up a few years ago called the National Expenditure Committee, which brought out this remarkable fact. They said, in a short, pregnant paragraph, that not for 25 years has the House of Commons ever reduced on financial grounds an Estimate which had been put before it by the Government of the day. That shows like a flashlight how utterly inadequate is the House of Commons to control expenditure. The fact of the matter is that the House of Commons is a legislative assembly; it is not a financial body which cam effectively control expenditure. My right hon. Friend the Member for Norwich came to the conclusion, just as I did, that only by action within the Government itself can you get economy which is on such a correct plane that it is commensurate with efficiency. My personal conviction is that such economy can only be secured by the action of the Government itself, coupled with a desire to act in co-operation with this House, and with instructed public opinion on the matter. How is the Government to do this? Last year I understand there was in existence an Economy Committee of the Cabinet.

Mr. McNEILL

There is still.

Sir P. PILDITCH

I am glad to hear that, but with all respect I wish to ask some questions about it. Last year the labours of the Economy Committee resulted in the bringing in of an Economy Bill. That Measure, I understood, was to result in a saving of about £8,000,000. To my great surprise when reading the OFFICIAL REPORT last night, as light literature, I came across a speech made by my hon. Friend the Member for Ilford (Sir F. Wise), in which he said that the Bill only procured a real cash saving of about £78,000. He did not develop the matter, and did not show how he made out his figures, but I challenge the Financial Secretary to say if it is the case that we have been going along all this time under the impression that the Economy Committee had produced an economy amounting to £8,000,000 and that we have been hoaxed.

Sir F. WISE

I think if the hon. Member reads my speech again he will find that I stated that the other figures were really adjustments of accounts.

Sir P. PILDITCH

I remember the phrase quite well. I read it last night just before I dropped off to sleep, and it is fixed in my memory. But I thought my hon. Friend meant that an adjustment of accounts was not a real economy. If he meant differently he will probably explain the matter to the House on another occasion. Last year, however, we heard something of the Cabinet Economy Committee. We knew it had been operating and had produced that Economy Measure which, I still believe, resulted in a certain amount of economy. Starting from the hypothesis that you cannot get effective economy except from within the Government, it is by the effective use of an Economy Committee within the Cabinet that you are more likely to achieve results than in any other way. That is why I am anxious to know how the Cabinet Committee on economy is functioning at present. I had a Motion on the Order Paper asking the Government to set up a permanent Economy Committee of the Cabinet, and I do not feel flattered, because it is clear that my Motion has not received the attention which I had hoped it would receive. That may be accounted for by the fact that it is wedged in among a dozen others which refer to other ways of dealing with the subject of economy. I should like to know if the Chancellor of the Exchequer and the Financial Secretary have found the Economy Committee of value to them in helping them to present a front of brass to all the demands made by the spending departments. One realises that unless he is supported in some way by elements within the Cabinet, not associated with the great spending departments, the Chancellor of the Exchequer must be fighting a lone hand. We have known from our past financial experience that only exceptional men like Gladstone or that great Chancellor who has already been mentioned—"Black Michael"—knew how to look after their colleagues in the matter of expenditure. In the present altogether altered circumstance even they, unaided, would not be able to exercise, effective control over the spending departments. Therefore, I hope the Financial Secretary will tell the House if the Cabinet Committee is functioning, and how it is operating, and whether or not we may expect some results from its labours in the near future.

Mr. GILLETT

The Financial Secretary to the Treasury in his opening remarks unwittingly diverted the thoughts of Members towards certain subjects which have not been much discussed in this House in recent years. In connection with the question of one-man companies, I should like to ask him whether he is satisfied with the wording of this Clause, and I should like him to explain who is supposed to be the actual controller of a company. For example, there may be a company with a capital of £100,000, and £60,000 of that capital may be owned by one person. Surely the control of that company might legally be declared to be in the hands of that one person. On the other hand, is it intended that control should depend on the number of directors actually appointed? I take it the Clause does not mean that, because it would be easy to increase the number at any time. I take it that the question of control is virtually going to be a question of those in whose hands the shares are held, and that there must be more than six people among whom the shares are divided in such a way that one of them is predominant, in order to escape coming under this Clause. I do not know whether the right hon. Gentleman is quite satisfied with it, but I think there is something to be said for the suggestion made by another hon. Member, that the Clause was not very clear and that possibly it would be found that there are ways of getting out of it. I do not think any hon. Member is at all anxious that those who run these companies should get out of it, and I hope the right hon. Gentleman will be satisfied that it really is clear before it finally goes through the House.

There was a matter mentioned by the hon. Member for the City of London (Mr. E. C. Grenfell), in the very interesting discourse that he gave to us, which hon. Members must recognise as being the orthodox view of finance held by the majority of people in the City of London to-day. He mentioned, with some seeming dissatisfaction, the fact that a circular had been sent to him by the Export Credits Department announcing that credits could be obtained on certain terms. I am fairly well acquainted with the Department, because I happen to be a member of the Committee, and I do not wish in any way personally to dissociate myself from that circular, although I had not seen it before, because the Committee meets at the same time as the House meets, and I have been unable to get to it for the last few weeks. I see nothing whatever to object to in a circular of that kind. It was a fitting introduction to the speech of the hon. Member for the City, because it shows the limitations of the financial policy which he outlined in his speech As an hon. Member has said, the scheme now, which was reorganised a year or two ago on the recommendation of the Committee presided over by the hon. and gallant Member for Ripon (Major Hills), is simply a scheme for insuring trade abroad, and, therefore, the hon. Member for the City is correct in saying that it imposes a liability on the Government.

To my mind, the hon. Member's ideals of simply getting your finance based on an absolutely perfect footing, returning to the gold standard, getting your Sinking Fund in the position that as soon as possible the Chancellor of the Exchequer might have the control of the money market when he goes there for loans, are excellent in themselves, and most important, but, like every great theory, when you come to put it into practice, you have to make most important exceptions. It was that consideration, I suppose, which induced two very distinguished economists like Professor Keynes and Sir Josiah Stamp to question the rapid return to the gold standard. At the present time, there is still a question whether the financial policy supported by those who think with the hon. Member for the City was not too hasty and did not bring results on the country from which we are suffering to-day. The hon. Member says we ought not to have this insurance scheme. But at the present time we want trade. Why has this scheme been brought in? It is not as successful as it might be, but it is an experiment that is being made by private companies. The merchants of this country who want to export their goods fear, on account of the unrest on the Continent of Europe and elsewhere, to accept the offers made by persons in Rumania or some other country, because they think that before the transaction is completed there may be a revolution there; or in some country, such as Poland or some other country on the Russian border, they say that, while their customers are perfectly honest, something may happen in regard to the laws or the Government of the country, and, therefore, they hesitate to do business with those countries.

9.0 p.m.

The Government have stepped forward in those circumstances and said, on the same basis that a person insures his house or his life: "We will insure this transaction, or a part of it, in order that it may be possible to carry out this trade"; and remember that the trade has to be for goods that have been made in this country. In that way trade will be increased, the manufacturers will get larger business, and the workers will get more work to do. It is a very simple proposition, and one that is being talked of as quite feasible for the development of private business. The hon. Member for the City of London has urged economy and a large Sinking Fund in order as rapidly as possible to get the Debt into the position which I have already mentioned. As I have said before, although hon. Members talk about economy, they no more believe in. it than I do. When you run a Navy or an Army, they should be run as efficiently and as reasonably as possible, and if that is what is meant by economy, I quite agree with it, but I believe that that kind of economy is only going to be carried out by the Ministers responsible seeing that the heads of the Departments are efficient and that they carry out their work properly, in the same way as a manager of a large concern sees to his departments.

When you pass from that to the economy that hon. Members opposite, like the hon. Member for the City of London, talk about, such as those of us who sit on these benches being more extravagant than they are, I would ask hon. Members opposite why they do not close down the Singapore base. They may say it is impossible, but all the economies that the hon. Member for Ilford (Sir F. Wise) and the other hon. Members opposite are really thinking about, dealing with questions of staff, whether you should sack an office boy in a certain Department or get rid of a few typists and charwomen in another Department, would be wiped out by doing away with the Singapore base. I understand the hon. Members' position. They say: "Impossible; it is essential for our prestige that the Singapore base should be carried on," but there is no reason why they, on the other hand, should accuse us of extravagance when we say that it is just as important for our prestige that children who are not properly fed should be fed, and that children who are not properly educated should be educated.

It is of no use either party pretending to be great economists. I believe that all these schemes suggested, such as setting up Committees, are perfectly futile. They will never do anything at all. The only economy dealing with principles is the economy that right hon. Gentlemen on that bench, the Ministers who lay down the great principles of policy, can carry out. Think, for instance, of the £14,000,000 that went on two large battleships. No one to-day thinks those battleships are of any great importance to us, and £14,000,000 could have been saved there. There are really only two great things on which you can make any large economies. One is on the military forces, and the other is in regard to the question of the Debt. With what the hon. Member for the City of London said, I entirely agree, if you look at the Debt from the standpoint of the Debt alone, but you cannot carry out these great principles without considering their practical effect upon other people.

When you come to the question of the Debt, you are at once brought up against the question of how much money it is advisable to raise from the community in order to put it back in the form of the reduction of Debt. One hon. Member pointed out that there would be a saving of £6,000,000 a year if we could reduce the rate of interest on Treasury Bills by 1 per cent. Apart from Treasury Bills, the possible saving in regard to the Debt is not really as large as many Members think. Take the year 1932. If you were able to refund your Debt at 4 per cent., you would make a saving on the permanent Debt—when I say permanent Debt I mean the Debt apart from Treasury Bills —of something like £11,000,000. If you can fund the Debt at 3½per cent., the saving would be something like £17,000,000. Therefore, the figures are not as large as many hon. Members have often thought, though, of course, if this is spread over a number of years the figures naturally get larger.

Mr. H. WILLIAMS

Is the 5 per cent. War Loan in that calculation?

