HC Deb 01 May 1930 vol 238 cc389-513

Order read for Consideration of Fourth and subsequent Resolutions.

Fourth Resolution read a Second time.


I beg to move, in line 3, to leave out the words "and sixpence."

I realise that I should need to be a super-optimist if I were to imagine that any words of mine would be likely to soften the heart of the Chancellor of the Exchequer on this matter, or to persuade him to modify or to abandon this particular proposal, because he has made it clear that the whole of his Budget rests on this proposed increase, and that he relies upon it to bring in some £29,000,000 in a full year and £21,000,000 in the current year. Although the Chancellor of the Exchequer may have decided on this proposal, for weal or woe, that does not in the least absolve those of us who sit on this side of the House, and industrialists and traders throughout the country, who regard this proposal as pernicious and disastrous, from expressing our views, even though those views may be fairly well known and our case may not be a new one. It is none the less sound on that account.

There is a general concensus of feeling in business circles that this proposal is one of the most undesirable and most unsatisfactory that could possibly have been made at the present juncture, having regard to the state of industry. I have said that our case in our opposition to-day is not a new one. Nevertheless, there are certain new features in regard to it. Not only does every year that passes make this question of mounting taxation one of greater gravity, but we are faced with a situation to-day where some of our leading commercial competitors have realised in a very forcible way that heavy taxation is a distinct obstacle to the development of industry, and have, therefore, taken very drastic steps in order to relieve themselves to some extent of the load that they have hitherto carried. That is a factor of which we cannot ignore the significance.

If we look back over the history of the past 50 years or so, we have prospered in this country more in spite of our Free Trade system than because of it. Whether that be so or not, we have today lost many of the advantages that we previously possessed in competition with other countries. We have to meet a very much increased and very greatly intensified competition. How are we doing it? We are doing it, by increasing the dead weight of taxation which our people have to carry, at the very time when other countries, particularly our greatest competitors, are reducing theirs. During the past few weeks France has reduced the burden of taxation resting upon her citizens and upon her industry by £15,000,000. She has reduced her Income Tax on certain classes of income from 18 per cent. to 16 per cent. and on other classes of income from 25 per cent. to 18 per cent., thereby indicating that in her view Income Tax is a very great obstacle to the development of industry, and that it is desirable in the national interests that the burden should be reduced. In Germany the same process is going on. Germany has relieved herself of the burden of taxation to the extent of £40,000,000, and in the United States of America £31,000,000 is the aggregate of the total reduction of taxation in recent times.

We are adopting exactly the opposite process, and I do think that it creates a situation where we ought very carefully to take stock of the position. I would in all seriousness invite the Chancellor of the Exchequer to give the House the benefit of his considered view on this matter, as to whether he thinks that we can go on competing with other countries in trade, industry and commerce whilst we alone have to bear these excessive burdens at a time when other countries are taking such drastic steps to free themselves of these hindrances.

The Chancellor of the Exchequer rather prided himself on the fact that these increases in Income Tax would be confined to a very small number of persons. That is another of our objections. We have long since got away from the old fundamental principle that there should be no taxation without representation. To-day, we have a situation where less than one in every 12 of the electorate pay direct taxation. If Income Tax is to be the main basis of our national revenue, a very good case could be put up that the Income Tax should be spread much more widely than is the case at the present time and that everyone in proportion to their means, people of every class, should contribute something towards it, as is the case in Holland, Norway and other countries. I understand that the main objection to that being done is the difficulty of administration. I cannot believe that that is really a valid objection or one which could not fairly easily be overcome. If it could be done and everyone in proportion to their means made some contribution to direct taxation, no matter how small, it would bring expenditure more under public control.

The Chancellor of the Exchequer himself has rather encouraged the great mass of electors to think that these increases of taxation do not concern them in any way, that other people are going to pay them and that they need not bother about them. He has expressed the view, or it is commonly reported that he has expressed the view, that high taxation is a direct stimulus to industry. It is difficult to follow that view, and I have never yet met any business man or industrialist who would agree with it. I would suggest that a decrease of taxation is a very real stimulus to industry; it is an act of good faith and it begets faith and confidence, which is one of the most essential things, especially in difficult times like the present, when we are endeavouring to re-establish our industry against intense foreign competition.

4.0 p.m.

The Chancellor of the Exchequer seemed to indicate, however, that taxation is a real burden on industry, because he held out in a rather dramatic way in one portion of his Budget speech that there would be no increase of taxation next year, a statement which has been criticised a good deal in several quarters. Does that statement bear examination. For example, the Chancellor of the Exchequer is proposing a new valuation for the purpose of Schedule A. That new valuation, presumably, will follow the present high rating assessment. Even if there were no increase in the level of Income Tax next year, when that new valuation comes into effect property owners will have to find 4s. 6d. in the pound on the new assessment instead of 4s. so that in the future, having regard to the increased assessments under the valuation, they will have to look forward to finding more money. It would be interesting if the Chancellor of the Exchequer could give some indication of his estimate of the additional yield when the new valuation has been carried into effect.

It is very easy on the question of Income Tax to talk about the idle rich and to say that it will fall mainly upon the class that can best afford it, and that if they have to spend less in the luxury trades it will be to the national advantage. I would not attempt to defend on economic grounds excessive expenditure on personal luxuries or gratifications of any kind. But one has to remember that there is a very real and substantial amount of employment that is provided in these trades that are not all luxury trades, apart from the difficulty of defining exactly what is and what is not a luxury trade, and, surely, at a time like this we are bound to take very carefully into account any proposal that may possibly have a detrimental effect in regard to employment. The justification for this increase of taxation is that the money is necessary for the purposes of social reform, and that even if industry suffers in consequence of that increased taxation, if we are able to carry out these vast schemes of social reform, the nation will benefit in consequence. That is a view which needs to be scrutinised, and, indeed, challenged, and some very wise words of warning were uttered by the right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George) in a most entertaining and amusing speech with which he delighted the House a fortnight ago. In the concluding words of his speech, he pointed out, in very forcible language, that in his view the time was come when all parties ought to consider the necessity of putting some check on those schemes of relief to various sections of the community, and to utilise the expenditure for the purpose of developing the resources of the country.

That is a warning which this House would do well to take to heart. It may be rather the case, when coming from the right hon. Gentleman, of a Daniel or, perhaps, a David, come to judgment, but that does not affect the force of the warning and the consideration which he was emphasising. A reduction of taxation unquestionably does beget faith and confidence in industry, and that is wanted above all else at the present time. An increase of taxation, on the other hand, begets depression, and it is a platitude to say that ever-increasing taxation damps all effort, destroys all initiative, and acts as a deterrent to trade and business development. I myself, think that it would have been well worth while, in the present situation of the country, to have made very real sacrifices, if necessary, in order to avoid by any means that were possible an increase of direct taxation at the present time, and I think that was the view that was held very strongly by the late Chancellor of the Exchequer. It is quite true that Income Tax-payers are an electoral minority, are a mere handful of the electorate, but that does not alter the fact that it is altogether a fatal policy to put practically the whole burden of the national expenditure on to their shoulders, because it is destroying those capital reserves which alone are available to provide that elasticity for the development of industry which is so necessary.

It is surely a fatal policy to be perpetually adding to our burdens in this way, at the very time when our greatest foreign competitors are definitely reducing theirs. It has the disadvantage of preventing industry from adjusting itself to differing circumstances and situations. It has the further disadvantage that it prevents any taxpayer from regulating and arranging his own expenditure, because he never knows from year to year what additional burdens are going to be placed upon him. It has been very well said that, just about the time that you think you can make both ends meet, someone moves the ends. For these reasons, I beg to move the Amendment.


I beg to second the Amendment.

I do so for three specific reasons. First of all, I firmly believe that the point has been reached in direct taxation that any increase in that taxation will not eventually, over a period, result in any larger revenue, but rather the reverse. Secondly, I am convinced that any increase at the present time in that taxation, which is already so high, will definitely result in manufacturing further unemployment in this country. Thirdly, it cannot, I think, possibly be disputed that an increase of Income Tax and Super-tax affects the credit of this country, affects the rate at which the country can borrow, and will certainly be a hindrance to the present Chancellor of the Exchequer, or any successor, in endeavouring to make the most important economy we can make at the present time, that is, the conversion of our very large outstanding debt.

I want, quite briefly, to touch on those three points. First of all, with reference to the question of what revenue is likely to be obtained, I would remind the Chancellor of the Exchequer, and especially all Members on the other side of the House, that capital or credit has a good deal of freedom and liberty. It is in demand all over the world. It goes to those parts where it is best treated, and it flies from those parts where it is worst treated. My hon. and learned Friend who spoke before me pointed out that our principal foreign competitors have been reducing taxation. They have been doing recently everything in their power to attract capital to their countries. We, on the other hand, unfortunately, appear to be doing everything in our power to encourage capital to leave this country. I have myself seen in the City letters from foreign bankers writing to people in this country with the deliberate intention of pointing out to them the advantages of moving their capital from this country to other capitals both in Europe and out of it, and I have no doubt whatever that the increase in direct taxation which the Chancellor of the Exchequer proposes will certainly result in a large amount of capital leaving this country.

Capital in this country leaves in two ways. I and other Members of this House on former occasions have noticed something of what one might call a panic, a whole lot of capital suddenly making up its mind, without much consideration, to find what it believes to be safer or better use in America. I do not believe that that kind of desertion by capital is the most dangerous. It is generally fairly ill-considered, takes place on the spur of the moment and in a comparatively short time comes back. That is not the kind of movement which is taking place to-day. Capital to-day is moving away slowly after careful consideration, and is being permanently invested in other countries, and the workers of this country are very much the losers thereby. After all, Members of the Labour and Socialist party have got to make up their minds whether they wish to retain and use capital. If they believe that capital is necessary, they have got to encourage it. If, on the other hand, they do not believe it is necessary, if they think that the methods of Russia are better, then there is no doubt about it, they will very soon be rid of it, as capital will leave us.

The second point is the question of employment. It would, perhaps, be too much to say that an increase of 6d. in the Income Tax by itself could be expected to have any very material effect upon employment in this country, but it is not merely the increase of 6d. There is a very important psychological effect. During the last four or five years there has been some reduction in direct taxation, but the principal cause of employment was not merely the reduction of taxation that took place, but the hope—alas, not much realised—that further reductions would be made. The result was that, during that period, there was in this country a consistent spirit of enterprise which was constantly starting up, new ventures and new enterprises which absorbed, and rather more than absorbed, the unemployment which must always occur through the finishing of jobs, or the finishing of enterprises which have either completed their work or have fallen by the way. Now the picture is entirely different. People in this country to-day see increased taxation. They fear the possibility of future increased taxation. They have not got the same incentive, and anybody in any big industrial centre in this country, and certainly anybody in the City of London, would tell you that there is far less fresh employment being created, that far fewer new ventures are being embarked upon, and I am certain that is one of the important contributing factors of the unemployment which exists, unfortunately, in this country.

Either yesterday or during the Budget speech the Chancellor of the Exchequer told the House that he was taxing himself so severely that he would have to economise. I wonder whether he would carry his imagination a little further and consider what the economies would be, and what the effect would be. The Chancellor of the Exchequer, I am sure, leads a comparatively Spartan life. He could not make much economy in tobacco or champagne. I do not know whether he travels first-class, but, if so, he might, perhaps, consider travelling third-class. That, however, is not an economy. If that were one of the economies he had in mind, it would not be of any assistance to this country. He would still be carried the same distance and visit the same places he intended to visit, but he would be paying one of the railway companies less money to do it, and, if that method of economy were sufficiently spread, it would only result in other people who have to travel third-class having to pay more to travel by that class. He might possibly be considering the economy of doing with one servantless. That would not help employment. Or he might be going to motor less—but I had better leave these speculations to the Chancellor of the Exchequer when he gets up to reply. It would, nevertheless, be interesting to hear what economies an average man can effect. I am not talking about foolish young people in the West End. After all, they are very few in number. Let him tell us the economies which the average man, who leads a reasonable life and works hard, can effect which do not affect employment.

The last point is the question of national credit. I do not know whether the right hon. Gentleman regards it altogether as good fortune, because of the matters which have led to it, but he has been in office during a period when very exceptional opportunities have been offered, and might still be offered to achieve very great economies in the national expenditure. I refer to the conversion of debt. I have no doubt that if the right hon. Gentleman had found it possible in his Budget speech to say that owing to exceptional circumstances, owing to the fact that all our competitors were reducing expenditure, owing to the fact that money was cheap and looked like becoming cheaper he wanted to help on that cheap money movement and to make use of it, and that he had therefore decided that it was imperative not to increase direct taxation—had he found it possible to do so, I am certain that it would have had a tremendous effect and he might to-day be within reasonable distance of achieving some important conversions.

Let us consider the effect upon national credit of increasing taxation. The value of any security is what it yields—not what it yields gross, but what it yields net. One buys a security for the income which one is going to get from it. The moment Income Tax and Super-tax are put up, all those people who buy securities know that they are going to get so much less income from those securities, and to them those securities are of so much the less value. All the more so is that the case if people have perfect liberty to buy other securities in other parts of the world. Finally, there is the effect on saving and thrift. In that connection, the psychological effect of increasing or decreasing taxation is precisely the same as its effect in connection with employment and unemployment. When a man finds that he can save a little money and that it is not taken from him, the spirit of saving, the desire to save and the capacity to save are increased. But when a man who is fighting an uphill fight is, at last, able to make a small saving and he finds that in the ensuing year higher taxation wipes out that saving the effect is discouraging. That is the effect upon national savings generally. For all those reasons, I warmly support the Amendment although I am aware that the Chancellor of the Exchequer, even if he had the will to do so, is no longer able to accede to our request.


There is one aspect of this question of the raising of the standard rate of Income Tax to which I would direct the attention of the Chancellor of the Exchequer. During the last 10 months the right hon. Gentleman has pursued with great determination a perfectly rigid and understandable financial policy which can, I think, be summed up in the one word "deflation." He has resolutely declined to give a loan to the Lord Privy Seal for any form of national development of any kind, and he has bent his whole efforts and energies towards a continuous reduction of the floating debt. Indeed, in his Budget statement he prided himself on the fact that he has brought about a substantial reduction in the floating debt. In order to do so, the right hon. Gentleman has, during the last six or seven months, drastically curtailed the amount of Treasury bills and this in turn has led to a sharp fall in discount rates in the money market. The Bank Rate fell in order to conform with the discount rates, but it would be a great mistake to assume that the cheap money, which followed the fall in the discount rate, has led to any form of expansion of credit. The very reverse has been the case. Cheap money in this instance has been accompanied by a very severe restriction of credit and during the last 10 months, as a result of the deliberate policy pursued by the Chancellor of the Exchequer, industry has not been able to secure the financial accommodation of which, at this time of all others, it stands so sorely in need.

Some of us on this side—I, certainly—think that the whole deflationary and restrictive policy pursued with such determination by the Chancellor of the Exchequer has been disastrous in present circumstances, but there would have been one justification for it, if the Chancellor had been able to effect conversions upon a very large scale and upon terms very favourable to the taxpayer. As the Chancellor of the Exchequer knows there is over £2,000,000,000 of War Loan outstanding and another £75,000,000 of tax compounded loan which, with the cheap money rates now prevailing, he might have been able to convert in the near future upon favourable terms. The raising of the standard rate of Income Tax, however, effectively and finally precludes any chance of a favourable conversion in the months which lie immediately ahead. If the Chancellor of the Exchequer compares the state of the gilt-edged market at the present moment with the state of that market just after the introduction of the Budget, he will see that there is a good deal of justification for what I have said. It seemed to all of us, I think, that the sole justification, the supreme justification, for the right hon. Gentleman's policy was conversion upon a very substantial scale, but nothing is more likely to preclude that conversion than the raising of the standard rate of Income Tax.

We submit that the right hon. Gentleman could have avoided raising the standard rate of Income Tax. I think that most hon. Members were quite perturbed to see the Sur-tax raised and even to see the Estate Duty raised and we were expecting a certain increase in indirect taxation as well. I do not think we would have complained if he had done those three things, but he could have avoided raising the standard rate of Income Tax, first, if he had refused to sanction the additional £9,000,000 odd of wholly unproductive expenditure which he has sanctioned during the last nine months, secondly, if he had effected further administrative economies, and, thirdly, if he had let last year's deficit go, for the time being. If the right hon. Gentleman had come down to the House and announced that he did not intend to raise the standard rate of Income Tax, but that, on the other hand, he intended to carry through a conversion scheme upon a very large scale I believe that, with the cheap money rates which obtained just before the Budget, and the general psychological condition which then prevailed, he might have been able to save the taxpayers from £20,000,000 or £30,000,000 a year. Even so I doubt if he could then have justified his general policy but now by raising the standard rate of Income Tax he does nothing. As I said the last time I spoke on the Budget, neither is the Lord Privy Seal getting a development loan, nor is the British taxpayer getting any relief as a result of the right hon. Gentleman's policy.

I also draw the right hon. Gentleman's attention to the fact that the yield of Income Tax has gone down steadily since 1925–26. I think that is a very significant fact. In an expanding and prospering industrial country such as our's ought to be, the yield from Income Tax should be expanding instead of falling year by year. I think this circumstance must lead us to the conclusion which is being reached by many economists—not only Members of the party to which I belong—that the limits of direct taxation were exceeded before the right hon. Gentleman introduced his present Budget. I would ask him to consider the psychological effects of the raising of the standard rate of Income Tax. He referred to them in his Budget speech, but I think they have been even more devastating that he could have realised at that time. The gilt edged market has practically collapsed since the Budget was introduced. Every gilt edged security has gone down—more than three or four points in some cases.

The right hon. Gentleman will also realise that, with the exception of a few brewery firms and gramophones, the industrial share market had been absolutely dead for the last fortnight or three weeks. The psychological effect of raising the standard rate of Income Tax has been extremely bad, and I suggest that, by adding this extra 6d. the right hon. Gentleman has gone a long way to forfeit the good will of the ordinary average Income Taxpayer, which is absolutely essential if he is going to get the revenue which he expects. In the circumstances I shall be surprised if the right hon. Gentleman gets the yield from the additional Income Tax which he anticipated in his Budget speech. For the reasons which I have attempted to give, I most warmly support the Amendment. I think that the right hon. Gentleman is making the worst of both worlds. He has done nothing to help to improve the capital equipment of this country, nor has he done anything to relieve the hard-pressed taxpayer by carrying out conversion, and it will not be surprising if the result is that he satisfies no section on either side of the House.


I have listened with great attention to the three speeches which have been made in support of this Amendment and I have heard at least one thing in each speech with which I am in agreement, but my study of the situation has led me to conclusions which are, I am glad to say, somewhat less pessimistic than those formed by the three hon. Members who had just addressed the House. The hon. and learned Member for Lowestoft (Sir G. Rentoul), in his observations, reminded me of a passage in the conclusions of the Colwyn Committee's Report on Income Tax in which they said, in effect, that while they did not wish to belittle the importance of the incidence of Income Tax, the effects had been very much less serious than some people suggested. There has been a tendency to pessimistic exaggeration in the three speeches which we have just heard, and I think it was particularly illustrated in the reference of the hon. Member for East Aberdeen (Mr. Boothby) to the gilt-edged market. He stated that gilt-edged securities had fallen by 3 or 4 points, but if he will recall the quotation of the 5 per Cent. War Loan—which is now ex-dividend—I think he will find that it is something like 101¼ per cent. ex-dividend, which is a little higher than it was when the Budget was introduced.


Has the hon. Member noted the price of the new Conversion Loan? Is it not a fact that it has fallen from 4½ premium to 1 premium?


I was dealing with the general statement of the hon. Member for East Aberdeen that all gilt-edged stock had fallen.


No. I said "in some cases."


Then I make this general statement, that the average of gilt-edged prices now is practically the same as it was when the Budget was introduced. One cannot in a Debate of this kind, charge one's memory with the details of the whole gilt-edged list and we will leave the matter at that. There are very few statements which one can make, either in this House or outside, without meeting contradiction from some quarter but I think there will be something like general agreement on this statement—that it is the duty, as I am sure it is the wish, of the present Chancellor of the Exchequer and any other Chancellor of the Exchequer, to do everything he can to restore confidence to stimulate industry and to restore employment. I would go further, and say that, in the present circumstances, no Chancellor of the Exchequer would think of administering an increase in the Income Tax as a tonic for the somewhat depressed and indeed debilitated state of some sections of British industry; but unfortunately up to the present time no one has suggested any other course which he could possibly have taken which is not open to objections at least equally as strong as any which have been urged against the present proposals.

This Budget is not a series of dodges and devices, which, however convenient they may be to the finance of the Chancellor of the Exchequer dealing with difficult circumstances, have the effect of coming back, and while they disguise the situation from the country for the time being, have very bad effects subsequently. The proposals of the present Chancellor are at least a straightforward statement of the case, which the country can well understand, and an Income Tax of 4s. 6d. in the £ is at least, judging from the interest taken in it in this House and outside, evidence that the country is beginning to sit up and think about it, which is a very important thing if we are to get the national finances back again, after the variegated experiences of the last five years, on to a sound basis.

I certainly cannot contend that an increase in the Income Tax is anything but a disadvantage, but there is a great deal of evidence in contradiction of the suggestion made by a previous speaker that Income Tax is a deterrent to enterprise. The Colwyn Committee went into that question with very great care, and it is part of their Report, I believe, that in certain circumstances an increased direct taxation is a direct stimulus to enterprising firms. [HON. MEMBERS: "No!"] The Report is available to hon. Members to read, but I have yet to learn that business men of any sort, in sitting down to consider their transactions from day to day, before they enter into a contract or a commercial transaction, consider in detail whether or not they will refuse it to-day because the Income Tax is at 4s. 6d., whereas they would have entered into it if the tax had remained at 4s. We all know that when we are entering into business transactions we are confronted with possibilities of very much more serious risks and losses than are represented by a variation in the Income Tax of even a greater amount than 6d. We enter into transactions from which we anticipate and hope that we may make a profit, but it turns out in fact that not infrequently we have to make a loss.

I am glad to be able to agree with the hon. and learned Member for Lowestoft that the Income Tax, in so far as it becomes a charge upon the reserves of companies, tends to check development, handicaps companies in times of depression, and is, generally speaking, a factor adverse to trade, but I think the general answer to most of the complaints and criticisms which have been raised on the Budget is that in all these matters regard must be had to the use to which the money that is raised by taxation is to be put. It is a well known quotation from, I think, Mr. Gladstone, that money is best left to fructify in the pockets of the people, but that expression must not be taken to imply that all money raised by the State is necessarily sterilized and not fruitful in its expenditure and purposes. There are many purposes for which the State raises money which are perhaps barren in their achievement, but, in regard to the present Budget, I am led to the conclusion that we need not fear the somewhat terrifying results, as to capital leaving the country and so on, which have been mentioned.

I wish my hon. Friend the Member for Gravesend (Mr. Albery) had given us rather more evidence in support of his suggestion that capital will leave the country in considerable quantities. I have some acquaintance with financial matters, and I have not heard of it as yet. Had there been any great collapse in the exchanges, any fall greater than that which was caused naturally by the fall in the discount rate in the home market—


I expressly stated that the present movement of capital from this country is slow and considered not of a panic nature. That is why you have had no sudden collapse in exchange rates.


I am glad to have that explanation. My point was that had there been any abnormal movement of money from this country, except the natural effect of the decline in discount rates in the home market, it would have had a much more serious effect and there would have been a much greater fall in the exchanges, especially the dollar exchanges, than we have seen. I was proceeding to examine the purposes for which the increase of taxation has been made, and it is true to say that, within a million or two, it does not represent a fresh burden of taxation on the country at all, but merely a shifting of the burden. We all know that, in so far as the charge of £14,500,000 or thereabouts for unemployment insurance is concerned, that is a direct relief of the rates, and we must also bear in mind that a large proportion of this sum is required to fulfil the obligations under the De-rating Act; and in so far as another £5,000,000 is wanted to make good the deficiencies in the Sinking Fund, the payments for which are still on a very small and an inadequate scale, having regard to the size of the National Debt, it is not a new taxation and a new and heavy burden upon the country, but, as I say, merely a shifting of the burden.

For that reason, in spite of the arguments which have been raised against the increase in the Income Tax, I conclude that we are not likely to witness the gloomy forebodings of those who have already spoken. I am well aware how much trade is a matter of sentiment, and it is a serious matter, at a time of depression, to do anything that is likely to depress further the spirits of those engaged in trade, but, having regard to all the circumstances, I think there has been an exaggerated tendency in this matter, and I cannot support the Amendment.


We hear in these days a great deal of talk of economies, but very little explanation in detail of how the economies are to be effected. After all, the main burden of taxation has to be levied in order to meet the interest on the Debt and the Sinking Fund, and when hon. Members opposite bring France and Germany into the discussion as cases which we ought to follow in order to relieve the burden of taxation on industry, as they put it, it is fair to remind them that that relief was achieved by what amounted in fact to a heavy reduction in the amount paid on war debts and other loans by the depreciation of the currency. I do not think that that is an example which, when it came down to the final analysis, hon. Members opposite would care to follow. France has no doubt got out of much of the burden of taxation, but mainly by the fact that the franc, with the obligations which were incurred, is now less than a quarter of its pre-War value.