Mr. GILLETT

As far as I understand, all the loans. I have quoted the figures that appear in the Colwyn Report. The hon. Member for the City of London, who really could have spoken on this subject perhaps better than any other man in the House, would agree, I am sure, that as we have gone back to the gold standard the crux of the position to-day is, What is the position of gold in the world? In order to get some of the savings we are so anxious to achieve we want to see gold coming into the Bank of England. It is well known to hon. Members that at the conference at Genoa some years ago it was recommended that there should be a meeting of the central banks in order to see if the gold of the world could not be more centralised, and I should like to know from the Chancellor of the Exchequer whether anything is being done to carry out any of the suggestions made by the Geneva Conference, or, if nothing is being done on those lines, whether the Economic Conference sitting to-day at Geneva has been asked to consider this problem of the gold supplies of the world. No doubt the Chancellor of the Exchequer and other hon. Members have seen in the "Times" recently a passage quoted from an article by Professor Cassels in which he has suggested that the gold output of the world in the near future is likely to be less than it was in previous years—I think be put it pre-War years. If there is to be a decrease in the gold output of the world, and gold is to be left at the mercy of every Government which wants to create a war chest or to accumulate gold, the position of this country may be exceedingly serious from the point of view of the Chancellor getting his rate of interest reduced. As we have gone back to the gold standard and are so dependent on gold coming into the Bank, this question is one of supreme interest, and the Government, or the Bank of England at any rate, ought to consider the question. However, I do not wish to ask for any information which ought to be kept secret, and I can quite understand that there are things which it may not be advisable to make public. The matter ought nevertheless, to be carefully considered, and in the Economic Conference we are afforded an opportunity for giving the subject attention.

When I heard the Budget speech of the Chancellor of the Exchequer, so far from being impressed by it, I felt I was listening to the chairman of a company who was drawing on his hidden reserves in order to tide over a bad time. It may be that the Chancellor may find better times ahead, but certainly the feeling about the Budget is that he is taking reserves which he had no business to touch in order to get out of his difficulties. I do not propose to delay the House with those points, but I hope that on the one or two points I have mentioned we may have any information the Chancellor of the Exchequer can give us.

Sir FRANK SANDERSON

I would like to preface my remarks by expressing my appreciation of the endeavours which are being made by the Chancellor of the Exchequer to reduce national expenditure. I refer to his policy of winding-up the Ministry of Transport, the Mines Department and the Department of Overseas Trade. His proposals are particularly gratifying to me, because I was one of those who were responsible for placing the Motion on the Order Paper. I would rather have seen him carry his policy on the matter a little further. I would like to have seen the Ministry of Labour and the Board of Trade incorporated with the other three as a Ministry of Industry. However, it is not my intention to pursue that matter further, for I wish to say a few words in regard to what has been done in connection with the Safeguarding of Industries Act and the McKenna Duties. The industrial world is pleased to see that the pottery industry and the motor tyre industry have received consideration at the hands of the Chancellor of the Exchequer in the present Budget, but industrialists are disappointed to find that more use has not been made of the Safeguarding of Industries Act. They feel that considerably more might have been done. It is difficult to understand how it is that some industries which were highly prosperous have secured a safeguarding duty, and others which are suffering from severe foreign competition, are unable to derive any benefit under those Acts.

I will give one case to illustrate my point—the great worsted and woollen textile industry. Last year a Committee was set up by the Board of Trade to determine whether or not that industry should be safeguarded under the Safeguarding of Industries Act. I do not propose to worry the House with a volume of figures, but I would like hon. Members to consider these; I will quote round figures to the nearest millions. In 1920, approximately 2,000,000 square yards of woollen and worsted manufactured goods were imported into this country; in 1921, 3,000,000; in 1922, 6,500,000; in 1923, 12,000,000; in 1924, 21,700,000; and in 1925, no less than 29,700,000. The figures for 1926 show that there were no less than 43,000,000 square yards of woollen tissue, etc., and over 17,400,000 lbs. of woollen and worsted yarns, imported into this country, and the value of these is no less than £13,000,000. This shows that foreign competition has been continuous and progressive; and I estimate that the amount of workers who could have been constantly employed during last year is no less than 25,000. The Report of the Worsted Committee states: We have arrived at the conclusion that unemployment is not at present seriously affected by the importation of foreign goods. But surely that cannot be regarded as a reasonable summary of the position. Simultaneously we find that the chairman of the Dunlop Rubber Company makes the following comment in regard to tyres: Coming down to the future, our main revenue comes from the sale of tyres, and during the first three months of the present year our sales have consistently beaten all previous records. Our principal factories are working at the greatest pressure, and it is with the greatest difficulty that they are able to meet the demands placed upon them, and exceptional efforts are being made to relieve the situation. In the face of all this, the Chancellor of the Exchequer places a 33 per cent. tax upon tyres, thus making a prosperous industry even more prosperous. Of course I am in favour of a tax upon tyres, but it is very difficult for the manufacturer to understand that when his industry has become prosperous and is paying large dividends, and the workpeople in that trade are fully employed, a tariff of 33 per cent. should be placed upon that industry while other important industries are left to the mercy of foreign competition. If the woollen and worsted industry was safeguarded, another 25,000 workers would have been fully employed.

I will refer to another subject. I would like to draw the attention of the Chancellor of the Exchequer to the increasing amount of the deposits which are accruing in the banks of this country. On the 31st March this year the total was £1,669,000,000. If we take the interest at 4 per cent. it amounts to £66,768,000, and the Income Tax thereon would amount to no less than £13,353,000. I would like to ask the Chancellor of the Exchequer what percentage of that income Tax he considers he is collecting at the present time, and what amount is being lost to the Exchequer. I would suggest that deposits of £1,000 and over should have income Tax deducted at the source. I fail to see any practical reason why this should not be done, because it is the common practice of those who make use of the banks for overdrafts to collect from the Income Tax authorities the rebate allowed on that overdraft.

My final point is one which, I am afraid, may not be regarded seriously by the House. Nevertheless, I propose to make it. We have heard a good deal about economy this evening, and we have discussed the consequential results from an imposition of a capital levy, if such were ever contemplated. What I want to put before the House in all seriousness is that the Government should consider the launching of an economy loan, and that this loan should be an attempt to raise £1,000,000,000, and the interest on that loan should be 2½per cent. The issue should be made at par and repayable in 15 years. If that could be done, the gross saving in interest upon the National Debt would be £25,000,000 per annum. I would provide that in the event of the death of the original holder the bonds should be repayable at par value. All existing Government securities should be convertible at their relative values and all new moneys subscribed should be appropriated to the reduction of the floating Debt. The reduction of the floating Debt would have the effect of cheapening credit, and if Government credit could be cheapened so as to enable them to borrow at one-half per cent. lower than the present rate they are paying, it would cause a saving of no less than £35,000,000 per annum, and, further, would prevent the recurrence of unreliable Budget estimates of cost of interest upon the floating Debt. It would also cause a restoration in the use of commercial bills which have fallen into disuse to a material extent since the War. This plan of economy if it could be made successful, would be better than a capital levy even if that were practical, because the amount that would be saved in interest payments to the national Exchequer could not compensate for the tremendous cancellation of credit that it would involve. The money capital of individuals would be diminished by the cancellation of the paper securities of which the Debt consists, but they are the finest securities in the world to-day. In my opinion it would be highly dangerous to cancel the national credit which has been created, at a greater rate than new capital is built up, because since the War the cost of wages and materials and production costs have very materially increased, and to that extent increased capital is essential.

My proposal, therefore, is, in my opinion, a solution for reducing the weight of interest on the National Debt. It would save £25,000,000 a year in interest and might also save £30,000,000 by enhancing our national credit, and enabling conversion operations to be carried out at a lower rate of interest. If this were practicable, the saving would be approximately £55,000,000 per annum, which is rather more than 1s. in the £ on Income Tax, and those who subscribed to this loan would find that the amount which they would save by the reduction in Income Tax would compensate them for the loss in income return from the investment in the proposed loan. The question is, could this be done? I expected when I commenced to express my views that the whole House would regard it as too Utopian, but I want to make the following observations. There is over £7,000,000,000 invested in Government securities. There is lying in the banks on deposit to-day, an amount of no less than £1,669,000,000, receiving very little more in interest than the amount which I suggest would be payable under this loan and with inferior security. There are in this country over 14,000,000 investors, and if it were possible to make this a really national subscription it would only require an average of £70 for each investor in this country to raise the amount of £1,000,000,000 suggested. I believe the people are prepared to make an annual sacrifice out of income, but they cannot afford to give away the source from which their income is derived, namely, their capital, nor, indeed, is it in the interest of the country that they should do so on any grand scale for the reasons which I have already stated. It can he done if the Government would create the necessary conditions and if they would spend £500,000 or more in propaganda and advertising and creating an atmosphere of competition between the cities, towns and villages, and printing a daily list of names of subscribers.

I believe, if my memory serves me right, that in the course of the War, when it was necessary to raise large sums of money, the Government devised a scheme whereby every investor had his name inscribed on a roll. I do not know that any great patriotism was necessary to subscribe money at 5 per cent. during the War, except to the extent—and this is very true—that many people and business houses mortgaged their assets and their credit in order to subscribe, If something on these lines were done its connection with my proposed loan it would add to the possibility of the loan being successful. My proposal, if adopted,, would depend on the spirit and good will of our people for its success. It would entail a great sacrifice, but I confidently believe our people are prepared and willing to make that sacrifice for the common cause to-day. They want a counter-action to the present spirit of restlessness. To-day is our great opportunity to launch such a scheme. A spirit of mutual sacrifice is the only means of creating true brotherhood. Let the Government ask for this and they will not ask in vain. Who is there among us who does not strive to lighten the burden of their children by personal sacrifice during their own lifetime? The National Debt is borrowed for the people from the people. What better heritage could we leave to posterity than a peaceful nation, freed from the unparalleled burden of debt?

Mr. THURTLE

In these rather cynical and pessimistic days, it is quite refreshing to meet a man full of faith and optimism, and for that reason I was very interested in listening to the proposal which has been made by the hon. Member who has just sat down. I would like to congratulate him, because I think in this respect he is different from most hon. Members on that side of the House. He has talked about the need for cutting down national expenditure, and he has made some attempt to show the way in which it should be done, and although I am not at all sanguine as to the practical result of putting such a proposal into operation, I do congratulate him on facing the fact that the Debt burden is one heavy item in national expenditure. I should like to suggest one way which would possibly make his scheme rather more successful than it appears likely to be at present. If he can induce the Government to make it take the form of a national lottery in this respect, that he could say that every subscriber of £1,000 or more of this 2½ per cent. stock would stand a chance—I do not say a very great chance, but some kind of chance—of getting a Baronetcy or Peerage, or something like that, I think there would be a possibility of much greater subscriptions than otherwise would be the case.