Granted that new economies cannot be effected in that way, because no one opposite, at any rate, proposes that method of reducing the burden, and that no proposals have yet come to reduce the charges for armaments—and, as the right hon. Member for Carnarvon Boroughs (Mr. Lloyd George) pointed out during the Budget Debate, most of the social services that have been extended since the present Government came into office were extended in accordance with proposals advocated by many hon. Members opposite, at any rate, in their election addresses—the question arises: How, in fact, could these dire results which they say will occur to industry be avoided if the taxation necessary to be levied were imposed in some other direction?

The alternative obviously is an increase of indirect taxation, and in the present circumstances that means simply that you will restrict further the capacity of the mass of the population to buy the food and clothing which they need and which at present they are unable to buy in quantities adequate to the productive capacity of the industries of the country. The truth is, that faced by the two alternatives of putting your charge on indirect taxation, and therefore on the consuming capacity of the whole population, or on direct taxation of the higher incomes, the first would have done far more injury to industry, directly and immediately, than the second.

It is said that this tax is levied on a comparatively narrow class, which is bearing the whole burden of taxation, that this is wrong, and that it is contrary to democratic sentiment and the real needs of the country. But that surely is not our fault. So long as it remains the case that one-tenth of the population receives and uses one-half of the income of the country, and nine-tenths of the population have to be content with the remaining half of the income of the country, that fundamental inequality exists, and it is that problem that you should deal with, rather than the logical sequence of putting the taxes where they can be paid and where they can be more easily collected. When you come to the question of capital accumulation, the case is even stronger. The figures of the Inland Revenue show that approximately nine-tenths of the capital of the country is in the hands of about one-tenth or less of the population. Those are the causes of the apparent inequality in the burden of taxation, and, if you want to remove the inequality, you must remove the causes. I hope, with assistance from the other side, that the task will be speedily tackled.

Then there is the case that the effect of this taxation will cause further unemployment. That case, I suppose, rests upon two bases. The first condition is that direct taxation will make it more difficult for industry to compete, as it will add to costs. I am not going to repeat the references already made to the Colwyn Report, but I should have thought that that report had disposed of that argument. I cannot recall any industry which reduced its costs when the previous Chancellor of the Exchequer reduced direct taxation because of that reduction, and I should be surprised if any industry would reduce prices if direct taxation were made less in this Budget. The price of goods depends on the markets, and no one will charge one penny less than the market price.

We are faced then with the other argument, that the effect of direct taxation is to reduce the amount of capital available for renewals and re-investment in industry. We have to meet that point fairly, and there are one or two observations which I would like to make. In the first place, taxation levied for the repayment of Debt does not reduce the amount of money available for new capital. It is a mere transfer and is largely a matter of taking money from one set and returning it to the same set, when it becomes available for re-investment. In the second place, a slight reduction, and it is not a large one, in the amount which is actually used for investment in industry and which comes into new investments compared with pre-War is offset to some extent by the fact that the amount invested in the extension of industry through business reserves is evidently increasing; and that is the most direct and effective way of providing new capital, because it comes into industries which are working, and is invested in them because those in charge believe it to be useful and desirable. It avoids the danger which comes from new issues, where there is a heavy percentage of wasted capital.

There is another point which offsets the danger which hon. Members opposite have put forward. Mr. McKenna has repeatedly called attention to it in his annual reports. In the last few years the amount of money held in banks on time deposits, compared with the money immediately used in current accounts, shows a remarkable increase. I have figures here, but I do not wish to trouble the House with details. The increased amount in the joint stock banks on time deposits, compared with 1924, is over £100,000,000. The probable effect of the increased Income Tax and Super-tax will be to reduce not the amount of money available for reinvestment in industry, but the amount on deposit in the banks. Industry is suffering at the moment, not that money is not available for investment, but from the fact that a large amount is held more or less uselessly in the banks. I am not going into an elaborate argument as to how money held on time deposits in banks sterilises, but, if it is put directly into new investments, it goes into much more immediate effective use so far as employment is concerned.


How can you effectively invest in reserves money which is on time deposits?


The hon. Member has not followed my argument. I said that money held in banks is largely taken out of active use by industry, and the probable effect of this Budget on the accumulation of capital, if any, is offset by the fact that in the last few years there has been a steady increase of money held on time deposit in banks. My argument is that if Super-tax and Income Taxpayers have to draw money from capital account, they will draw it out of time deposits rather than trespass on amounts which otherwise would be available for industry. In any case, if we continue with direct taxation, and I see no other means, we have to face this point of the provision of the amount of capital necessary for the development and maintenance of industry, and I do not think that any of the results which are suggested by hon. Members opposite and referred to in the Press have as yet developed.

I look forward to a considerable increase and not a diminution in the amount of direct taxation. The views of some Members opposite that the limit of direct taxation has been reached does not seem to me to be borne out by fact. I have made some calculations of the amount of income that would be left to the 100,000 Super-taxpayers after the full taxation proposed in this Budget had been levied, and I find, on the average, that the Super-taxpayer would be left with a larger net income than any civil servant in this country, any General in the British Army in the field, or any British Admiral of the Fleet. So long as that is the case, to say that the limit of direct taxation has been reached, does not, so far as we on these benches are concerned, answer to the facts.

I come back to the point of capital accumulation and the means to be adopted to meet the situation. If we pursue this course, as we ought to do, having regard to the great disparity of wealth and poverty in this country, having regard to the vital importance of extending the social services as a method of securing a wider distribution of wealth, then we have clearly to do something more direct about the provision of capital. If you examine the figures of capital investments in the last year or two, you will be struck by two points. The first is the disproportionate amount invested abroad, and the second is the disproportionate amount which in the last few years has gone to the more or less luxury trades compared with the staple trades. I am not sure whether this is the appropriate point at which to refer to the question of oversea investments, but I think we have to examine a little more carefully, the present situation and consider the probable effect of the proposed Reparation Loan on the capital and taxation situation here. I do not propose to pursue that matter now, but if, because of the effect on capital of a heavy Income Tax, people find it necessary to check investments, that kind of loan which will yield no return in employment in this country obviously requires attention.

I come to the second point of the disproportionate investment in some classes of trades and not others. The fact is that, from the point of view of industry and the prosperity of this country, it is vital that there should be a heavy investment of capital in the staple trades. It is these which are short of capital—and the lack of capital in these trades might provide some basis for the criticism of Members opposite—whereas there is a very heavy excessive investment in trades which cater for the few. One way of dealing with that is to make such trades less profitable by depriving them of some of the custom which other wise would come to them. The Super-tax would have that effect. The taxation of the higher incomes on a heavier basis than that proposed would probably have the direct effect of transferring capital investments from those trades which cater for a limited number to the staple trades like steel, iron, coal and the rest on which the real prosperity of the country is based. Coupled with that, some more direct control over oversea investments, over the capital issues in this country, while the more important trades are short of capital, would completely offset the accumulation of capital that might remain from an increase of direct taxation. In any case, Members opposite, in these constant repetitions in the Press that the effect of increased Super-tax and Income Tax is going to be serious to industry, are merely trotting out a new form of scarecrow to take the place of the scheme which was used so successfully for so many years. In the old days the cry was, "We cannot provide pensions and other things because of the probable effect on widows and orphans." That particular argument has disappeared. Now we are asked to refrain; from extending the social services because we shall drive the multi-millionaire and the Super-tax payer from the country or destroy industry. I do not believe there is any sounder foundation for this new method of avoiding direct discussion on the real issues than there was in the earlier case, and I hope the Chancellor of the Exchequer, despite that rather unexpected and, as I hope it will prove to be, embarrassing semi-pledge which he made at the end of his Budget speech, will, the next time he has the opportunity, carry the arguments which I have tried to put forward to their logical conclusion, and put on the higher incomes such a tax as will more directly and more effectually alter the present distribution of wealth and poverty in this country.

5.0 p.m.

Lieut.-Colonel SPENDER-CLAY

We have had a speech from the Liberal party in support of the Budget and we have now listened to an apologia from the Independent Labour party, also in favour of the Budget, but I must say that I think many hon. Members will have been impressed with the difference between the speeches of the hon. Member for East Leicester (Mr. Wise) when addressing his conference at Birmingham and the speech he has just delivered. He roars with the lions when he is in Birmingham, and coos with the doves when he comes to this House.


I did not speak on finance at all at Birmingham.

Lieut.-Colonel SPENDER-CLAY

I have read the hon. Member's speeches at Birmingham, and I think the trend of his remarks was very different from the trend of the speech we have just heard. Although he may not have spoken directly on the subject of finance when at Birmingham he dealt with many subjects, including the Chancellor of the Exchequer, to whom he made some personal references—according to the account of his speech which I saw. The hon. Member spoke of the deposits in the banks, and used that argument in favour of the present increase in the standard rate of Income Tax. I should have thought one of the reasons for the large deposits in the banks is the falling market, and the fear in the business world of what is going to happen owing to the existence of the present Government. He also made great play with the contention that in spite of high taxation the Super-tax payer will still enjoy an income higher than that received by marshals and admirals, and much higher than the incomes of those in the Civil Service, and he pointed out that as long as that was the case there would be not much hindrance to trade; but in his next sentence he was saying how desirable it was that further large sums should be invested in the staple trades. Where is this money for industry to come from if we adopt his proposals?

What fills me with alarm about this Budget is that it creates a feeling of depression in all classes of the community connected with trade or business or agriculture. It does not create the atmosphere which is necessary if we are to improve conditions in this country. There is a feeling of defeatism abroad, and it is increased enormously by this rise in the standard rate of the Income Tax. There is a tendency, I am afraid, to give up hope, to feel that it is not really worth while struggling on in industry, which is the very worst thing that could happen, certainly the very worst thing from the point of view of the Lord Privy Seal in his efforts to reduce unemployment. I appreciate the difficulties of the position which the Chancellor of the Exchequer has to face. He has to meet the commitments of previous Governments and the commitments which have been created by his own Government, and, in addition, he has before him the demands of a certain section of his party who are continually demanding that fresh feathers should be plucked from the goose which lays the golden eggs. It would not be in order for me to discuss alternative proposals but I am quite convinced in my own mind that alternative proposals do exist which would give industry hope instead of creating the feeling of defeatism to which I have alluded. The effect of the Resolution now before the House will be to increase the number of the unemployed by Act of Parliament. I should have thought the Government would have been perfectly satisfied with what they have done during the past 10 months in increasing the unemployed by over 500,000 without seeking in this way to add to their number.

This taxation is the very worst form of indirect taxation which can exist. The Chancellor of the Exchequer pleads for direct taxation, and the hon. Member for East Leicester pleads for increased direct taxation, but my point is that this addition of 6d. to the Income Tax is the worst form of indirect taxation, because the impost must be passed on. In one form or another it will be passed on to the poorest of the people of this country. It may be that a rich man, a super-tax payer, may say, "I cannot afford to buy a new motor car." It does not very much matter to him whether he has an old car or a new car, but if he refrains from buying a new car that fact will react through the whole of trade and society, from the person who sells motor cars down to the producers of the raw materials. Even in the matter of the redecoration of a private house there comes a moment when the owner of the property realises that he has come to the limit of his income and cannot afford to spend more. It really does not injure him in one way or another; perhaps he has to give up something he would ilke, but it is not a matter of vital importance to him; but it is a matter of vital consequence to the people he would otherwise employ. The effect of it goes down through all the strata of the employment market, and does injury to those who are seeking employment. The effect of this taxation touches every individual throughout society, and therefore I have not the slightest hesitation in saying that this Resolution will increase the number of the unemployed. It has been well said that these attempts to reduce by taxation those who are called the "idle rich" merely increase the number of the idle poor. Whatever else the Budget may accomplish I am certain the Chancellor will be able to congratulate himself on having added substantially to the number of the unemployed.


I propose to consider the Motion before the House from a different point of view from that of previous speakers. The criticism I am venturing to put forward would apply not only to the proposals of the present Chancellor of the Exchequer but probably also to many Budgets which have preceded this one; it is that the country is spending its capital as income. That leads me to draw attention to something which at first sight may not appear to be strictly within the terms of the Motion, but I hope that I may be permitted to refer to it. I think the form of the national accounts is to a large extent responsible for hiding from public opinion and from Members of the House whether our expenditure is being met out of income or whether, as I suggest, we are meeting it out of the capital resources of the country. Only a few years ago a Royal Commission was appointed to inquire into the finances and other affairs of the Universities of Oxford and Cambridge, and one of the most important recommendations of that Commission, to my mind the most important, concerned the way in which the accounts had been presented. It had been the custom for them to be presented in what I call a receipts and payments form. There was no balance sheet.

Mr. DEPUTY-SPEAKER (Mr. Robert Young)

I am afraid we cannot go into the form of the accounts on an Amendment to leave out the word "sixpence."


I bow to your Ruling, Sir. I was afraid you might tell me that I was out of order. I was coming to the point that the form of the accounts does affect our ability to judge whether we are spending capital as income, but I will not say anything further on that point. I pass to the avowed intention of the Chancellor of the Exchequer to put the increased Income Tax to an overwhelming degree on the shoulders of the wealthier classes, and I would like to examine whether, in fact, the results produced will correspond with the Chancellor's predictions. Hon. Members opposite criticise the measures which have been adopted by those upon whom this heavy burden falls to reduce as far as the law permits the liabilities which they have to meet. I do not think it is to be wondered at that the people who are so heavily mulcted should take advantage of any methods open to them to reduce the amount they have to pay, so that the fruits of their labour, experience and initiative may be enjoyed by themselves and their families to an extent which they regard as fair and reasonable.

But I will put that aside, and come to another and, to my mind, more important result which will follow from the Chancellor's policy, and must ultimately react adversely on the whole problem of national finance. I refer to the voluntary contributions made by wealthier members of the community to objects and interests which are necessary to the State. I will illustrate this by referring to hospitals and education. The hospitals throughout the country are supported almost entirely by voluntary contributions. I admit that these voluntary contributions come from the poor as well as from the rich, but they came to a much greater extent from the rich than from the poor. What will be the inevitable consequence of this increase of taxation on those who have the larger incomes? They cannot spend their incomes entirely on themselves. They have other responsibilities which they have to meet, and a large number of them will be faced with the problem of how to meet the increased taxation, and to make their profit and loss accounts balance. It is inevitable that the contributions of such people will have to be reduced, and contributions to hospitals will perhaps be one of the first things which will have to be reduced, or possibly abolished altogether. What will be the result? Hospitals are absolutely essential to the well-being of this country, and the State will be compelled to shoulder the burden which is now borne by the wealthier people.

The same thing applies to education. Rich men in the past have given large benefactions to universities and schools, and already there are signs that endowments for education and research may be more difficult to secure than they have been in the past. So that both as regards hospitals and education, there are two alternatives—either there will be a loss to the community in the restriction of the benefits which they derive from the hospitals and from the universities and schools, or the State will be compelled to shoulder the burden of carrying on these two great institutions. May I say incidentally, as one who has had something to do with the finance of one of the great universities, how grateful I am that the Chancellor has been able to increase the sum of money to be devoted to the universities in the next quinquennial. The effect of this increased taxation, resulting as it does in a restriction of voluntary contributions, will mean that the country as a whole is likely to lose on the roundabouts more than it is gaining on the swings.

There is another and much more serious criticism against this policy of placing two great a share of the burden on the higher incomes. We have had in the past a great deal of controversy about taxation without representation. Is not the policy of the Chancellor of the Exchequer tending too violently in the other direction? Does it not indicate representation without taxation, and can such a system of Government be justified? Our electoral system, which may be briefly summarised as "one person, one vote," gives a far greater advantage in voting power to sections of the community who, on the whole, bear a very slight burden of the total required for national expenditure. Whatever may be said to the contrary, it is inevitable that this must tend to a corresponding lack of discretion and judgment in the exercise of that power, and a consequential danger to the community as a whole in decisions upon national policy.

The logical outcome of the Chancellor's policy would seem to give the whole of the voting power to those members of the community who have, or apparently have, little or nothing to lose, and to take away all voting power from those who have a real stake and interest in the prosperity of the country. The result would quickly be a rapid growth of national expenditure without any corresponding increase in national resources from which the necessary income can be obtained. That would lead to national bankruptcy. Ultimately, the effect would be that the very people who have been led to look to the State for their wellbeing and maintenance would be the people to suffer and their last state would be much worse than their first. Some graduation of taxation in relation to income is right and necessary, but the proposals of the Chancellor go too far. He would have been wiser under existing conditions if he had placed some share of the increased direct taxation on all sections of the community. All questions of national finance must be judged by the effects which they are likely ultimately to produce, and I fear that the proposals of the Chancellor in relation to Income Tax and Surtax will be found to defeat his avowed object. Instead of producing income which can be applied to the betterment of social conditions, they will tend to drive capital out of the country, and so hamper industrial development and prosperity, increase the great problem of unemployment, and, in the long run, produce a worse condition among the less fortunate members of the community than exist at present.


All sides of the House will agree that we are discussing one of the most important matters that come before the House, and one which we shall find ourselves discussing very frequently during the coming years. The incidence and the effects, and the consequent advisability of heavy direct taxation is a subject which is likely to be hotly debated, and to be a major matter of contention between different sides of the House for some time to come. I want to take up one or two of the points which have been made in speeches of hon. Members opposite. In the speech of the hon. Gentleman who moved the Amendment, the comparisons which he made in the rate of taxation between this country and its chief industrial rivals, such as Germany, were wholly vitiated by failure to take into consideration the difference in the National Debt position of the two countries. It is impossible to make any comparison in view of the fact that this country is providing no less than £355,000,000 a year to the service of the National Debt, a provision which the right hon. Member for Epping (Mr. Churchill) described as enormous. That £355,000,000 is money paid back to exactly the same class of persons on whom falls the burden of heavy direct taxation; it is impossible to look at one side of the picture without looking at the other. German Income Tax is lower than ours, but that is only possible because by confiscation they have abolished the burden of their debt.

Our comparatively high level of direct taxation is, to a very large extent, nothing but a system of transfers between different property owners in this country. When you have taken £355,000,000—the receipts of the property owners from the State—and have taken that sum out of what they have to contribute to the State in direct taxation, there is a comparatively small sum left over. Any attempt to regard the 100,000 Surtax payers in this country as terribly overburdened must take into consideration the £355,000,000 a year which they receive. The picture of our industries labouring under an appalling burden as compared with our industrial competitors has to be regarded with the same consideration in view. We are told by almost every speaker on the other side of the House that this increase in the standard rate of Income Tax is going to prove the last straw on the camel's back for our depressed industries. As a fact, however, these depressed industries do not pay Income Tax. An industry which is not paying profits—which is unfortunately the condition of affairs in many of the basic industries in this country—is not affected by an increase in the standard rate of Income Tax. I know of an enterprise which, like many others, passed through a period in which it made no profits, and practically no distributions on its capital. The Income Tax item which appears in the profit and loss account of that enterprise stood at practically nothing; but I am glad to say that it is again making a distribution, and it is paying, therefore, something in the way of Income Tax.

Income Tax is not a burden on the enterprise which is making a loss, and if it is not making a profit, it is not called upon to pay an increased rate of Income Tax. We were told by the seconder of the Amendment that he had received from foreign banks and foreign stockbrokers offers of opportunities for the investment of British capital abroad. I do not see, however, how he attributes that to increased taxation. If any owner of capital in this country invests it abroad, he does not by that means escape income Tax in this country. The rate of Income Tax in this country is just the same on foreign investments as on investments in this country, so that we can hardly suggest that there is any encouragement to subscribe to the Finnish Loan, for example, as against a corporation loan in this country. If I am an investor, I have precisely the same rate of taxation to pay.


The hon. Gentleman might ask the Chancellor of the Exchequer whether he collects all the tax that is due on deposits in foreign banks.


I am not suggesting for a moment that there are not attempts, some of them successful attempts, to evade taxation, but that was no part of my argument. The mere subscription to a foreign investment as against an investment in this country is wholly irrelevant to the question of the taxation which a particular investor will have to pay. We were told, in the speech from the hon. Member for East Aberdeen (Mr. Boothby), that we have strong evidence of the possibility of reaching the limit of direct taxation because of the recent fall in the yield of Income Tax. But is that not more than accounted for by the recent falls in the general price level? That is a factor which I deplore; it is one of the factors which has been far more responsible than any other for our industrial difficulties to-day, and it is a factor which I should like to see this Chancellor, or any other, address himself to. But it is a factor that accounts for the reduction in the nominal, money-value, yield of any particular tax.

In the next speech on the other side of the House, and in the subsequent ones, we were given examples of that heartrending argument of how the rich profiteer is going to dismiss his domestic servants and do without his motor car and thereby create a new mass of unemployment. That argument, shorn of romantic detail, means that if you take purchasing power by taxation from the rich you reduce their purchasing power. That is perfectly true, but you do not destroy this purchasing power. It does not mean that the money is thrown down the drain. Taxation merely transfers it to some other member of the community. Taxation does not destroy purchasing power at all; it transfers it from one section of the community to another, and from one individual to another. The question is whether this transfer is desirable or not, whether the objects of expenditure by the original holders of the money—his motor car, servants, etc.—are more desirable objects of expenditure than the objects of education for instance. As for the purchasing power itself the net quantity of it is not affected one way or another by taxation.


Does it have no effect on saving?


It has an effect on saving, but that is another point. One argument is that the rich devote practically the whole of their income to saving and that being so it is cruel to take it from them and thus starve industry. The other argument is that they devote a large portion of their income to expenditure and that it is unwise to cut down this expenditure and so create unemployment. The most general argument used opposite was the one on the question of the fact that the political power is in this country, roughly speaking, in the hands of the whole community by the exercise of the vote, while the hulk of taxation is paid by a comparatively narrow section of the community. Everyone on this side would agree that this is an undesirable estate of affairs, but as the hon. Member for East Leicester (Mr. Wise) said just now, there is only one conceivable way of altering that state of affairs, and that is to get an equal distribution of wealth. Then it would be possible to have an Income Tax not graduated in any way; and if the hon. Members opposite will support us in our attempts to create an equal distribution of wealth then we shall support them in their attitude and see that the taxation is borne as they desire.

I want to refer for a moment to the question of what the limit of direct taxation is. In the present system of industrial organisation and private enterprise, I think it is no part of the Socialist doctrine to deny that beyond a certain point direct taxation is incompatible with a system of private enterprise. As we press on, as we hope to do, with imposing heavier direct taxation, we must press on with social reorganisation. During the transition period a Labour Chancellor must consider the limits which, within private enterprise, he can apply direct taxation; and it may be that in the present state of world conditions with the mobility of capital which undoubtedly exists to-day—though we have not reached the limits of direct taxation yet—these limits will be reached before we satisfy the urgent wants of the working classes in this country. It seems to me that if such a time does come, a Labour Chancellor might well look to bridging that transition by taxation not upon the incomes but upon the expenditure of the rich—taxation which would fall on the expenditure on luxuries of the rich and not upon other incomes. Against such taxation arguments on the psychological deterrent to new enterprise and saving would be irrelevant. A good field of taxation might be opened up on these lines. The City of Vienna has a successful tax of that kind for the benefit of housing. It would repay study by the Chancellor of the Exchequer.


We are not discussing new taxation now.


I accept that, Mr. Deputy-Speaker. The only real solution must, of course, be to have our industrial system so organised that the great corporations, and the great public utility companies, etc., will undertake production in the future. Under a new system of industrial organisation these organisations will provide their own savings out of the moneys earned and the function of the individual investor will be largely superseded.


We have lately read in the Press accounts of the manner in which the Soviet Government are affecting what they call the kulak class of person, and I think we have to make up our minds that we too have our kulaks in this country—the unfortunate Income Tax-payers. I believe that the Soviet Government attempt to find some justification by saying that these kulaks are mentally undesirable elements, and undoubtedly there are many Members on the other side of the House who regard the direct taxpayers as mentally undesirable elements. I was interested to read a speech by the right hon. and gallant Member for Newcastle-under-Lyme (Colonel Wedgwood) in which he says, "We do not want rich people. We want to see them leave the country." I wonder if the Chancellor of the Exchequer subscribes to that. Would he desire that every rich person should leave this country? I rather fancy he finds the direct taxpayer a very ready whipping-boy, and when he has to levy fresh taxation he will have the direct taxpayer up and inflict a few more cuffs upon him.

What is to be the end of this taxation at a time when every other country in the world is reducing taxation? At a period no less than 12 years after the War we find these fresh impost of taxation levied upon our people. While taxpayers all over the world can look forward to a state of diminution in the burden of taxation, our Own taxpayer not only finds his burdens higher than in any previous time in our history, but all that the Chancellor can do is to hold out a slight hope that these burdens will not be increased, although it is evident from the speeches on the other side of the House that it is not certain that he will be able to fulfil that semi-promise. The last speaker dealt with the question of Germany and the fact that she had to a large extent relieved herself of the dead weight burden of her debt.

Germany is not the only country from which we have to face competition. The United States of America is budgeting this year for £766,000,000 against our £790,000,000, exclusive of the balancing of expenditure and revenue. America has a population three times as great as ours; consequently her taxation per head is £6 while ours is £18, while the disparity is probably even smaller than the figures seem to show. France is budgeting for an expenditure of £375,000,000. She has a population as large as our own and her people are quite as prosperous as our own. These two countries are two of our keenest competitors, and the taxation is equivalent to one-third of ours. America, as a result of the great trade slump, has put her immense energy and dynamic force into seeking fresh outlets for her surplus manufactured productions. She is exporting some 8 per cent. of her total manufacturing production. It seems criminal to me at a time like this to place upon our great industries fresh burdens when they have to face keener competition than they have ever known.