I do not wish to pursue that line of argument on that particular point. Now that the Chancellor is here I would like to direct his attention to a point raised by one of his hon. Friends when he was absent, with reference to the interest which is credited at banks on deposit accounts. He will remember that some time ago the Junior Member for Dundee pressed him on the point that there was at the present time a great deal of interest credited by the banks on accounts which were on deposit and yet there was no means of telling whether Income Tax was paid on that interest or not. An earnest appeal was made by one of the right hon. Gentleman's friends to take this matter in hand to see if he could not arrange that the bank should deduct the tax at the source. It is a common belief, though it may be a mistaken one, that there is a great deal of money escaping the National Exchequer in that way.

There was one other point raised by an hon. Member who has now left the House, in regard to the effect of Income Tax on unemployment. He contended that a heavy Income Tax did tend to increase unemployment. I would invite him and other hon. Members to consider a very interesting chart which is to be found in the Colwyn Committee Report. I think it is in the Minority Report. They will find there a chart which shows that the amount of unemployment existing bears no relation whatever to the degree of the Income Tax. In periods when the Income Tax was at its very highest unemployment was at its lowest. I do not say that that always obtains, but there are occasions when that condition of things was obtaining; and it is quite clear, from that chart, that there is no relation between the extent of the Income Tax and the extent of unemployment. I hope hon. Members will not try to urge that if the Income Tax is going to be increased it is going to have an adverse effect on employment.

The Financial Secretary to the Treasury, in introducing the Bill this afternoon, said he was quite certain that he would hear a lot of the old arguments repeated. I do not profess that I have anything original to say, but I would like to point out that, while we continue to have a Tory Government which, by means of its taxation proposals, continues to grind the face of the poor in an unreasonable fashion, we, as representatives and champions of the poor in this House, must continue to utter our protest against that state of things. The burden of taxation upon the poor is still out of all proportion, and I would like to draw attention to the condition of the people now as compared with pre-War conditions. There is, in this Colwyn Report, a Ministry of Labour table which shows that wages in 1920–1921 only just overtook the cost of living at that time. If von take the whole period since the end of the War, and compare that with pre-War conditions, the workers to-day are slightly worse off than they were before the War. An hon. Member reminds me that it was a Liberal Government that was in office in those days. I would remind him that it was a Liberal Prime Minister who said that in those days 13,000,000 people were living on the verge of starvation. There has recently been issued an advanced Report of the Census of Production which shows that in six different trades the production per person employed in those industries has gone up tremendously—2½ times in the cotton trade, 2½ times in the boot and shoe trade, three times in the sugar industry, four times in the tobacco industry, and double in the grain industry.

Mr. H. WILLIAMS

Does the tobacco industry include selling costs?

Mr. THURTLE

I must ask for notice of that question, because I am not in a position to answer off-hand; but, bearing in mind this fact and the fact that the people are in a slightly worse condition than they were in pre-War days, I would invite the House to consider the burden of taxation on these very poor people. Take a family of five—man, wife and three children—a typical family as used for illustrative purposes in the Colwyn Report. Suppose this family gets a wage of £3 a week, which is a very common wage among the workers. Such a family was paying, in 1914, 2s. 6d. a week by way of taxation. In 1925–26 that family, out of this £3 a week, is paying 7s. 3d. a week in taxation. There is the same difference in the case of a £4 a week man. He was paying 3s. a week before the War, and he is now paying 8s. 8d. When you come to compare that with the much higher rates of income, it is quite clear that the higher wages are not bearing anything like their fair share of taxation. A man getting a week—or £500 a year—is only paying 12s. a week That really bears no relation at all to the amount which is being paid by the £3 a week man and the £4 a week man. I have recited these facts because I want to demonstrate the point that the very poorest class are being compelled to pay, at the present time, a disproportionate amount of the taxation of the country.

I now turn to an entirely different class, the Super-tax payers. The figures which I have hear bear out the statement made by the Chancellor of the Exchequer about 18 months ago at the Colchester Oyster Feast. I remember it well, because he made it on that occasion, and I thought he must have been enjoying himself. He said that the country, in spite of the unemployment which existed, was getting richer and richer; and if you turn to the figures in connection with Super-tax payers it is quite clear that a certain class of people in the country are getting richer and richer. Hon. Members opposite who pay Super-tax know quite well that it does not become operative until an income of over £2,000 is reached. I find that, in 1922–23, there were only 89,800 Super-tax payers, arid they paid between £62,800,000; but in 1925–26 the number had gone up to 97,000, so it is quite evident, just taking these figures as they stand, that the rich are getting richer, and, as we know, the poor are getting poorer. That was the only point I wanted to make—the point that the burden of taxation on the poorest classes in the community is far too heavy. What any broad-minded Chancellor and any Chancellor who considers the interest of the nation as a whole, ought to do, is to take some of this burden off the poor people and put it on to the backs of those who can bear it better. The Chancellor of the Exchequer is nodding his head in approval, and I am glad to notice it, but in spite of that I am going to conclude by saying something which will probably offend him. This Finance Bill is just like all the other Finance Bills that he has introduced. It is an excellent testimonial to the unswerving loyalty and devotion of the right hon. Gentle- man to his own class. Just because it is a Budget of that kind we have to oppose it, and we have to oppose every Budget of that sort.

Mr. HAMMERSLEY

I am glad to see that the hon. Member for Keighley (Mr. Lees-Smith), who moved the rejection of this Bill, is now in his place. In the course of his speech he took on the role of the friend of the industrialist, and, amongst the arguments that he adduced, he suggested that, from the point of view of industrial welfare, it would be better to decrease the tax on earned income and to increase the tax on unearned income. In making that proposition, he apparently forgot that by far the larger proportion of the unearned income comes directly from industry, and that, if there were to be a large disproportion between the tax on unearned and on earned income, no individual would be likely to invest his money in industry, with the risk of losing that money, and people would, on the contrary, withdraw their money from industry and put it into debentures and Mortgages, and the very class which the hon. Gentleman dislikes most, namely, the rentier class, would be by his proposals considerably benefited.

I do not, however, particularly wish to pursue that argument. What I would like to say is that this Bill must necessarily be considered in view of the fact that it deals with a period in which took place events of an exceptional character. The general strike and the prolonged dispute in the coal trade must necessarily have a very great repercussion on our financial situation. Both of those events were temporary and abnormal. It would, in my opinion, be unnecessary and unwise to consider that the great industrial upheaval through which we passed last year was part and parcel of our normal industrial existence. Faced by a financial situation of exceptional gravity, the Chancellor of the Exchequer was certainly entitled to use exceptional means. He had a duty to perform of summoning to his aid all the non-recurring revenue on which he could lay hands, in order to meet an abnormal situation. To my mind, it would have been the height of unwisdom, in order to meet an exceptional situation, to alter the basis of our permanent revenue, producing medium. To have done so would have been to strike a blow at our industries just at a time When they were about to exert their greatest efforts to recover, just at a time when they required the greatest possible assistance to help them to recover from the ravages of a long cessation of production.

For myself, I most sincerely congratulate the Chancellor of the Exchequer on his ingenuity in devising expedients to meet an abnormal situation, and on the successful results of his raiding expedition to the regions of the windfalls. As an example of raising money by unique methods to meet an exceptional situation, this, to my mind, is a great success. But it must not be considered purely in that isolated aspect. It has to be considered, not only in the light of this one Bill, but in relation to the two Budgets which preceded it, in relation to the financial and economic policy which was part of the policy laid down by the Conservative party before they came into office, and also in relation to the policy of the Chancellor of the Exchequer himself.

I do not propose to remind the Committee again of what the Chancellor of the Exchequer said when he introduced his first Budget. Then he thought that a saving of £10,000,000 per annum was something to be aimed at, and something which he thought was definitely within the bounds of possibility. But, apart from the view of the Chancellor of the Exchequer, I want to point out that as a party we were returned to office pledged to rigid economy; we entered office to reduce expenditure. The first Budget of the Chancellor of the Exchequer showed an expenditure £7,000,000 above that of the Budget of the right hon. Gentleman the Member for Colne Valley (Mr. Snowden). His second Budget showed an increase over that of £24,000,000, and the Budget which we are now considering in the form of the present Finance Bill proposes to expend £10,000,000 more. It would appear that during the Chancellor's three years of office he has passed through a period of disillusion. He started with the conviction that it would be a proper thing to effect year by year a saving of £10,000,000 per annum. To use his own words, he said that a saving of £10,000,000 per annum was not an extravagant figure. In opening the Budget which he presented this year, he spent a great deal of time in expatiating on natural increases of expenditure, and the inevitable growth of expenditure—automatic growth, and so forth.

Mr. CHURCHILL

Productive growth.

Mr. HAMMERSLEY

It would appear from the Chancellor's speech in introducing this Budget that he had rather taken the view that it was necessary, in view of what was happening in the country, that expenditure should naturally grow up. If, however, we are to accept this theory of the natural increase of expenditure, we can only do so with complacency if we are to have, side by side with that natural increase in expenditure, a natural increase in the prosperity of the country. The point I want to make is that the basis of the expenditure forecast in the last Budget was of such a character that it must necessarily rest on an assumption of considerable prosperity this year—prosperity of such a character that it will not only overcome the deficit of last year, but will also carry us on in that normal growth on which an increase in expenditure must naturally depend.

To my mind, even making allowances which must be made naturally, because of the exceptional experiences of last year, the Chancellor of the Exchequer is budgeting for a greater expenditure than the country can, in fact, afford. If this year we are going to have a very considerable expansion of trade, if we are going to have a very considerable increase in exports, if at the end of the year we are going to find ourselves with a substantial credit trade balance, then the Chancellor's Budget is entirely justified. This Bill finds its justification in an assumption of substantially increased prosperity this year, and I would like to examine the grounds for that assumption. Of course, I must admit that the Chancellor of the Exchequer has exceptional means of information at his disposal. It may very well be that the optimism which he has shown is justified in fact. If that be the case, the Chancellor of the Exchequer will not only perform a valuable public service but will facilitate industry in this country if he lays before the House the grounds on which he estimates that this year we are going to have that extra prosperity on which the success of the Budget depends. It is obvious that this year we shall have a very considerable falling off in revenue; a falling off from the point of view of the bad trading of last year. The stoppage of production due to the coal strike is going to be reflected in the receipts.

The Chancellor of the Exchequer must be aware that instead of having an automatic increase of national prosperity, we have had just the reverse. From the point of view of trade balances during the last few years we have entered upon a, period of declension. Instead of showing an automatic increase year by year, our trade balance is showing an automatic decrease. The balances of income and expenditure in transactions, other than lending and repayment of capital, between the United Kingdom and all other countries have been estimated by the Board of Trade as follows: In 1922, there was a credit balance of £154,000,000; in 1923, there was a credit balance of £153,000,000; in 1924, there was a credit balance of £86,000,000; and in 1925 there was a credit balance of £54,000,000. Last year, there was a debit balance of £12,000,000. Surely, those are not figures sufficient to justify an automatic increase in expenditure. Another criterion of the prosperity of the country is to be found in the savings of the people. The Committee of National Debt and Taxation—the Colwyn Committee—showed that the national savings in 1913 were, approximately, £375,000,000. In 1924, they were £474,000,000. Allowing for higher prices and increased population, the 1924 figure, to be equal to the 1913 figure, should have been £650,000,000. The present rate of savings, however, compared with pre-War, shows a deficiency in present money value of between £150,000,000 and £200,000,000 per annum. Here, again, are not figures which would justify a belief in the possibility of a natural and inevitable increase in expenditure.

10.0 p.m.

Turning to the export trade of this year, it is true that probably our coal exports will be increased. Even then, it is doubtful whether, at the end of this year, we shall, in money values considerably exceed a normal year of coal exports due to the fact that the prices of coal are very much lower. Take our main export- ing industry, the cotton trade. This, certainly, will show a very considerable decrease. The price level of cotton goods is very much lower than it has been for many years. Side by side with that decrease in price, we have to remember that Lancashire's share of the total export trade in cotton piece goods is very much less now than it was in pre-War years. It may be, of course, that this year our volume of trade is going to be greater; it will be; but the values will be less and, compared with pre-War years when we did 73 per cent. of the total export trade in cotton piece goods, we are now only doing something like 57 per cent. The iron and steel trades are prosperous, but their prosperity in the main rests on the orders which have been held up due to the prolonged stoppage, and at the present time they are looking round for orders. Taking generally the position of our export trade, it is unlikely that the surplus of imports over exports will be less than £450,000,000 at the end of this year. From the information at my disposal there seems to be no valid reason for making that assumption of exceptional industrial prosperity this year which is the only justification for the expenditure outlined in the Bill now before the House. I have made no reference to Supplementary Estimates. It must be obvious that we must present Supplementary Estimates in respect of China. I do not wish to be pessimistic. Unemployment, after all, is a fair indication of the country's prosperity, and it is satisfactory to know that at present there are 500,000 more people employed than 12 months ago—[HON. MEMBERS: "No!"]—well, 500,000 people less on the register. That is a very satisfactory state of affairs compared with last year, but we must not forget that unemployment is very unevenly distributed at present. There is less unemployment in what may be considered as sheltered industries, while the main exporting trades, on which prosperity must fundamentally rest, are still in a very bad condition. In this connection, one hon. Member above the Gangway made a very interesting speech, in which he pointed out what might possibly occur in future years in respect to tariffs. We have to consider the possibility, not only of tariffs being put up against us by foreign countries, but of their being put against our foreign trade by our own colonies, and that matter should not be overlooked.

In spite of all, British trade certainly does retain a great deal of its resiliency. It is not possible to suggest that British industry is down and out; it is a long way from that. Neither is it true that our power to compete has gone; but certainly it is being vitiated. My point is that industry requires assistance; it requires nursing. Indeed, it may be said to require a little pampering. The cutting wind of the Chancellor of the Exchequer's estimated expenditure might be a bracing tonic if industry were in a robust condition. In my view, industry in this country is convalescent and requires a stimulant of quite a different character. The Chancellor of the Exchequer began with the best possible intentions. He has been faced by difficulties, all of them not of his own making, by demands from various Departments, and by a situation of great difficulty, Urgent as these demands from the many Departments may be, there is no demand so urgent and no request of such importance as that of industry for attention and relief. I take the opportunity of reminding the House of the Election manifesto of the Prime Minister. He said: The burden of taxation weighs heavily upon industry and trade, diminishes real wages, and, in a variety of ways, adds to the cost of living. To assist in relieving the community of this burden the most rigid economy is essential. That statement is no less true to-day than it was then. I shall vote for the Second Reading of this Bill because I believe it to be a Bill which, by fortuitous methods of very great skill meets a very difficult situation, but I shall do so in the hope that during the course of the year we shall have very considerable economies.

Mr. CRAWFURD

The hon. Member who has just sat down, in the course of a very interesting speech, said the finance disclosed in this Bill must be considered in relation to the events of the year through which we have passed. The right hon. Gentleman's excuse was the general strike and the coal stoppage, and therefore he was justified in the means he adopted to make both ends meet in the Budget. The Bill is to be considered not only in relation to the events of this year, but also in relation to the years preceding and to the Budgets that preceded this, and in relation to what may follow. This House is very rich in financial authority outside the Government. There is the hon. Member for Ilford (Sir F. Wise), the right. hon. Gentleman the Member for Norwich (Mr. Hilton Young), the hon. and gallant Gentleman the Member for Ripon' (Major Hills) and the hon. Member beside him, who I thought was going to volunteer to underwrite the loan suggested by the hon. Member for Darwen (Sir F. Sanderson), and of course there is the hon. Member for Reading (Mr. H. Williams). I should like to direct the attention of some of these financial authorities to one or two features of this and other Budgets of the right hon. Gentleman. A matter was raised from these benches earlier in the day to which the Chancellor of the Exchequer made certain replies with regard to which I should like to put one or two questions to him. I am quite aware that a detailed discussion on any of the points we are considering would be more properly reserved for Committee, but the right hon. Gentleman's colleague, in making a reference to the Road Fund and what is called the raid on the Road Fund, said he was perfectly sure the Government would have the support of those who pay the licence duties that make up the Road Fund because they would rather the money were directed to the general purposes of the State than that their shoulders should be burdened by further taxation. That may be the view of the Government, but those representative bodies, the Automobile Association and others which represent the users of motor cars, have only in the last day or two passed very emphatic resolutions against what the right hon. Gentleman is doing. He said on the Report stage of the Budget Resolutions: I am not claiming for one moment that the Road Fund will not be poorer by £12,000,000 or that every scheme put forward by advocates of rapid road development will have as good a chance. We shall finance with the credit of the State every undertaking and commitment into which we have actually entered. Does the right hon. Gentleman adhere to that statement, because I understand that on the 31st March the commitments of the Road Fund amounted to £30,000,000 One result of the financial policy he is pursuing, and his action with regard to the Road Fund, is definitely to curtail what he himself in an interjection a few minutes ago called productive expenditure. I do not know whether I am right in assuming that about the time of the Budget statement last year the control of the Treasury over the Road Fund became very much closer than it had been before, when the Minister of Transport had practically a free hand, and now has become closer still. I should like to ask whether it is true or not that what is called the Western Avenue, one of the large roads which have been constructed, has definitely been held up by the action of the Treasury. That is only one of many things, and the result is that road development and the benefit of the motor trade all over the country has been held up and thwarted by the action of the Government in taking over the reserve of the Road Fund.

In listening a few minutes ago to the speech of the hon. Member for Darwen, as he developed his argument it seemed to me it was a pity the right hon. Gentleman did not pay a little more attention to what he was saying. I am not talking now about the £1,000,000,000 loan, but about the argument the hon. Member developed with regard to the policy of Protection. The right hon. Gentleman's colleagues, like the hon. Member for Darwen, have convictions on the question of Protection. They believe in a certain policy. The right hon. Gentleman himself has what perhaps I may call previous convictions on the same thing, and we have never yet had from him a full statement with regard to his views on the Protectionist policy of the Government. While sitting here I have been trying to recall some of the reasons he has given for introducing these protective taxes. On one occasion he used figures to show that the imports that were subject to tariffs were a very small percentage of our total imports. He will recall a very well-known story, and the excuse that it was only a little one. On another occasion he used the old argument about luxury taxes. On another occasion his excuse for putting on protective duties was that at some time in the past hon. Members on these benches had done the same. This year, with regard to the tyre taxes, he introduced a new word. His excuse was that he was imposing the new tax in the interests of symmetry. Does he realise that slowly and steadily this Government has begun by introducing what is in effect a general tariff and has gradually widened the incidence of that tariff? I shall be interested, in view of the previous beliefs of the right hon. Gentleman on this subject, to hear what he has to say.

When the hon. Member for Darwen was speaking it seemed to me that here we have a typical case of what may happen if the Protection policy is pursued. The hon. Member was arguing for a tariff on the industry in which he is interested from the point of view of his constituents. He compared that with another tariff on an industry in which he was not interested from the point of view of his constituents and he was pointing out the tyre industry, on the confession of the chairman of the biggest company in this country, was doing better than it had ever done before, or at any rate was so fully occupied that they could not fill the orders they were receiving at the very moment the right hon. Gentleman was giving them a tariff. He was then putting forward the plea that if this were done for those who were prosperous, why should it not be done for those who were less prosperous? I would like to know if the right, hon. Gentleman joins with the right hon. Member for Hillhead (Sir R. Horne) on the Budget Resolutions Debate and the right hon. Member for Shettleston (Mr. Wheatley), who agree that the test of whether our trade is doing well or badly is the test of the amount of goods imported into this country. Perhaps the right hon. Gentleman will give us some little enlightenment as to his views on that.

I am not going into the details of the latest safeguarding tariffs, but I am going to draw the attention of the House to the very important point made by my right hon. and learned Friend the Member for Spen Valley (Sir J. Simon) on the proceedings of the Committee which dealt with the application of a tariff on chinaware. We were told two years ago, when the Government changed their plan with regard to the introduction of a protective tariff, that instead of having a Safeguarding Bill we would have a series of Bills after a, series of inquiries. We were told that that was done in order that the House of Commons should maintain its control over the financial arrangements of the country. I see the hon. Member for Reading (Mr. H. Williams) agrees. Let me put this to the hon. Member and to the right hon. Gentleman. Is it right, or is it possible, for this House to maintain its control of tariffs, and to give a considered opinion upon the question as to whether there should be or should not be a tax on a particular product, when we get a report from a Committee of three, one, at least, of whom is an avowed leader in an extreme Protectionist policy, and when we are not given the evidence on which that conclusion is based. I do not know whether the right hon. Gentleman himself will admit the parallel, but it seems to me that a close parallel will be this. This House is, in effect, the jury. If in a Court of Law, a case were decided by a jury after listening to the speeches of counsel on each side, and to the summing up of the Judge but without hearing the evidence, then that would be a perfect parallel to the procedure which the Government not only invite this House to adopt but insist that this House should adopt. The hon. Member who has just spoken has dealt with the question of expenditure. I have made a small calculation and I have come to the conclusion—my figures are different from his—that the total increase in expenditure in three years is £54,000,000. That is an average increase of £18,000,000 per annum.