It has been said by previous speakers in this Debate that this taxation is hitting industry. I know that that view is very widely held, but I believe that every form of taxation must in the last resort fall upon the industries of the country. I was rather interested in reading the other day a quotation from a speech made by Mr. Henry Ford which I should like to read to the House. Speaking about the formation of his own company in its early stages Mr. Ford said: The capitalisation of the company was 100,000 dollars and of this I found 25½ per cent. The total amount subscribed in cash was about 28,000 dollars which is the only money that the company has ever received for the capital fund from other than relatives. The new equipment and the whole progress of the company have always been financed out of earnings. I think that here we have ample evidence that the great company established by Mr. Ford could never have been established if during the period of its formation Mr. Ford had had to pay an Income Tax of 4s. 6d. in the £, and a Surtax of 7s. 6d., and, possibly, in the event of his death, a levy of 50 per cent. on the capital value of the company. That is going to happen under the taxation which is now proposed. Not only is it being made impossible for industries to maintain their position, but it will be difficult for any industry to obtain capital from its own resources in order to enlarge its productive capacity.

I should like to raise another question which has been put before me by a constituent of mine. It is a case in which a company found it necessary to employ a new general manager. That company advertised the appointment, and discovered that it was necessary for them to pay £10,000 a year to the man who took the post. The previous manager was paid £4,000 a year. The fact of the matter was that this industry had to compete with all the other industries in the country to obtain a man of the right sort, and it was discovered that £10,000 a year was only equal to a salary of £4,000 a year when you allow for the Income Tax and the Surtax, and for the much smaller purchasing power of the balance. I think that is a striking example of the way in which direct taxation, no matter in what shape it is imposed, comes back ultimately upon the industries of the country.

Hon. Members have already pointed out that in the form of Surtax and Income Tax you are taking away from industries fresh capital to the amount of about £220,000,000 each year. I do not believe that that process can go on, because it is a flat contradiction of the principles which have been taught during the past 200 years by every political economist. The Chancellor of the Exchequer has claimed this afternoon that by diverting money into the pockets of the poorer classes to be spent upon articles for immediate consumption you will get in that way a better distribution of the national income, and he will be able to reduce our burdens in consequence. That is tantamount to saying that you can achieve prosperity by spending money instead of saving it, and, in my opinion, that kind of action must be as fatal to the interests of a nation as it is in the case of individuals.

Finally, I would like to point out to the Chancellor of the Exchequer that he is, in effect, placing the burdens of direct taxation on a very small group of people. This may seem to be something clever in the view of the Chancellor of the Exchequer, but I do not believe that it is either statesmanship or justice. I am sure that the Chancellor of the Exchequer would be greatly surprised if he only knew the great sense of rankling injustice which is being caused by this heavy direct taxation throughout the length and breadth of this country. Up to now the direct taxpayers have not whined about their burdens, and I do not believe that they will do so to any substantial extent. In the past they have borne these burdens because they have known that, owing to the circumstances arising after the Great War, those burdens were inevitable, but they do not feel that the fresh taxation which is now being imposed is necessary at all, and they look upon these fresh imposts as an attempt to fasten a parasitic Socialism upon the industries of this country. I believe that the direct taxpayers will not stand an attempt of that kind much longer.


Several very interesting speeches have been made this afternoon to three of which I must pay a certain amount of attention. The first of them was delivered by the hon. Member for East Birkenhead (Mr. Graham White) who will be congratulated by his Liverpool constituents for supporting the increase of the Income Tax. I feel certain that when the hon. Member discloses that fact to his constituents they will be very much obliged to him for supporting the Socialist party policy of higher Income Tax. Interesting speeches have been made by the hon. Member for Aston (Mr. Strachey) and the hon. Member for East Leicester (Mr. Wise) but I do not think that they have had a very extensive personal experience of industry. They express text-book theories.


I have been a director of a company and my hon. Friend the Member for East Leicester (Mr. Wise) is at the present moment actively engaged in trade.


That is not the type of trade which I had in mind. I will address myself to this matter as one who has earned his living in selling the goods produced by his firm. I stand here as a humble representative of the great industrial class which produces the wealth upon which direct taxation will fall. I know the difficulty of selling goods made by a firm and I feel clearly what the effect of this Budget will be. There are two passages in the Budget statement made by the Chancellor of the Exchequer to which it seems to me the French saying "Qui s'excuse s'accuse" applies. The right hon. Gentleman said: Though, as I have said, I am imposing no new direct burdens on industry, I am fully aware of the psychological effect on trade and commerce of increased taxation even when no material burden is imposed. The Chancellor of the Exchequer says that he is aware of the psychological effect on trade; so am I, but he goes on to say: Recognising this, I am convinced that whatever my views as to the equity of the present distribution of the national wealth, in existing circumstances an essential factor in ameliorating unemployment is a restoration of a spirit of confidence and enterprise among those now responsible for conducting industry and commerce."—[OFFICIAL REPORT, 14th April, 1930; col. 2681, Vol. 237.] What does the right hon. Gentleman's Budget do to foster a spirit of confidence and enterprise in commerce? What encouragement does the Budget give to anyone to start a new factory, and we need them. If I started a new enterprise and lost money, the State would not reimburse me. But if I started a new industry and made profits I should be penalised and abused. If I employed profitably a number of men making boots and shoes I should be heavily penalised by the Budget and the more I succeeded the more heavily I should be penalised till nearly half my net profits would be taken in taxation at 4s. 6d. in the £ plus Surtax on the profits arising from my enterprise. Furthermore if I succeeded in saving any money out of what was left much of those savings would also be taken in taxation on my death. Who is likely to start a factory in those circumstances? People should realise that when you have made your goods, you also have to sell them; there is the risk of loss when you start an industry. You need to feel that if you take a risk and make money, people will say, "Well done." But the State will call you a member of the idle rich, will punish you and revile you for succeeding. Success in trade is a crime to Socialists.

There are many things which keep men from undertaking fresh industrial enterprises. One reason is the keenness of foreign competition at home and the difficulties of tariffs attending the selling of your goods abroad. There is also the risk of industrial strife, and now there has to be added the burden of extra taxation. I would like to show what is the result of the discouragement caused by heavy direct taxation upon the economic position of this country. The hon. Member for East Leicester read out a quotation from the report of the Midland Bank. I have another similar report in my hand and it shows a danger signal. Notwithstanding the fact that between 1925 and 1929 variations of prices have taken place, the relative figures are comparable. In 1925 our visible exports were £989,000,000 and £449,000,000 were invisible exports. That is to say, invisible exports were 31 per cent. of the total exports. In 1929 visible exports were £926,000,000 and invisible, £517,000,000. That is to say, in 1929 invisible exports were 36 per cent. These invisibles consist of profits for services, for shipping, commissions and interest on overseas investments. Not for goods or products. Who can deny that national income which arises from the export of manufactured goods and raw materials, such as coal, is preferable to that derived from investments abroad? It is much better to sell your goods abroad and make a profit out of them and employ men to make those goods in this country, than to make your profits out of invisible investments like shipping services, some of which may be profits arising out of freight on international routes employing few British seamen. It is very much better to make your profits out of visible exports. This is what the greatest bank in the world says, and we cannot disregard it: The balance of payments table brings out at least one fact of vast importance in our national economy. It is this: that our so-called invisible exports are gaining steadily on our sales of commodities, so that in 1029 we received £5 in payment for invisible exports for every £8 we received on account of goods sold abroad. 6.0 p.m.

Are we becoming a financing nation, a nation earning commissions and receiving interest on old investments and not a nation making its profits by manufacture and the employment of the population in industry? The unemployment returns prove the tendency. That is a very pregnant and dangerous thing. If it is so, it means that people have been discouraged from investing in factories at home. They say that they will not take the risks of loss, or of heavy taxation if they succeed, as they then get nothing out of their ventures. They prefer to earn less money without the risk of industry—not by putting their money abroad, but by buying in London the securities of investment companies, or shipping companies, or international banking companies which work in London but make their money out of business abroad serving international trade and industries. That is a very bad thing for the nation, because in that case fewer people are employed here than there otherwise would be. Such is the deduction to be drawn from the growing ratio of invisible to visible exports. I think that the Chancellor of the Exchequer, with all his faults—and they are many, and I should be the last to deny them—cannot be so hard-hearted or unreasonable as not to realise that he must be just to people in order to encourage them to succeed in trade and create wealth. I think it is very wrong to talk so much about the idle rich. How many of his idle rich are there? There are, roughly speaking, 97,000 people who pay Sur-tax, that is to say, whose incomes are over £1,999 a year. Of them, possibly under 25,000, have over £5,000 a year to spend and of those 25,000, out of all the 45,000,000 of our population, I suppose perhaps 5,000, at most, are really idle rich, whom we, as well as hon. Members opposite despise and dislike, but do not even know.


What is the total amount that those 97,000 people get?


I will tell the hon. Member in a minute. If these 5,000 people who are really the idle rich are taken away, you have 92,000 Surtax-payers left who are not idle. And although perhaps the 5,000 idiots, some of whom we see prancing through the Divorce Courts, posturing on the Lido, spending their money foolishly, and photographed in the illustrated papers, are a danger and a nuisance to us all, there is no reason why the other 92,000 Surtax payers should be called the idle rich, or abused and reviled. A large number of them are simple-living, conscientious men and women, working hard at their trades and professions or retired on their honest savings—decent, quiet, respectable people, not working eight hours a day or six days a week, but 24 hours a day and seven days a week. Whether they are in their offices, or in railway trains, or at home, their minds are always focused on their work. At home they live modest lives of very much the same type as that of their own foremen, and, in spite of that, they are banged on the head and reviled as idle because they are rich as the result of their work, which, in turn, enriches the nation. The Chancellor of the Exchequer ought to say to them, "Go ahead; we must tax you, but at least we are not going to turn round and insult you and shower malice and envy on you." I think that Socialists should make up their minds that the "idle rich" cry is untrue and unjust and should be dropped, and that industrious, efficient people should be praised and encouraged to succeed and create wealth. Is failure and poverty a title to commendation?

This large amount of increased taxation is, we are told, necessary for social reform. This social policy cannot succeed, however, when taxation is so high that it throws men out of work or prevents industrial expansion. You cannot get away from the unemployment proof. When the cost of production is put up, we cannot sell our goods. The clog upon our export trade is the fact that in the main our goods are too dear. What has this Budget done to make goods cheaper or to encourage the setting up of more factories? Do hon. Gentlemen opposite, when they talk about the idle rich, realise that an industrious man who earns about £3,000 a year works three months of the year without pay for the Government, and that a man who earns £7,000 a year works four months of the year for the Government without wages? Is that an encouragement to efficient and industrious men to try to earn big incomes? It is forced labour with a vengeance. Men will not work for no income. This high taxation is of no use to the working class. Let me quote what was said the other day by the General Federation of Trade Unions. They said in their report: When people advise the working man that all his insurance, pension and education expenditure can be extracted from the capital without endangering his wages, they badly mislead him. I am certain that the Chancellor of the Exchequer must have had that in mind when he was making the peroration of his speech, and excusing himself for having to tax heavily. They go on to say: The conclusions that present stocks of reproductive capital are insufficient for national needs, and that taxation is too high appear to be inescapable. That is not a Tory report, but the report of the General Federation of Trade Unions, and I agree with the views put forward in it. The hon. Member for Merthyr (Mr. Wallhead) asks me what amount of money these "idle rich" get. It was stated the other day in this House by the hon. Member for Camlachie (Mr. Stephen) that the total Sur-tax receipts were about £60,000,000 on an income of about £600,000,000. If, according to the idea put forward by the hon. Member for East Leicester, the capital producing that income were divided up among all the people in this country, it would mean about £200 or £300 for each person. In that case, where are you going to get your Sur-taxation from? You will not get £60,000,000 a year of Sur-tax if the capital is divided up, but while it is in the bands of the "idle rich" you at least get that amount.

Two or three other points were made by the hon. Member for East Birkenhead. He said he did not believe that Income Tax entered into the cost of production. He said that the Colwyn Committee stated that the effect of that incidence was very light. My experience in the past, however, is that the salaried staffs of firms have had to receive higher salaries to make up for what was taken from them in the higher rate of Income Tax. The result of that was a firm's goods cost more, and the consumer had to pay more; and, if the consumer is a foreigner, he does not buy the goods. Therefore, to that extent, Income Tax does affect the cost of production and our power to sell. There is under-consumption of raw materials, although their costs have fallen. Why? It is because the distributing trades maintain high prices to recover the high taxation, and this disparity between wholesale and retail prices is retarding consumption. If the Income Tax is increased by 6d. in the £, what happens? A five per cent. security will then yield one-eighth per cent.—2s. 6d. per cent.—less. Then the investor says that he will not in the future take a security which, on account of extra Income Tax, yields him one-eighth per cent. less than he was getting. He will take another security instead giving him the required 5 per cent. If the owner of a factory desires to raise a mortgage or a debenture, he has then to raise the rate of interest that he will give to the investor for that money before he can get it in the competitive market. The result is that you do not get your goods made as cheaply as they otherwise would be.