Mr. CHURCHILL

Does the hon. Gentleman include the increase of the Sinking Fund?

Mr. CRAWFURD

Oh, no; the total estimated expenditure for the year. At any rate, let me give the figures. In 1924 the expenditure was £788,000,000, then £795,000,000, then £826,000,000, and then £842,000,000. That gives a total increase of £54,000,000.

Mr. CHURCHILL

But I asked the hon. Gentleman whether he included the increase of the Sinking Fund.

Mr. CRAWFURD

That was the total expenditure of the country.

Mr. CHURCHILL

The hon. Gentleman must make allowances for increase of payments to the Sinking Fund during that period.

Mr. CRAWFURD

But Sinking Fund or not, it is still expenditure.

Mr. CHURCHILL

No, the Sinking Fund is the highest form of economy.

Mr. CRAWFURD

I realise that, just as other forms of expenditure are called the highest form of economy, and I am going to deal with that before I sit down. For instance, armaments are sometimes called the highest form of economy. That argument is used in the case of armaments. It has been used by the right hon. Gentleman. It is used by other people in the case of health expenditure, or education expenditure, or expenditure on social services of different kinds. The fact remains that we have this increase of expenditure. I will deal in a moment with the way in which the expenditure is used. The right hon. Gentleman places us at a disadvantage. It is difficult to criticise him, because we all like him. Even his friends when they are criticising him use words such as "ingenuity." They admire the ingenuity with which the right hon. Gentleman gets out of a difficulty. When everybody were saying, "He is in rather a difficulty this year," the right hon. Gentleman said "Not at all! Here is the brewers' credit. I will knock a month off their credit. That will mean £5,000,000." Then came last year, and the right hon. Member for Colne Valley (Mr. Snowden) in the Sunday Press thundered against the right hon. Gentleman, but the Chancellor of the Exchequer laughed up his sleeve the whole time. Then he came down to the House and, keeping the tit-bit until the last moment, he suddenly sprung the surprise upon the House in the form of Schedule "A" and, in effect, he turned to the right hon. Member for Colne Valley and said, "You never thought of that."

It is difficult to criticise the right hon. Gentleman, because not only is he ingenious in his devices but he charms us with the way in which he presents those devices to the House. I would like to say, without the slightest desire to detract from the hon. Member for Dumbarton Burghs (Mr. Kirkwood) or the hon. Member for Silvertown (Mr. J. Jones), that there is not the slightest doubt that the Chancellor of the Exchequer provides the best turn that this House can give, when he gets up. But I think £350,000 a week is a very high price to pay for the right hon. Gentleman. Hon. Members will find that the characteristic of the finance of this Government has been a steadily rising expenditure, a steady maintenance of a high level of debt, a steady drift into the policy of Protection, and the maintenance at a high level of the expenditure upon armaments. In order to do that, in order to provide for these things, without increasing the taxation, the right hon. Gentleman has gradually dipped into every single resource we have, into the medical insurance fund, the unemployment insurance fund, the soldiers' and sailors' fund, the block grant for education, so that the burden will be thrown upon the local authorities, then the credit to the brewers, then Schedule "A," then the Road Fund. Every single thing on which he could put his hand he has taken.

I suppose that before very long we shall be paying our Income Tax in advance and our Super-tax in advance. Hon. Members opposite profess to believe that after the next General Election they will again be on that side of the House. If they are, and if the present Prime Minister retains his health and strength, as we all hope he will, the right hon. Gentleman will still have to be content with the comparatively modest office of Chancellor of the Exchequer. Do hon. Members opposite realise what that will imply? It will mean seven more Budgets from the right hon. Gentleman. He will come down to this House with a deficit of some £70,000,000 or £80,000,000. The right hon. Gentleman the Member for Colne Valley will make a speech, and the right hon. Gentleman will say that he has thought of something quite new—Death Duties are to be paid at birth. That is the kind of finance to which the right hon. Gentleman has brought us. He is gradually sapping the resources of the country, and for these reasons I shall vote against the Bill.

Mr. CHURCHILL

It has been said that "Happy is the nation that has no history," and I think it may also be said that happy is the Department whose Debates are dull in the pages of the OFFICIAL REPORT. At any rate, I have nothing of which to complain in the course of to-day's discussion, because although there is talk about peace in industry, the results of which are perhaps disappointing, there is at any rate something like peace in the wide region of finance. I have never known the consideration of a Finance Bill where there has been a more general consensus of opinion in favour of the proposals laid down by the Government, and if I have no fault to find with the temper of the House or the conduct of the Debate by any party in it, neither can I quarrel with the hon. Member who has just addressed the House with such good humour. The hon. Member has been very courteous in his references to me; and if I had to receive the lash of censure it could hardly have been, laid on with a more gentle hand or regulated by a more tender heart. Nevertheless, in spite of the amiable way in which the criticisms have been delivered, I will venture to reply to them.

The hon. Member touched on the subject of Protection, and he looked wistfully at a picture of some great Protectionist policy adopted by the Conservative party in opposition to which he and his friends think they might regain their old and honourable pre-eminence in the State. I am not able to oblige him there. We have held very strictly during our tenure of office to the admittedly experimental and compromise position which constituted the platform on which the last election was fought. I challenge any fair-minded man, whether he sits in this House or whether he speaks outside of it, to say, broadly speaking, that the fiscal policy of His Majesty's Government during the last few years has not corresponded justly and fairly with the electoral declaration made by the Prime Minister on behalf of the Conservative party at the last election.

My hon. Friend spoke about expenditure and the terrible growth of expenditure. According to the hon. Member it is a lamentable fact that the expenditure of the country has grown by £54,000,000 during the operations of the present administration.

He forgot to mention, and I have to remind him of the fact, that £20,000,000 of this £54,000,000 is accounted for by the increase in the Sinking Fund from the level of £45,000,000 at which it stood in the days of the right hon. Gentleman the Member for Colne Valley (Mr. Snowden) to the level of £65,000,000 at which it stands in this present year of grace. We are already very nearly on common ground about the Sinking Fund. Everybody thinks it ought to be maintained and nobody is going to argue that the paying-off of debt on an increasing scale, if that should be possible, can have any result other than benefit to the country. It is a very fine thing that the right hon. Gentleman the Member for Colne Valley and those who support him should have definitely cast in their lot with us in the policy of strict debt repayment. Even the hon. Gentleman who gave us a gay and jaunty exhibition in the higher flights of subversive finance, really accepted the general basis of the Colwyn Report in advocating the permanent maintenance of a Sinking Fund.

A sum of £15,000,000 or £16,000,000 of the increased expenditure is accounted for by the normal and healthy growth of the Post Office, and the Road Fund. I am quite sure if I attempted to curtail arbitrarily the efforts of the Post Office, to meet ever-growing commercial demands and renewed commercial demands, I should be very severely criticised not only on the ground of denying remunerative employment to the Department, but also of hampering the higher economic development of this island. As to the Bead Fund, which has increased by £8,000,000 or £9,000,000, the burden of the complaint made by the hon. Member opposite is that we did not allow expenditure under this head to increase much more. But for the fact that I have been guilty of what are vulgarly called raids—an expression which I dislike very much—but for the fact that I indulged in this form of establishing financial equilibrium, the hon. Gentleman would have been entitled to attack me much more severely on the growth of expenditure, and he would have shown that expenditure on the Road Fund alone had grown, not by £9,000,000, but by £15,000,000 or £16,000,000 under the lax administration of the present Government. Taking it at £15,000,000 for the Road Fund and the Post Office, and £20,000,000 for the Sinking Fund, that is £35,000,000.

As for the rest, the normal growth of the old age pensions, which are the glory of the pre-War Liberal party, account for a part. Unhappily in those days, we did not sufficiently investigate the long future of the population statistics. Those who were concerned in establishing the original scheme of non-contributory old age pensions never realised that a great expansion in pensions would begin 70 years after the great expansion of the population in mid-Victorian times. It came upon us as a startling surprise when we began to examine the upward tendency of expenditure. There is also the automatic growth of civil service and naval and military pensions. A sum of £8,000,000 or £9,000,000 is due to these two heads and £2,000,000 or £3,000,000 is due to a purely book-keeping transaction, which does not enter into the burden of profit or loss. Teachers' pensions appear on both sides of the account, on the one side there is revenue from contributions, and on the other there is the expenditure on the actual pensions. Thus I have accounted, on the spur of the moment but not without very long previous consideration, for practically the whole of the increase which has taken place in expenditure during the tenure of office of the present Government.

A certain critical air was noticeable when the hon. Member spoke on the treatment of Schedule A, and he deviated, I regret to say, into the facetious when he spoke of Death Duties being collected at birth. I stand on very good ground in respect of the manner in which Schedule A has been treated, very good ground indeed, and ground which, I am sure, the hon. Gentleman will treat with the utmost respect, for to him it should be holy ground. I have, since introducing the Budget, been studying the precedents. Precedents are very valuable as means of justifying action you have already decided to take, and in this case I base myself on no less an authority than that of Mr. Gladstone himself. What did Mr. Gladstone say in 1860? Mr. Gladstone found himself faced with a position in regard to the Income Tax when the law said it ought to be paid quarterly, but, through lack of administrative efficiency or from one cause or another, it had fallen into a habit of being paid half-yearly. This valuable state of affairs attracted Mr. Gladstone's eagle eye, and he saw that if he braced up the collection of this tax, he would get three quarters tax in the first half-year and in a whole year five quarters. In the Budget of 1860 he secured a sum of no less than £2,250,000, an immense figure for those days, equivalent at least, in proportion, to the sum which I have obtained by the treatment which has been considered appropriate to Schedule A this year. No less than £2,250,000 was obtained by Mr. Gladstone in regard to a tax of which the rates were only then 10d. and 7d.