This social reform policy, which is costing us so much money, has a parallel to some extent in what is going on in Australia. In order to get the revenue for expenditure on social reforms, they have been compelled for many years to borrow here, until a crisis has occurred. We have all read of it recently. If you keep up an expenditure here which is not in accord with the economic strength of this country, sooner or later, by taking by taxation the money you require, not by overseas borrowing, but from the pool of capital wealth, you will bring upon yourself a crisis in that you will not be able to make your goods at a price at which you can export them. If you cannot export them you will not be able to pay for the food you require, and that is the end of all.

The mentality of supporters of this Socialist Government, as I saw it when I was at the Department of Overseas Trade, is to concentrate on a policy of dividing up wealth and doing nothing to create it. The whole time that I was at the Department of Overseas Trade, I begged employers and Labour party people, and those working people who were connected with factories, to come and see me in the Department, in order that I might tell them how I thought they could alter or orient their plans so as to create more trade; but not one Socialist ever came. The employers always came, but no Socialists. They were more intent upon cooking the hare than upon catching it; they were more intent upon dividing up the existing wealth than upon helping me to help them to create it. Socialists are too much occupied, as is shown by the theory of this Budget, in envy, in coveting other men's savings, in trying to cut up the wealth that already exists. They do not help to create national wealth; they hinder and revile the industrious and successful man even though his success means more factories, more work, more employment. An industrious man who has earned enough to have to pay Surtax is an "idle rich." They will never see their unemployment figures drop, and that, they say, and I agree, is the acid test of their policy, until they change their mentality and address themselves to the task of creating fresh wealth, instead of dividing up the existing wealth of others, as is disclosed by the policy embodied in this Budget.

The CHANCELLOR of the EXCHEQUER (Mr. Philip Snowden)

Those who have sat through this rather long Debate will agree with me that some of the speeches which have been delivered have been of a very high order. There have been others to which I am afraid I could not apply that comment. Although the subject is, as was said by the hon. and learned Member for Lowestoft (Sir G. Rentoul), who opened the discussion, a very old one, which has often been debated somewhat acridly, I do not think I have ever heard in the House of Commons the old arguments put with greater lucidity and greater force than in some of the speeches which have been delivered this afternoon. The two hon. Members who are responsible for this Amendment both said that they were moving it with no great hope or expectation that I should concede the remission of Income Tax which it proposes, and I am afraid that, in the circumstances, I shall be compelled to bear out that lack of expectation. I will take the points which have been raised in the course of the discussion pretty much in the order in which they have been made, although that, of course, will cause my observations to be of a somewhat discursive character.

The hon. Member who moved the Amendment spoke of the pernicious and disastrous consequences which would follow the imposition of an increase in Income Tax and he warned me of the unpopularity that I had incurred and of the general consensus of opinion, not only in regard to this proposal, but to other features of the Budget. I have had very little evidence to support the opinion that the hon. Gentleman expressed. On the contrary I have had expressions of opinion from a very large number of people who will be affected, some of them very considerably affected by this increase of the Income Tax and other increases of taxation proposed in the Budget expressing their strong approval of the steps I have taken to meet the inevitable increase of taxation. Most of the speakers on the opposite side have spoken of mounting taxation and increased expenditure just as though this Government alone was responsible for the present rate of national taxation and the volume of national expenditure. As a matter of fact very little of the expenditure which has called for the increase of taxation is the responsibility of this Government.

May I put this question pointedly to the party opposite. It was put very effectively by my hon. Friend the Member for East Leicester (Mr. Wise). It has been put before, but no answer has ever yet been given from that side of the House. What items of national expenditure would they reduce? If expenditure cannot be reduced, taxation must be imposed to meet that expenditure and until the party opposite can tell us where we can reduce expenditure and point to items either of unnecessary expenditure or of administrative waste, they ought not to complain when we meet by taxation that expenditure which has been approved by Parliament. I hope some responsible ex-Minister will answer that question and will go through the various items and tell us where we ought to have reduced expenditure. Do they suggest the repudiation of the National Debt? Do they suggest a compulsory reduction of the rate of interest upon the National Debt? That is the largest of our items of national expenditure. Do they suggest a reduction in the expenditure upon the fighting forces? There are two items there amounting to nearly five-sevenths of the total expenditure for which we are providing. From their silence, I think we may rightly assume that no reduction could be made upon those two items. Take the social services. Are there any items comprised in the total expenditure on the social services that they say we ought to reduce? Do they suggest that we should reduce the expenditure on Old Age Pensions, upon War Pensions, upon Widows' Pensions, a measure for which they, in the first instance, were responsible? Do they suggest a reduction in the expenditure on unemployment benefit? Where, I ask, can expenditure be reduced, and if they cannot point to where it can be reduced, I ask them this further question. If we are to find the money to pay for the expenditure which Parliament has approved, then comes the question of levying taxation. I was faced with a situation, largely the result of the delinquencies of the previous Government—a deficit of £14,500,000.


£9,000,000 of your own addition!


Not at all. There were not more than about £2,000,000 of that deficit for which we were responsible. We produced savings in administrative expenses of £6,000,000 on the right hon. Gentleman's estimates of 12 months before. The money has to be found. The question at issue between the two sides of the House is, who is to pay? There is a fundamental and unbridgable difference between us. The policy of the Tory party and particularly the policy of the right hon. Gentleman opposite, when they had to meet increased expenditure, was to use that old phrase of their own party, to broaden the basis of taxation. That always means relieving the rich and putting a burden on the backs of the poor. The right hon. Gentleman did a great deal of that during the five years that he was in office.

More than once in the Debate to-day, reference has been made to the fact that the taxation I am imposing falls upon a very small section of the community. That is perfectly true, but one reply to that was given by my hon. Friend the Member for East Leicester. It is that so long as the wealth of the country is concentrated in the hands of a small number of people, it is only there that you can get the taxation. It has been assumed from the other side of the House all through the Debate that those who do not contribute to national taxation by Income Tax pay no taxes at all. As a matter of fact, the non-Income Tax paying section of the community pays to national taxation a sum not very much below the yield of the Income Tax. Customs and Excise Duties raise on an average £240,000,000 or £250,000,000 a year. Of that, about four-fifths will be paid by the people who do not pay Income Tax. Therefore, something like £190,000,000 a year is paid to the national Exchequer by people whose incomes are below the exemption limits. And this notwithstanding that their capacity is infinitely smaller than the capacity to pay of the people on whom I am imposing this additional taxation.

Another point that has been urged repeatedly from the other side to-day is that this is going to increase unemployment. It is a great harden upon industry. It will stifle enterprise. Do those who use that argument mean to suggest that a reduction in the rate of Income Tax would have had the opposite effect? The Income Tax has been reduced in the last seven years or so from 6s. to 4s. in the £. I ask any Member of the party opposite to point to one iota of evidence that this large decrease in the amount of Income Tax had the slightest beneficial effect on trade. As a matter of fact, despite that 2s. reduction in the Income Tax, trade got so bad that the party opposite had to impose indirect taxation in order to hand over £30,000,000 a year as relief to the industries of the country.

And now for a further point. The right hon. Gentleman himself has made it and the hon. and learned Gentleman who moved the Amendment made it. We are increasing taxation while every other country in the world is reducing taxation. Apart from the fact that that statement is not accurate there are plenty of other answers to it. The hon. Gentleman said, and the statement was repeated by others, that Germany is reducing taxation, Germany is not reducing taxation, Germany is increasing taxation heavily and in the last 18 months there has been more than one ministerial crisis in Germany because of the increased taxes which have been proposed. I am amazed that hon. Members opposite should raise the case of France. It almost provokes one to say things which would not be very agreeable. The French Government have reduced taxation by from £12,000,000 or £15,000,000. That is a great deal less than the annual sum that the right hon. Gentleman gave to France at the expense of the British taxpayer. And as has already been pointed out France has repudiated four-fifths of her national debt by the depreciation of her currency, and the German internal debt has been practically wiped out. But there is still a further point. Germany we are told inaccurately is reducing taxation. America, we are told, is reducing taxation, and this is good for trade. There are some 6,000,000 of unemployed in America and over 3,000,000 in Germany. There is no substance whatever in the argument that a reduction in Income Tax would stimulate trade. The report of the Colwyn Committee I had hoped had laid that fallacy for ever.

I will turn to some other things that were said, and first I go back to the point which I tried to make a few minutes ago. Clearly it cannot be denied that increased taxation is necessary. What would the party opposite have done in those circumstances? How would they have raised the money? The ex-Secretary of State for War hinted at one way in the course of a speech which he delivered in the general Budget Debate. He would have followed the example of his right hon. Friend the Member for Epping (Mr. Churchill), I gathered from what he said, and used the money in the Suspensory Account, I suppose, under the same expectation that the right hon. Gentleman had when he reduced the Income Tax in 1925 that trade would improve.


Have you not used the money? [Interruption.] The right hon. Gentleman is using £14,500,000 this year out of the Suspensory Fund and there is only £20,000,000 in it altogether. What is the difference?


There is £20,000,000 in the Suspensory Fund. My point was—I am sorry if I did not make it clear—that the late Secretary of state for War suggested that I ought to have taken the whole of that £20,000,000 in order to avoid a corresponding increase of taxation this year.


That is a very liberal translation of what I said.


I want an answer to my question. The money has to be raised. I am raising it in one way. How would the party opposite have raised it? They would have raised it—it has been said more than once in the course of the speeches this afternoon—by indirect taxation. If the money had been raised in that way would it have had no inimical influence upon trade? It would have amounted to a reduction of the spending power of the people, and therefore to a reduction in the demand for commodities. The right hon. and gallant Member for Tonbridge (Lieut.-Colonel Spender-Clay) gave an illustration of the effect which the increased Income Tax would have upon employment. He said that a man says: "Well, now, this increase of sixpence in the £ is going to cost me £200 a year. I have been thinking of getting a new motor car, but I will not do so. Therefore, there is a loss of employment in the making of the motor car." If that £200 coming into the Exchequer had been thrown into the sea, it is true that there would have been that loss of employment, but that is not the case. It helps to pay war pensions, old age pensions—[HON. MEMBERS: "Doles!"]—and doles—doles which are not spent in buying motor cars. Surely, it not only provides far more employment, but far more socially useful employment. It is better that 100 men representing 100 families should buy 100 pairs of boots than that one man should spend £200 upon a motor car.

Lieut.-Colonel SPENDER-CLAY

Surely, if the money is going to be spent in that way, why did the right hon. Gentleman leave any money to private individuals at all?


The right hon. and gallant Member and I have been friends ever since we entered the House together, but really, with all my respect for him, I should not have given way if I had known that he was going to make an interjection of that kind. The point has been raised more than once that capital will be driven out of the country. That argument has got very long white whiskers. I remember giving evidence before Sir Charles Dilke's Committee on the Income Tax in this House 25 years ago, and I made very modest proposals—that was before the days of the Supertax—and submitted a Super-tax scheme, a graduated Super-tax scheme, and a scheme for the differentiation between earned and unearned incomes. I was questioned in the Committee about driving all the capital out of the country if such confiscatory proposals were adopted, and I remember that the next morning all the Tory newspapers of the country came out with great cross column headings, "Socialist plan of confiscation," "Ruin of the country." There are those who can remember the Budget of Sir William Harcourt. They were very modest Budget proposals, and there was the same old argument that capital would be driven out of the country.

Lieut.-Colonel Sir A. LAMBERT WARD

Has it not gone to some extent?


It has broken up the land.


Not a bad thing. If I were speaking not as Chancellor of the Exchequer but as a private person, I could say a great deal about the social value of Death Duties. We are not discussing Death Duties now, but perhaps I may be allowed to say this in parenthesis. I could say a great deal about the value of Death Duties as a means of bringing about not merely a greater measure of financial equality, but of social equality also. But that is by the way. I have not the exact quotation of what the right hon. Gentleman the Member for Epping once said in reply to this statement about capital leaving the country, but if I may try to paraphrase it, it runs something like this, that they say capital will be driven out of the country. Of what does the capital of the country consist? Land, railways, great buildings, factories, coal mines—that capital cannot be transferred. Indeed, some people might think that it would not altogether be a disagreeable sight to see landowners taking the land on their backs and the capitalists the factories on their backs and leaving the country. This is how the right hon. Gentleman concluded. They cannot take their capital, but the capitalist might go, and perhaps the country would not be the worse for it. But let, us see whether capital is leaving the country. This brings in another argument which was put forward in the course of the Debate this afternoon, that the effect of a large Income Tax and Surtax has caused the export of capital as well as reducing the volume of capital in the country by or through a lack of enterprise. There is an answer to that. There are many answers to it. I will give one. Take the volume of the capital charged to Estate Duties. Compare last year's figure with the figures of preceding years. Go back 10 or 20 years. There is nothing more remarkable in the tendency of our national revenue than the increase of capital paying Estate Duties in recent years. This is remarkable evidence that high taxation, either high Income Tax or other forms of direct taxation, has not, had the result of driving capital out of the country.