But that is not all. What said Mr. Robert Lowe in 1869? Mr. Robert Lowe dealt with the same proposition substantially. He found that the first and second quarters' tax was collected in October, the third in January, and the fourth in the following year, and he introduced the collection of the whole year's tax in one instalment, payable on 1st January. He thus secured five quarters' tax in the year of change, a quarter of the old and the whole of the new, and his special gains on this account were estimated at £1,800,000 on a 6d. rate of tax. He used this fortuitous and adventitious advantage, not, as I have done, with strict financial integrity, for the benefit of the Sinking Fund, but for the mere cheap enjoyment of reducing the Income Tax from a 6d. to a 5d. rate. There is another very remarkable fact about this, which I have been much interested to discover since the Budget was introduced. Mr. Lowe seems to have been walking over my footsteps before I had trodden them, because he said, trying to explain what had occurred for the satisfaction of a very strict House in those days: And so each year will take money from its successor, and this process may go on till the end of time, although how it will be settled when the world comes to an end I am at a loss to know. It was unconscious anticipatory plagiarism. I have always been very much struck by the advantage enjoyed by people who lived at an earlier period of the world than one's own. They had the first opportunity of saying the right thing. Over and over again it has happened to me to think of something which I thought was worth saying, only to find that it had been already exploited, and very often spoiled, before I had an opportunity of saying it.

The hon. Member for the Keighley Division (Mr. Lees-Smith), who opened the Debate on behalf of the official Opposition, treated us to some extremely controversial arguments in favour of the Minority Report of the Colwyn Committee, to which he was, no doubt, an active contributor. The hon. Gentleman explained that originally he had been very much in favour of the Capital Levy, but that owing to the wickedness of the banks he had thought it better to change the policy from a Capital Levy to a Surtax of 2s. in the £ upon invested income. The hon. Gentleman made a severe attack upon the City of London and the bankers in this connection. He said, "We had to abandon the Capital Levy because it was perfectly clear that the capitalist supporters of the Tory party would never give such a scheme a fair chance. They would make financial difficulties, and, consequently, it never could be carried through without great disadvantage." Consequently, they abandoned the scheme of the Capital Levy. I think if the right hon. Member for Colne Valley (Mr. Snowden) were here to-night he would say that when he was in office as Chancellor of the Exchequer in the Socialist Government he got very fair treatment from the City of London. He got treatment from the City of London without the slightest regard to anything but the merits of his finance, without any question of party feeling or interest. [An HON. MEMBER: "It was sound finance."] Sound finance —I say so. But if a Chancellor of the Exchequer or a Government were to announce the Capital Levy on a vast scale, consequences would follow. There would be a great loss of confidence in the City, and no doubt a very great tremor would pass over the whole of our economic and financial organisation.

The hon. Gentleman is very angry at that. He seems to think it ought to be stigmatised as a crime. It is astonishing to see how rapidly the Socialists multiply the number of crimes, and the number of crimes which are to merit the death penalty. It is considered a crime to have a certain want of confidence—because that is all that would happen: a want of confidence would be felt and there would be a very considerable derangement of our finances. That is to be a crime—perhaps an indictable offence. It is a novelty to say that want of confidence is a crime. [Interruption.] The hon. Member who this afternoon displayed his enthusiasm for a capital levy, now proposes that we should have a surtax of 2s. in the £on investment income. He drew a distinction between earned and unearned income. The finance of this country draws a considerable distinction between the two, and so far as this Government is concerned, we have emphasised the reliefs which are given to the lower ranges of earned income as against investment income, thus rectifying some grievances which the Government which preceded us had not noticed. But obviously there are limits to this kind of thing, and you cannot simply proceed on the basis that all earned income should be cherished and is respectable, and all investment income which is the fruit of savings should be, in some way or other, stigmatised. I would like to warn hon. Gentleman opposite of the danger to British finance of that policy. I know very well that there are a number of thinkers who consider that investment income ought to be appropriated by the State, but what has hitherto always restrained the Government in altering the balance between earned and unearned income is the danger of striking at savings which are vital, and which build up the capital fund of the nation. Clearly this remains the greatest and most fruitful source available for the development of enterprise and industry and for the payment of the wages of the people. Hon. Members should not sneer at investments abroad, because it has been out of the fruits of investments abroad and the taxes received upon them that immense contributions have been provided for the upkeep of the population who are not at work. If you strike at savings you at once propagate the idea of "Let us eat, drink and be merry, for to-morrow we die." That is at once the inspiration and the mortal disease by which the Socialist philosophy is affected.

The hon. Member for Anglesey (Sir R. Thomas) spoke in terms of some complaint of the great complication of some of the Clauses of this Bill in regard to the Income Tax. We have done our best to introduce simplification, although I admit that simplification moves through mysterious channels to its goal in this process. I have tried my best, and I have by no means abandoned the struggle to introduce some greater simplicity into the language of our Income Tax. The art of drafting has become highly technical, and we are setting up a committee which we hope will introduce a much simpler mode of expression—but after some time. In the art of drafting there seems to be a complete disdain of the full stop, and even the humble colon is an object to be avoided. It has been pointed out to me by the Financial Secretary to the Treasury that one of our Clauses contains a single sentence in which there are more than 300 words. However, I do not think that when these Clauses come to be discussed they will be found to take up so much of our time as would appear from their printed appearance. The proposals are capable of a very simple epitomisation, and I am sure that the legal language in which they are expressed accurately fulfils the intentions of the Government which are, on the whole, generally approved by the House.

Then we have had some interesting speeches on the subject of the Clauses dealing with one-man companies and the legal avoidance of the Super-tax. I should like to make it quite clear to the House that we have no desire or intention to disturb or derange the broad structure of company law and the practice of limited liability companies in this country. The object of our legislation is to prevent the avoidance of Super-tax by transactions and arrangements which are outside the course of legitimate trade. The man who forms a company to buy his business from himself, the man who borrows from, his own company instead of taking dividends, the man who leaves all his profits in the business, whether needed for development or not—these are the cases to which we are bound to invite the attention of Parliament. The old Section 21 of the Act of 1922 can only be applied if the company has not distributed a reasonable part of its income, and in considering this question regard has to be paid—and I should like to point this out—not only to the current requirements of the business, but also to such other requirements as may be necessary or advisable for the maintenance or development of that business. All that is secured, and the present Bill takes nothing away from that safeguard except in so far as it deals with payment out of profits for the acquisition of the property which the company is formed to acquire. We had in mind the case of the man who sells his own business to himself and is paid for it by debentures over a series of years, which debentures are, of course, immune from taxation, although he is at one and the same time the recipient of the debentures and the controller of the company and arranges the business and makes the payments. All these matters must be discussed in Committee very carefully, but I say categorically that what we are aiming at are cases where the object is the evasion of taxes legitimately due to the State, and we are anxious to frame our language in such a way as to avoid any serious disturbance to the general, active, flexible processes of limited liability companies which have played, and are playing, an immense part in the whole economy of the nation. It ought to be possible to safeguard the revenue against fictitious practices without in any way obstructing the progress of legitimate and ordinary business.

I end where I began, by expressing my gratitude to the House for the really enthusiastic manner in which they have received the Second Reading of the Finance Bill. We have not put our case too high. I have not pretended for a moment that this Budget confers any benefits on any class. It is certainly not a class Budget. An hon. Gentleman suggested that it was a class Budget. It will take more than his dialectics to prove that a Budget which raises £30,000,000 or £40,000,000 of revenue from the taxation of motor ears, from the brewers' profits and from the landlords' tax, is a Budget which can be stigmatised by the abusive term of "Class Budget." No, it is not a class Budget, either in the penalties which it inflicts or in any advantages which it bestows. It is an attempt to enable the country to come through an extremely difficult period—a period which, we believe, is temporary, and the causes of which all know too well. But we have every reason to believe that next year the Revenue will recover. To what extent I do not say, but it is quite clear that an Income Tax based on a year in which the whole population has been at work—or, at any rate, with diminishing unemployment—is bound to produce a better result than the figures which are based on the lament- able experiences of last year. Therefore, we feel it right to try, by the use of expedients for which I have shown there are most respectable precedents as well as extremely good modern reasons, to come round this difficult corner, and the Budget has been accepted by the country and by all parties in the country, and by critics of all kinds in the country, from that point of view. It is not that it is in every way a kind of model which you would set up as a sealed pattern which all future Budgets should imitate, but, in the very difficult circumstances of the time in which we are, it is an harmonious and appropriate manner of dealing with our complicated affairs.

Mr. H. WILLIAMS rose——

HON. MEMBERS

Divide!

Mr. SPEAKER

It is not necessary that this Debate should stop at Eleven o'Clock, if other hon. Members desire to address the House.

Mr. WILLIAMS rose——

HON. MEMBERS

Divide!

11.0 p.m.

Mr. WILLIAMS

I was trying to take the opportunity of saying a few words on this subject, and I imagine that my doing so will last as long as the endurance of those who are seeking to prevent me from giving expression to that which I intend to say. I remember, in 1922, taking part in a debate on the Capital Levy with my hon. Friend the Member for West Leicester (Mr. Pethick-Lawrence), and in the course of that debate I expressed the view that the Capital Levy was as dead as mutton. When the party of which my hon. Friend is a member came into office, they found themselves saddled with that unpleasant legacy, and, not knowing what to do, they appointed a Committee, known as the Colwyn Committee, with the object of burying the Capital Levy. Not only did they bury it, but I gather from the speech made by the hon. Member for Keighley (Mr. Lees-Smith), which I did not have the opportunity of listening to, that not only did they bury it, but he has erected a tombstone over it. I think they were wise to inter the Capital Levy in the Committee, which is very often the most effective way of doing such a thing. The Chancellor of the Exchequer has pointed out that, after all, savings are the basis of the capital of the nation, and, of course, anyone who has made even a cursory examination of the subject knows that that is the case. Perhaps the greatest social service that a rich man can render is to save money.

Mr. ROY BIRD

On a point of Order. Is it in order for an hon. Member to read a newspaper in the House?

Mr. SPEAKER

The reading of a newspaper is not in order.

Mr. BALFOUR

On a point of Order. Is it not a well-recognised fact in this House that this Parliamentary form of intervention of calling "Divide" is very often acceded to by an hon. Member when it is expressed by all parties in the House but not when it is expressed by only one party in the House?

Mr. SPEAKER

I would never allow cries of "Divide" to prevent debate if there has not been a considerable debate on the question before the House; but it is an old Parliamentary custom that Members can express themselves in this way.

Mr. BALFOUR

That is certainly the case where the cry "Divide" comes from the general sense of the House, but not, as in this case, entirely from one party in the House and to prevent one hon. Member from continuing the Debate.

Mr. SPEAKER

My recollection is that I have often heard the parties in turn do so.

Commander WILLIAMS

May I inquire if it is in order for hon. Members who are standing in the Gangways to take part in shouting "divide"?

Mr. SPEAKER

Hon. Members who are standing in the Gangways ought not to take part.

Mr. H. WILLIAMS rose——

HON. MEMBERS

"Divide!"