The hon. Member for East Aberdeen (Mr. Boothby) made a contribution to this Debate. He stated, as he usually does, with all the authority of official experience behind him, that my Budget proposals had had a very disastrous effect upon the national credit. I suppose that one of the effects of my Budget is the fact that the Bank Rate is down to-day by another half per cent., the lowest figure at which it has stood since the War. [Interruption.] I replied to that point when dealing with the arguments of the right hon. Gentleman the ex-Secretary of State for War. I said that the Treasury exercise no influence whatever over the Bank of England with regard to the Bank Rate. We never do. In fact I did not know—it was reported to me after the announcement had been made to-day—that there was going to be any change in the Bank Rate. What I did suggest was that my dealing with the floating debt had brought about the monetary situation which had made a reduction in the Bank Rate possible. There is not an economist or financier in the country who would not agree with that. The hon. Gentleman talked about conversion proposals which might reduce interest on War Debt by something like £20,000,000 a year. He said that I had missed a favourable opportunity of converting at a low rate of interest. May I tell the hon. Member and all the financial pundits who have been saying the same thing during the last few weeks, that I shall not take his or their advice as to when the opportunity is favourable for a new conversion loan. I shall take that step when I consider that the opportunity is favourable. The hon. Member further said that my financial policy had resulted in a great fall in Government stock. What are the facts? The hon. Member apparently does not know the difference between a stock quoted cum-dividend and a stock quoted ex-dividend. I have here a list of the six principal Government stocks and yesterday, the 30th April, in every case, without exception, those Government stocks stood at a higher figure than they did on the 31st May last year.


Can the right hon. Gentleman give the figures for the new Conversion Scrip and the Funding Loan?


I have not here the figures relating to the new Conversion Loan. One hon. Member said something about my policy being in restriction of credit. Let us test that. Probably the best single test that we can have are the figures of bankers' deposits in the Bank of England. The average figure for the month of April was £65,215,000. A return has been published to-day which shows those deposits to be now about £1,000,000 higher. The figure for April was £2,620,000, or about 4 per cent. better than the figure for April last year.

There is only one further matter arising out of the speech of the hon. Member for East Aberdeen to which I must make reference. I should not have noticed it, had it not been the second or third time that he had made the statement. He said that I had rigidly opposed all the development schemes of the Lord Privy Seal. I will sit down while the hon. Member substantiates that statement.


I observed that the total figure for all the schemes of the Lord Privy Seal, out of a gross total of £847,000,000 in the Budget, amounts to £1,000,000 and some few hundred thousand pounds. That is the total Budget figure we have for all the development schemes and the schemes to cure unemployment. I think it is an inadequate figure.


The hon. Member ought to be ashamed of himself for trying to get out of a statement for which he had not an atom of foundation, by a subterfuge of that sort.


That is all that is budgeted for.


It does not matter for the moment what is in the Budget, what is in the figure of national expenditure; the point is that the hon. Member stated that I had rigidly opposed the Lord Privy Seal's schemes. I ask him to prove that, and I will sit down until he does so.


The right hon. Gentleman might have to sit down for some considerable time. I am not called upon to defend the policy or the lack of policy of the Government. [Interruption.] The right hon. Gentleman has issued a challenge. [HON. MEMBERS: "Withdraw!"] I certainly will not withdraw. We are still waiting on this side of the House to see a single development loan or scheme from the right hon. Gentleman.


If the hon. Member bases his speech on a statement for which he has no proof whatever, then he only makes himself more discreditable. I am not concerned with stating what my policy is but I am concerned with the statement of the hon. Member. He said that I had opposed the development schemes of the Lord Privy Seal.


Up to date you have.


He cannot produce any evidence.


The absence of any schemes.


Will the hon. Member answer my challenge? He has made a statement which is totally untrue, and he has not the manliness to withdraw it. I have dealt with all the points raised in the Debate. The only thing that remains is for me to say that the money has to be raised and that I am raising it in a certain way. I believe that I am raising it in the best way. I believe that I am raising it in a way which will do the least possible injury to industry, and I am raising it from people who can pay it without feeling the pinch of poverty as a consequence. That is my policy, and if I continue in this office those are the canons of taxation and this is the financial policy that I shall continue to follow. They are diametrically and fundamentally opposed to the policy of the party opposite. Reference has been made to the unpopularity of these proposals. I am quite prepared to let the country judge between my financial policy and the policy of the party opposite.


When it falls to the lot of a Member of this House to have to make proposals to Parliament which are necessarily of a serious and disagreeable character, one must, always admire those qualities of mind which enable him to lighten the character of his proposals by the charming and agreeable manner in which he commends them to the House and the country. The right hon. Gentleman has addressed us for nearly an hour. [An HON. MEMBER: "Only half an hour!"] Well, it seemed like an hour. His speech has been devoted to expressing and revealing the deep satisfaction which he has in the functions which he is obliged to discharge, and if anything could equal the satisfaction that he feels in his duties it is his satisfaction with himself. He made a long statement to show how marvellously his financial policy has come to the rescue of our trade, our industry, our finance. By his adroit and far-seeing manipulation of the Floating Debt he has sedulously beaten down the Bank Rate to the level of 3 per cent. He did that all himself. He takes the credit for this episode; it was his own personal achievement. If we were to say at the same time that the unemployment in the country has risen to unprecedented levels, to levels scarcely even achieved after the troubles of 1926, the right hon. Gentleman would say how ludicrously unfair it was to cast upon the Government of the day or upon a single Member of the Government responsibility for results and causes world-wide in their operation, which would have come under almost any administration that happened to be in power. That is the way in which the right hon. Gentleman fortifies himself for his duties. If things go right, he did it himself; it is all his own affair. If things go wrong: "Well, what can you do when world causes are at work against you?"

The right, hon. Gentleman seems to have a great deal of satisfaction about the reduction of the Bank Rate, but there is a school of opinion, which is represented not merely on this side of the House, who consider that it is possible that in his very handling of the Floating Debt he may have aggravated the financial stringency and may have been a discouragement to the starting of enterprise. It is perfectly clear that one of the causes which have led to the remedial event of the reduction of the Bank Rate is the want of enterprise and confidence which prevail throughout the country. I note that the Lord Privy Seal is not laughing. Look at the contrast between the Lord Privy Seal and the Chancellor of the Exchequer; observe it well! The Lord Privy Seal is laughing now. Cabinet loyalty has forced a smile. We consider that the lack of enterprise and the failure in desire to undertake large and important new projects is one of the principal causes, although I do not by any means say the whole cause, of the present state of the money market and of the consequent low Bank Rate.

In the course of his speech the right hon. Gentleman made an unnecessary and an unchivalrous attack upon my hon. Friend the Member for East Aberdeen (Mr. Boothby). My hon. Friend made a remark, which I should have assumed was one on which there would be very little disagreement, namely, that large schemes for dealing with unemployment on broad lines, of which so much was heard from the opposite benches before and during the General Election, had been brought to nothing, or to virtually nothing, by the influence and authority—I do not say whether rightly or wrongly; that is not my argument at the moment—of the right hon. Gentleman and the very powerful Department over which he presides with so much complacency. That was the substance of what my hon. Friend said. [HON. MEMBERS: "No!"] What was there for the right hon. Gentleman to devote a long part of his important statement on the increase of the Income Tax to an attack and challenge to my hon. Friend, taking the most unusual course of the Minister in charge of the House sitting down and waiting for a private Member to substantiate a statement so general that it could not have irritated the right hon. Gentleman had it not had a strong substratum of truth. The right hon. Gentleman then proceeded to say that my hon. Friend's statement was wholly untrue, and he had not the manliness to withdraw it. I remember only a few days ago, when an hon. Friend of mine here was speaking, an insulting taunt was flung at him across the Floor by the Chancellor of the Exchequer himself, then acting as Leader of the House of Commons, responsible for the decorum of its Debates. He, who should set an example, flung this taunt across the House and then so adroitly concealed himself by some obscurity of phrasing and a Ruling of the Chair that he himself had not the manliness nor, I will add, the decency to withdraw.

7.0 p.m.

Our attention in this important Amendment is fully engaged upon the challenging question of the right hon. Gentleman. What items, he said, in the bill of the nation would you reduce? I have argued, and will continue to submit to the House, arguments to show that there was no imperative necessity to impose additional taxation in this present year. That is the foundation of the argument upon which I propose to conduct the criticism of his Budget. If the right hon. Gentleman had not added new expenditure, if he had not added £14,000,000 to the amounts supplied from the Exchequer to the Unemployment Insurance Fund, if he had not consented to a profound relaxation and demoralisation of the conditions under which that fund is administered, if he had not provided additional expenditure of £5,000,000 a year not entirely for improved pensions to widows, but for additional benefits to widows and also for an alteration in the finance of that scheme, and if he had not—though it is the least of his faults—added another £5,000,000 to make up for the deficit of last year in respect of the Sinking Fund provisions of this year, on those heads alone enough money could have been provided to equal the amount for the current year provided by the sixpence he is now imposing on the Income Tax. That is our case—that it might well have been possible to have avoided additional taxation this year.

Surely, it is a very sorrowful plight in which the British nation and the British taxpayers find themselves now. 11 or 12 years after the War the standard rate of Income Tax has to be raised by 6d. It is a very grave event. Even if the right hon. Gentleman made good his case that it was necessary, it would be none the less deplorable to have to raise the standard rate of tax which affects the business community of this country at innumerable points, and which involves the taxation of reserves which will be the subject of a further Amendment. To put that further burden upon us at the present time, we the most heavily taxed country in the world, is not a matter to be discussed in so lighthearted a manner or with such an appearance of zest and gusto as in the speech of the right hon. Gentleman. The right hon. Gentleman in the course of his speech recalled to us the kind of thing, which he used to say not long ago in his pamphlets and speeches, about the bracing effects of taxation on trade and industry. It was very difficult listening to his arguments to see why, if those arguments were sound, if as a matter of fact the more you tax the more the wealth of the country increases, why you should stop here.

He made a slighting reference to the question which the right hon. and gallant Member for Tonbridge (Lieut.-Colonel Spender-Clay) put. It was a question which I should have thought cut to the very root of his position. We are interested to know what are the differences which prevail between the right hon. Gentleman and the party below the Gangway, of whose principles the hon. Member for East Leicester (Mr. Wise) has been the exponent this afternoon. What are the differences? We gather they are important differences, but at what point the line is drawn it is certainly not easy for anyone to say. Why does he draw the line at this point and say he will tax no more? Why does he give this pledge which he has given? Let us ask a few questions about this pledge. It is rather an important point on which, no doubt, the right hon. Gentleman would like to give us some information in the presence of his friends below the Gangway. This is what he said in opening the Budget: So far as I can see … in the absence of unforeseeable calamities or of heavy increases of expenditure. … no further increases of taxation will need to be imposed next year."—[OFFICIAL REPORT, 14th April, 1930; col. 2681, Vol. 237.] What is the meaning of that pledge? After all, the right hon. Gentleman must not, with a cackle of hilarity, pretend that he is going to deceive one side of the House or another. Either he means he is going to keep that pledge, and it is a real assurance to the business men of the country that there will be no further taxation next year, or else he means to insert these very suspicious words "in the absence of heavy increases of expenditure" in order that he shall, as it were, soothe the commercial interests of the country for the time being and yet next year, when the next Budget is to be presented, having consented to some further increases of expenditure, he will be able to make his peace with the hon. Gentlemen below the Gangway. I say that it was a very astonishing pledge for the right hon. Gentleman to give. The question is, are we to put any reliance upon it or not? Will the right hon. Gentleman tell me, for instance, what he means by "in the absence of heavy increases of expenditure"? Will he consider himself absolved from his pledge if, in his capacity of Cabinet Minister, he agrees to some scheme of social reform adding £15,000,000 or £20,000,000 to the expenditure of this country? Will he then feel absolved from his pledge and entitled to impose additional taxation? What is his meaning on that point? Or does he mean that he will not himself consent to increases in expenditure which will lead him to further taxation? Following the right hon. Gentleman's example with my hon. Friend, I will give him a full opportunity to reply.


If the right hon. Gentleman is incapable of understanding plain English words, I am afraid I could not enlighten him.