Captain CROOKSHANK

Is it in order when a discussion is taking place on the Finance Bill, which only starts at 4.30, and when we have had only six hours debate upon it for the Opposition to interrupt——

HON. MEMBERS

"Divide!"

Mr. THURTLE

I wish to ask you, Sir, whether, in the light of Parliamentary history it lies in the mouths of members of the Conservative party to teach the Labour party Parliamentary deportment?

Mr. SPEAKER

I should he sorry to have to discriminate.

Mr. NAYLOR

May I ask your ruling Sir, whether the hon. Member for Reading is in order in saying the Chancellor of the Exchequer has not sufficiently made out his case?

Mr. SPEAKER

I should say that is a very pertinent observation.

Mr. BLUNDELL

Is it in order for the hon. Member opposite to attribute to the hon. Member for Reading words which he cannot possibly have heard?

Mr. SPEAKER

The hon. Member no doubt has better hearing than I have.

Captain HOPE

As a comparatively new Member, may I ask your advice, Sir, as to what is the correct form of obstruction on these occasions? I have never attended one before. Do the Opposition say "Divide" or "Vide"? "Divide" is obviously a good English word. "Vide," as far as I know, is not to be found in the English dictionary.

Mr. SPEAKER

The hon. and gallant Member had better wait until he has been here a little longer.

Mr. H. WILLIAMS

We have every reason to believe that during the present year the situation generally will improve, and that when my right hon. Friend presents his Budget statement he will reasonably be able to anticipate a far larger yield from his direct taxation. [Interruption.]

Brigadier-General Sir HENRY CROFT

On a point of Order. May I ask you, Sir, is it not the fact that in the Debate a year ago the hon. and gallant Member for Newcastle-under-Lyme (Colonel Wedgwood) submitted, I think, to you that it was undesirable that the Debate should come to a conclusion at 11 o'clock, and may I ask whether the financial considerations of this country are less serious to-day than they were at this time last year?

Mr. SPEAKER

That is not a point of Order.

Mr. ROSSLYN MITCHELL rose in his place, and claimed to move, "That the Question be now put," but Mr. SPEAKER withheld his assent, and declined then to put that Question.

Mr. CHURCHILL

May I venture, by the leave of the House, to suggest a solution of our difficulties? The hon. Gentleman has waited a long time to make his speech [Interruption.] I myself, by speaking in front of him, impaired his opportunity. May I now suggest that we should give him five minutes—[HON. MEMBERS: "No!" and another HON. MEMBER: "Not one!"]—by the Clock, and then take the Division. [Interruption.]

Mr. H. WILLIAMS

I was saying, at the point when I last sat down, that this matter was referred to by the hon. Member for Stockport (Mr. Hammersley), who remarked that unemployment was now some half million less than it was a year ago, and he pointed out that it was for that reason the yield of our taxation might reasonably be expected to be greater than it was last year.

I would like to point out that the real improvement is something far greater than was indicated by the Member for Stockport. A year ago there were over a million miners out of work who are in work to-day, and if you add all these things together, the fact of the matter is that there are about 1,750,000 more workers usefully engaged in this country. [HON. MEMBERS: "Divide!"] I think the Chancellor of the Exchequer is justified in assuming that next year the yield in direct taxation will expand—[Interruption]. I should like to make some reference to the speech made by the hon. Member for the City of London (Mr. E. C. Grenfell) who dealt with the question of the floating debt and the number of Treasury bills in circulation. He urged upon the Chancellor of the Exchequer the necessity of—[Interruption.]

Mr. LOOKER

On a point of Order. For my information, Mr. Speaker, can you tell me what sort of noises are allowed, and to what extent interruption can be carried on?

Mr. SPEAKER

I am afraid that I cannot give lessons on decorum at this time.

Mr. WARD LAW-MILNE

Is it not the case, Mr. Speaker, that two illustrious predecessors of your good self have given decisions in this House, one of which was to the effect that it is the business of Mr. Speaker to see that every Member has an equal chance of being heard, and the other to the effect that it is not the business of Mr. Speaker to ensure that a Member shall be heard. If I am right in my history of the precedents given from the Chair, will you give a decision now as to what should be the custom of the House in regard to the right of a Member to be heard?

Mr. SPEAKER

The hon. Member has given a quotation from one of my predecessors which seems to me full of wisdom. I can usefully add nothing to it.

Commander WILLIAMS rose——

Mr. CHURCHILL

Let the hon. Member for Reading complete his peroration.

Commander WILLIAMS

Can the hon. Member for Reading move up this way so that the rest of us may hear him?

Mr. SPEAKER

I think the hon. Member is approaching the end of his speech.

Mr. VARLEY

Is it in order for the hon. Member to address the House in such dulcet tones that he cannot be heard?

Sir BASIL PETO

On a point of Order. May I call attention to the fact that you recently ruled, Mr. Speaker, that hon. Members on the other side were not entitled to stand in the Gangway and interrupt? May I now call your attention to the fact that seven or eight hon. Members are disregarding your ruling?

Mr. SPEAKER

I looked once or twice to the left, but I do not know to which hon. Members reference is made. After my remarks the interruptions did not continue.

Mr. H. WILLIAMS

I want to say a word or two on the main question raised by the hon. Member for the City of London. [HON. MEMBERS: "Divide!"] For the last five or six years the bank rate has fluctuated in a marked degree, and, frankly, I can see no financial advantage which can be gained—[HON. MEMBERS: "Divide!"]—by the transference which has been suggested during

the course of the Debate. [HON. MEMBERS: "Divide!"]

Question put, "That the word 'now' stand part of the Question."

The House divided: Ayes, 287; Noes, 110.

Division No. 142.]	AYES.	[11.27 p.m.
Acland-Troyte, Lieut. Colonel	Crookshank, Col. C. de W. (Berwick)	Ilffe, Sir Edward M.
Agg-Gardner, Rt. Hon. Sir James T.	Crookshank, Cpt. H. (Lindsey, Gainsbro)	Inskip, Sir Thomas Walker H.
Ainsworth, Major Charles	Curzon, Captain viscount	Jackson, Sir H. (Wandsworth, Cen'l)
Albery, Irving James	Davidson, J. (Hertf'd. Hemel Hempst'd)	Jacob, A. E.
Alexander, E. E. (Leyton)	Davidson, Major-General Sir J. H.	James, Lieut.-Colonel Hon. cathbert
Allen, J. Sandeman (L'pool, W. Derby)	Davies, Maj. Geo. F. (Somerset, Yeovil)	Jephcott, A. R.
Applin, Colonel R. V. K.	Davies, Dr. Vernon	Jones, G. W. H. (Stoke Newington)
Atholl, Duchess of	Davison, Sir W. H. (Kensington, S.)	Kennedy, A. R. (Preston)
Baldwin, Rt. Hon. Stanley	Dixey, A. C.	Kidd, J. (Linilthgow)
Balfour, George (Hampstead)	Drewe, C.	Kindersley, Major Guy M.
Barclay-Harvey, C. M.	Eden, Captain Anthony	King, Captain Henry Douglas
Barnett, Major Sir Richard	Edmondson, Major A. J.	Kinloch-Cooke, Sir Clement
Barnston, Major Sir Harry	Ellis, R. G.	Knox, Sir Alfred
Beamish, Rear-Admiral T. P. H.	Fairfax, Captain J. G.	Lamb, J. Q
Beckett, Sir Gervase (Leeds, N.)	Falle, Sir Bertram G.	Leigh, Sir John (Clapham)
Benn, Sir A. S. (Plymouth, Drake)	Fermoy, Lord	Lister, Cunliffe, Rt. Hon. Sir Philip
Bennett, A. J.	Flelden, E. B.	Little, Dr. E. Graham
Bentinck, Lord Henry Cavendish-	Finburgh, S.	Locker-Lampson, Com. O. (Handsw'th)
Bethel, A.	Ford, Sir P. J.	Looker, Herbert William
Betterton, Henry B.	Forestler-Walker, Sir L.	Lougher, Lewis
Birchall, Major J. Dearman	Forrest, W.	Lucas-Tooth, Sir Hugh Vere
Bird, E. R. (Yorks, W. R., Skipton)	Foxcroft, Captain C. T.	Luce, Maj.-Gen. Sir Richard Harman
Bird, Sir R. B. (Wolverhampton, W.)	Fraser, Captain Ian	Lumley, L. R.
Blades, Sir George Rowland	Frece, Sir Walter de	Macdonald, Capt. P. D. (I. of W.)
Blundell, F. N.	Fremantle, Lieut.-Colonel Francis E.	Maclntyre, Ian
Boothby, R. J. G.	Galbraith, J. F. W.	McLean, Major A.
Bourne, Captain Robert Croft	Ganzonl, Sir John	Macmillan, Captain H.
Bowater, Col. Sir T. Vansittart	Gates, Percy	Macnaghten, Hon, Sir Malcolm
Bowyer, Captain G. E. W.	Glimour, Lt.-Col. Rt. Hon. Sir John	McNeill, Rt. Hon. Ronald John
Brass, Captain W.	Glyn, Major R. G. C.	MacRobert, Alexander M.
Brassey, Sir Leonard	Goff, Sir Park	Maitland, Sir Arthur D. Steel-
Bridgeman, Rt. Hon. William Clive	Gower, Sir Robert	Makins, Brigadier-General E.
Briggs, J. Harold	Grace, John	Malone, Major P. B.
Briscoe, Richard George	Grattan-Doyte, Sir N.	Manningham-Buller, Sir Mervyn
Brocklebank, C. E. R.	Greene, W. P. Crawford	Margesson, Captain D.
Brooke, Brigadier-General C. R. I.	Greenwood, Rt. Hn. Sir H. (W'th's'w.E)	Mason, Lieut.-Col. Glyn K.
Broun-Lindsay, Major H.	Grenfell, Edward C. (City of London)	Meller, R. J.
Brown, Brig.-Gen. H. C. (Berks, Newb'y)	Gretton, Colonel Rt. Hon. John	Merriman, F. B.
Buchan, John	Grotrian, H. Brent	Meyer, Sir Frank
Buckingham. Sir H.	Guest, Capt. Rt. Hon. F. E.(Bristol, N.)	Milne, J. S. Wardlaw-
Bull, Rt. Hon. Sir William James	Guinness, Rt. Hon. Walter E.	Mitchell, S. (Lanark, Lanark)
Burman, J. B.	Gunston, Captain D. W.	Mitchell, Sir W. Lane (Streatham)
Burton, Colonel H. W.	Hacking, Captain Douglas H.	Mond, Rt. Hon. Sir Alfred
Cadogan, Major Hon. Edward	Hall, Lieut.-Col. Sir F. (Dulwich)	Moore, Lieut.-Colonel T. C. R. (Ayr)
Campbell, E. T.	Hall, Admiral Sir R. (Eastbourne)	Moore, Sir Newton J.
Carver, Major W. H.	Hall, Capt. W. D'A. (Brecon & Rad.)	Moore-Brabazon, Lieut.-Col. J. T. C.
Cautley, Sir Henry S.	Hammersley, S. S.	Morrison, H. (Wilts, Salisbury)
Cayzer, Sir C. (Chester, City)	Hanbury, C.	Morrison-Bell, Sir Arthur Clive
Cayzer, Maj. Sir Herbt. R. (Prtsmth. S.)	Hannon, Patrick Joseph Henry	Murchison, Sir Kenneth
Cazalet, Captain Victor A.	Harland, A.	Nall, Colonel Sir Joseph
Cecil, Rt. Hon. Sir Evelyn (Aston)	Harrison, G. J. C.	Nelson, Sir Frank
Cecil, Rt. Hon. Lord H. (Ox. Univ.)	Harvey, G. (Lambeth, Kennington)	Neville, R. J.
Chadwick, Sir Robert Burton	Harvey, Major S. E. (Devon, Totnes)	Newman, Sir R. H. S. D. L. (Exeter)
Chamberlain, Rt. Hon. N. (Ladywood)	Headlam, Lieut.-Colonel C. M.	Newton, Sir D. G. C. (Cambridge)
Chilcott, Sir Warden	Henderson, Lieut.-Col. V. L. (Bootle)	Nicholson, O (Westminster)
Christie, J. A.	Heneage, Lieut.-Col. Arthur P.	Nuttall, Ellis
Churchill, Rt. Hon. Winston Spencer	Henn, Sir Sydney H.	Oakley, T.
Clarry, Reginald George	Hennessy, Major Sir G. R. J.	O'Connor, T. J. (Bedford, Luton)
Clayton, G. C.	Herbert, Dennis (Hertford, Watford)	Oman, Sir Charles William C.
Cobb, Sir Cyril	Hills, Major John Waller	Pennefather, Sir John
Cochrane, Commander Hon. A. D.	Hilton, Cecil	Penny, Frederick George
Cockerill, Brig.-General Sir George	Hoare, Lt.-Col. Rt. Hon. Sir S. J. G.	Percy, Lord Eustace (Hastings)
Cohen, Major J. Brunel	Holbrook, Sir Arthur Richard	Perkins, Colonel E. K.
Colfox, Major Wm. Phillips	Holt, Capt. H. P.	Perring, Sir William George
Cope, Major William	Homan, C. W. J.	Peto, Sir Basil E. (Devon, Barnstaple)
Couper, J. B.	Hope, Capt. A. O. J. (Warw'k, Nun.)	Peto, G. (Somerset, Frome)
Courtauid, Major J. S.	Hopkins, J. W. W.	Plicher, G.
Cowan, Sir Wm. Henry (Islington, N.)	Horlick, Lieut.-Colonel J. N.	Power, Sir John Cecil
Craig, Capt. Rt. Hon. C. C. (Antrim)	Hudson, Capt. A. U. M. (Hackney, N.)	Pownall, Sir Assheton
Croft, Brigadier-General Sir H.	Hume, Sir G. H.	Preston, William
Crooke, J. Smedley (Derltend)	Hurst, Gerald B.	Price, Major C. W. M.
Radford, E. A.	Skelton, A. N.	Warrender, Sir Victor
Raine, W.	Smith, R. W. (Aberd'n & Kinc'dine, C.)	Watson, Sir F. (Pudsey and Otley)
Ramsden, E.	Smith-Carington, Neville W.	Watson, Rt. Hon. W. (Carlisie)
Rawson, Sir Cooper	Smithers, Waldron	Watts, Dr. T.
Rees, Sir Beddoe	Somerville, A. A. (Windsor)	Wells, S. R.
Reid, D. D. (County Down)	Spender-Clay, Colonel H.	Wheler, Major Sir Granville C. H.
Remer, J. R.	Sprot, Sir Alexander	White, Lieut.-Col. Sir G. Dairympie
Rentoul, G. S.	Stanley, Lord (Fylde)	Williams, Com. C. (Devon, Torquay)
Richardson, Sir P. W. (Sur'y, Ch'ts'y)	Steel, Major Samuel Strang	Williams, Herbert G. (Reading)
Roberts, E. H. G. (Fllnt)	Storry-Deans, R.	Wilson, M. J. (York, N. R., Richm'd)
Roberts, Sir Samuel (Hereford)	Streatfeild, Captain S. R.	Wilson, R. R. (Stafford, Lichfield)
Ropner, Major L.	Stuart, Hon. J. (Moray and Nairn)	Winby, Colonel L. P.
Ruggles-Brise, Lieut.-Colonel E. A.	Sueter, Rear-Admiral Murray Fraser	Windsor-Cilve, Lieut.-Colonel George
Russell, Alexander West (Tynemouth)	Sugden, sir Wilfrid	Wise, Sir Fredric
Rye, F. G.	Tasker, R. Inigo.	Withers, John James
Salmon, Major I.	Thom, Lt.-Col. J. G. (Dumbarton)	Wolmer, Viscount
Samuel, Samuel (W'dsworth, Putney)	Thomson, F. C. (Aberdeen, South)	Womersley, W. J.
Sandeman, N. Stewart	Tinne, J. A.	Wood, E. (Chest'r, Stalyb'dge & Hyde)
Sanders, Sir Robert A.	Titchfield, Major the Marquess of	Wood, Sir H. K. (Woolwich, West)
Sanderson, Sir Frank	Tryon, Rt. Hon. George Clement	Woodcock, Colonel H. C.
Sandon, Lord	Turton, Sir Edmund Russborough	Wragg, Herbert
Savery, S. S.	Vaughan-Morgan, Col. K. P.	Young, Rt. Hon. Hilton (Norwich)
Scott, Rt. Hon. Sir Leslie	Waddington, R.
Shaw, R. G. (Yorks, W. R., Sowerby)	Wallace, Captain D. E.	TELLERS FOR THE AYES.—
Sheffield, Sir Berkeley	Ward, Lt.-Col. A. L.(Kingston-on-Hull)	Commander B. Eyres Monsell and
Shepperson, E. W.	Warner, Brigadier-General W. W.	Colonel Gibbs.
NOES.
Adamson, Rt. Hon. W. (Fife, West)	Hayday, Arthur	Sexton, James
Adamson, W. M. (Staff., Cannock)	Henderson, Right Hon. A. (Burnley)	Shaw, Rt. Hon. Thomas (Preston)
Alexander, A. V. (Sheffield, Hillsbro')	Henderson, T. (Glasgow)	Shiels, Dr. Drummond
Ammon, Charles George	Hirst, G. H.	Simon, Rt. Hon. St. John
Attlee, Clement Richard	Hirst, W. (Bradford, South)	Sinclair, Major Sir A. (Caithness)
Baker, J. (Wolverhampton, Bilston)	Hore-Belisha, Leslie	Smith, Ben (Bermondsey, Rotherhithe)
Barker, G. (Monmouth, Abertillery)	Hudson, J. H. (Huddersfield)	Smith, H. B. Lees (Keighley)
Barnes, A.	Jenkins, W. (Glamorgan, Neath)	Snell, Harry
Barr, J.	John, William (Rhondda, West)	Spoor, Rt. Hon. Benjamin Charles
Batey, Joseph	Johnston, Thomas (Dundee)	Stamford. T. W.
Broad, F. A.	Jones, Morgan (Caerphilly)	Stephen, Campbell
Bromley, J.	Jones, T. I. Mardy (Pontypridd)	Strauss, E. A.
Brown, Ernest (Leith)	Kelly, W. T.	Sullivan, Joseph
Brown, James (Ayr and Bute)	Kennedy, T.	Sutton, J. E.
Buchanan, G.	Kenworthy, Lt.-Com. Hon. Joseph M.	Taylor, R. A.
Charleton, H. C.	Lansbury, George	Thomas, Sir Robert John (Anglesey)
Clowes, S.	Lawrence, Susan	Thurtle, Ernest
Crawfurd, H. E.	Lawson, John James	Tinker, John Joseph
Dalton, Hugh	Lee, F.	Trevelyan, Rt. Hon. C. P.
Davies, Evan (Ebbw Vale)	Lindley, F. W.	Varley, Frank B.
Davies, Rhys John (Westhoughton)	Lunn, William	Viant, S. P.
Day, Colonel Harry	Mitchell, E. Rosslyn (Paisley)	Watson. W. M. (Dunfermilne)
Dennison, R.	Murnin, H.	Watts-Morgan, Lt.-Col. D. (Rhondda)
Duncan, C.	Naylor, T. E.	Webb, Rt. Hon. Sidney
Evans, Capt. Ernest (Welsh Univer.)	Oliver, George Harold	Wellock, Wilfred
Fenby, T. D.	Palin, John Henry	Welsh, J. C.
Garro-Jones, Captain G. M.	Paling, W.	Whiteley, W.
Gillett, George M.	Parkinson, John Allan (Wigan)	Williams, David (Swansea, E.)
Graham, D. M. (Lanark, Hamilton)	Pethick-Lawrence, F. W.	Williams, Dr. J. H. (Llanelly)
Greenall, T.	Potts, John S.	Williams, T. (York, Don Valley)
Greenwood, A. (Nelson and Colne)	Richardson, R. (Houghton-le-Spring)	Wilson, C. H. (Sheffield, Attercllffe)
Grenfell, D. R. (Glamorgan)	Riley, Ben	Wilson, R. J. (Jarrow)
Grundy, T. W.	Ritson, J.	Windsor, Walter
Hall, F. (York, W. R., Normanton)	Roberts, Rt. Hon. F. O. (W. Bromwich)	Young, Robert (Lancaster, Newton)
Hamilton, Sir R. (Orkney & Shetland)	Robinson, W. C. (Yorks, W. R., Elland)
Hardie, George D.	Rose, Frank H.	TELLERS FOR THE NOES.—
Harney, E. A.	Saklatvala, Shapurji	Mr. Charles Edwards and Mr. Hayes.
Harris, Percy A.	Salter, Dr. Alfred

Question, "That the Bill be now read a Second time" put, and agreed to.