I think the Chancellor of the Exchequer would have consulted better his interests and his reputation in the country if he had given a more serious answer. He made a most solemn and important statement and pledge, which has been the subject of immense attention both from his own supporters and throughout the country, and he is not prepared to tell us whether he intends to keep that pledge in strictness, or whether he proposes to avail himself of this saving clause about the absence of any increased expenditure in order to make the pledge absolutely worthless. We have a right to know whether he is seeking to trick the traders of this country or the representatives of his party. One or the other is certainly being ill-used and deceived. All the right hon. Gentleman said was that anyone who can understand plain English will know what he means. It is not true. No one in this House knows what it means. The hon. Gentlemen above the Gangway do not know whether he means that he is willing to impose further taxation next year or not, nor do the traders. While he is unwilling to answer that question—not because he could not have answered it, but because he dare not answer it—I say his pledge cannot have any validity or value so far as the trade of this country is concerned.

I am asked how else could the revenues of this country be increased? I believe that if, by taking thought, we were able to avoid further new taxation at the present time, a revival of trade would have the effect of bringing large new areas of taxable capacity into the scope of the Income Tax. I do not know if the right hon. Gentleman has taken the advice I gave him to look at the figures of the great trades in which an immense amount of unprofitable business is being done. If by any means you can get those trades to work and they rise to a profitable level, you would get the £20,000,000 or £30,000,000 without adding a penny to the standard rate of Income Tax. That was the way in which you should have endeavoured to have attacked this problem, instead of, on unnecessary grounds, adding to the burdens already checking and hampering industry. It is not only the burden which is causing, at the present time, resentment and a sense of unfairness. It is the method and the circumstances which have attended its imposition. I, myself, on three occasions, reduced the weight of the Income Tax upon the smaller class of Income Tax payers, but I did not do it at a time when it was necessary to ask from all the other Income Tax payers an enormously increased burden. To ask from the other Income Tax payers very great burdens, and then to narrow the scope of the tax so as to isolate those who are left to pay those burdens, at a time when you are adding to the total burden of the State is, I think, almost unprecedented. There the right hon. Gentleman reveals the spirit of class warfare by which he has been accustomed to gain votes and power in the country.

The question has been raised will his Budget be popular or not? I can quite believe that there are many audiences in this country which would respond with the greatest possible enthusiasm not only to the suggestions which he makes but to those which his friends below the Gangway make. To deprive the Income Tax and Super-tax payers of the whole of their property and hand it over to the unemployed and the poor—that is the proposal which was put forward by the hon. Member for Bridgeton (Mr. Maxton) the other day, and I have not the slightest doubt there are many audiences which would applaud such sentiments. I say that the right hon. Gentleman has left himself absolutely no ground of principle to withstand such arguments; and the case which has been deployed by him to us to-day would cover, if not the immediate transference of wealth, at any rate that gradual steady transfer, until the capitalist classes are entirely eliminated, which was so plainly advocated by the hon. Member for East Leicester in his most soft, purring, sinister, suggestive speech. There is no doubt whatever that the right hon. Gentleman has between him and having to carry out what he is asked to carry out by his supporters, no ground of logic or of reason, but simply the existing remaining force of the governing machine and the resisting power of the great public departments. Can we wonder that trade and industry are anxious and depressed? Can we wonder that the recovery which we are making is so much slower and more painful than that of any other country which emerged victorious or even emerged at all from the Great War?

The effect of the increase in the standard rate, is a melancholy and dismal blow struck at the strength and prosperity of this country. The fact that the tax has been localised upon a small class should be a warning to them all throughout the country of the malice with which they are viewed by those who now wield great power in the State. If it is asked why these new sacrifices, these invidious sacrifices are being demanded, then, let me say that the answer is also one which will justly excite the resentment of the Income Tax payer. We have seen printed on the backs of the Income Tax forms which are sent out, a statement of the expenditure of the country and the means for which this revenue is required. Let the right hon. Gentleman print on the back of his forms, if he is truthful, that more than half of the expenditure of the sixpenny increase on the Income Tax—a large proportion of it at any rate—is required in order that further and better doles may be paid to people who may not even be asked whether they are genuinely seeking work or not [Interruption]. If by any chance, as a result of these new exactions and this heavy burden, a surplus should emerge, then the Income Tax payer is informed beforehand that that will be used to sweep away the existing McKenna, key industry and Safeguarding Duties. As I say, I believe that the right hon. Gentleman has done not only a real injury but a psychological injury also. I believe he will find that in alienating the goodwill of the classes who have been by far the greatest supporters of the revenue of this country and on whose high standard of public and civic duty our revenue so much depends, the right hon. Gentleman has struck a serious blow at the foundations of our finance which it may easily be a very grievous matter to repair in the future.


I am very much distressed at the tone of the speech of the Chancellor of the Exchequer. There appeared to be no sympathy in it for those people who are giving men jobs to-day, and when I made an interruption I stated an obvious truth, that one of the causes of the trouble in the agricultural industry to-day is that there is nobody to finance the farmer. We have been told that the capitalist ought to leave the country. I suppose those who wish that want to see the mills and factories and works of all kinds standing idle. Capital becomes absolutely dead if you have not the men who can guide it, and the country would then be just in the position of a ship the crew of which had mutinied and left it without any officers. That method has been tried in various countries, but has not proved a success. At the end of his speech the right hon. Gentleman said a wise thing when he remarked on the dangers of incurring the ill-will of the Income Taxpayer in such a way that he tries to avoid taxation. Any trader holding a shop in this country could be told how to avoid Income Tax and Super-tax quite easily, and there are a great many concerns in this country which are owned abroad, and those in charge take good care to invoice their goods at such prices that the business in this country makes no apparent profit at all. If we keep raising taxation to a high figure, such practices will undoubtedly become general.

The truth of the matter is that your real capitalist is quite a rare breed. There are not enough of them in this country. Men of that type, if you put them in any country without any resources, would make a fortune in a few years' time. What is the reason why so many hon. Members opposite have no sympathy with employers? I do not believe that half-a-dozen of them have ever given a man a job. They have taken many good men out of jobs but have never given any employment to anybody. If the Income Tax is such a stimulus to industry, why are not the co-operative societies asking to be included in it? Do they not realise how prosperous it would make them? If so, why do they weep tears of blood when it is suggested that they should pay

Income Tax like other people? I am not blaming the Chancellor of the Exchequer, because he has to find the money which the folly of his colleagues and his party has caused him to spend. But I do not agree with him at all that direct taxation is sound. The true taxation ought to be based on what a man spends and not on what, he saves. Savings are capital, and the more thrift there is, the cheaper capital becomes. When I was a young practitioner, if you put money in the bank you got practically nothing for it, because money was so cheap, and everything was done at the minimum price. Houses could be put up on a 3 per cent. basis because there was plenty of capital available, but nowadays money cannot be borrowed to help one of our distressed industries for less than 5 per cent.

If you tax the savings of the people the result will be that there will be no savings; and if you are going to tax even the very rich men who are holding the pool or the reservoir of capital out of which the money for new industries must come, you are doing a very serious thing. The late Lord Dewar said that a man should so live that only the undertaker would be glad when he died. If it is found that the Chancellor of the Exchequer rejoices when one of these men dies, they may conclude that while it is all right to live and pay Super-tax in Britain, it is far too expensive a country in which to die, and capital will very soon evaporate. I would urge not only on the party opposite but on the party on this side of the House that they should give up this continuous bidding for votes in the country, because it is bound to lead to economic disaster.

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

The House divided: Ayes, 255; Noes, 139.

Division No. 265.] AYES. [7.27 p.m.
Adamson, Rt. Hon. W. (Fife, West) Barr, James Bromfield, William
Adamson, W. M. (Staff., Cannock) Beckett, John (Camberwell, Peckham) Bromley, J.
Addison, Rt. Hon. Dr. Christopher Bellamy, Albert Brooke, W.
Alexander, Rt. Hon. A. V. (Hillsbro') Bennett, Captain E. N. (Cardiff, Central) Brothers, M.
Alpass, J. H. Benson, G. Brown, C. W. E. (Notts, Mansfield)
Ammon, Charles George Bevan, Aneurin (Ebbw Vale) Brown, Ernest (Leith)
Arnott, John Birkett, W. Norman Brown, Rt. Hon. J. (South Ayrshire)
Aske, Sir Robert Bondfield, Rt. Hon. Margaret Buchanan, G.
Attlee, Clement Richard Bowen, J. W. Burgess, F. G.
Ayles, Walter Bowerman, Rt. Hon. Charles W. Buxton, C. R. (Yorks, W. R. Elland)
Baker, John (Wolverhampton, Bilston) Broad, Francis Alfred Caine, Derwent Hall-
Barnes, Alfred John Brockway, A. Fenner Cameron, A. G.
Cape, Thomas Kinley, J. Raynes, W. R.
Carter, W. (St. Pancras, S. W.) Knight, Holford Richardson, R. (Houghton-le-Spring)
Charleton, H. C. Lang, Gordon Riley, Ben (Dewsbury)
Chater, Daniel Lansbury, Rt. Hon. George Riley, F. F. (Stockton-on-Tees)
Church, Major A. G. Lathan, G. Ritson, J.
Clarke, J. S. Law, Albert (Bolton) Romeril, H. G.
Cluse, W. S. Law, A. (Rosendale) Rosbotham, D. S. T.
Cocks, Frederick Seymour Lawrence, Susan Rothschild, J. de
Cove, William G. Lawrie, Hugh Hartley (Stalybridge) Rowson, Guy
Daggar, George Lawson, John James Salter, Dr. Alfred
Dallas, George Lawther, W. (Barnard Castle) Samuel, Rt. Hon. Sir H. (Darwen)
Davies, Rhys John (Westhoughton) Leach, W. Samuel, H. W. (Swansea, West)
Day, Harry Lee, Frank (Derby, N. E.) Sanders, W. S.
Denman, Hon. R. D. Lee, Jennie (Lanark, Northern) Sandham, E.
Dickson, T. Lees, J. Sawyer, G. F.
Dudgeon, Major C. R. Lindley, Fred W. Scurr, John
Dukes, C. Lloyd, C. Ellis Sexton, James
Duncan, Charles Logan, David Gilbert Shakespeare, Geoffrey H.
Ede, James Chuter Longbottom, A. W. Shepherd, Arthur Lewis
Edge, Sir William Longden, F. Sherwood, G. H.
Edmunds, J. E. Lovat-Fraser, J. A. Shield, George William
Edwards, C. (Monmouth, Bedwellty) Lowth, Thomas Shiels, Dr. Drummond
Edwards, E. (Morpeth) Lunn, William Shillaker, J. F.
Egan, W. H. Macdonald, Gordon (Ince) Shinwell, E.
Elmley, Viscount MacDonald, Rt. Hon. J. R. (Seaham) Short, Alfred (Wednesbury)
Foot, Isaac MacDonald, Malcolm (Bassetlaw) Simmons, C. J.
Forgan, Dr. Robert Macdonald, Sir M. (Inverness) Sinkinson, George
Freeman, Peter McElwee, A. Smith, Alfred (Sunderland)
Gardner, B. W. (West Ham, Upton) McEntee, V. L. Smith, Frank (Nuneaton)
Gardner, J. P. (Hammersmith, N.) Mackinder, W. Smith, H. B. Lees- (Keighley)
George, Rt. Hon. D. Lloyd (Car'vn) McKinlay, A. Smith, Rennie (Penistone)
George, Major G. Lloyd (Pembroke) MacLaren, Andrew Smith, Tom (Pontefract)
Gibbins, Joseph Maclean, Sir Donald (Cornwall, N.) Smith, W. R. (Norwich)
Gibson, H. M. (Lancs, Mossley) Maclean, Neil (Glasgow, Govan) Snell, Harry
Gossling, A. G. McShane, John James Snowden, Rt. Hon. Philip
Graham, D. M. (Lanark, Hamilton) Mansfield, W. Snowden, Thomas (Accrington)
Graham, Rt. Hon. Wm. (Edin., Cent.) March, S. Sorensen, R.
Gray, Milner Marcus, M. Stamford, Thomas W.
Grenfell, D. R. (Glamorgan) Markham, S. F. Stewart, J. (St. Rollox)
Griffith, F. Kingsley (Middlesbro' W.) Marley, J. Strachey, E. J. St. Loe
Griffiths, T. (Monmouth, Pontypool) Marshall, Fred Strauss, G. R.
Groves, Thomas E. Mathers, George Sullivan, J.
Hall, F. (York, W. R., Normanton) Matters, L. W. Sutton, J. E.
Hall, G. H. (Merthyr Tydvil) Melville, Sir James Taylor, R. A. (Lincoln)
Hamilton, Mary Agnes (Blackburn) Messer, Fred Taylor, W. B. (Norfolk, S. W.)
Hamilton, Sir R. (Orkney & Zetland) Milner, Major J. Thorne, W. (West Ham. Plaistow)
Harbord, A. Montague, Frederick Thurtle, Ernest
Hardie, George D. Morgan, Dr. H. B. Tinker, John Joseph
Harris, Percy A. Morris, Rhys Hopkins Viant, S. P.
Hartshorn, Rt. Hon. Vernon Morris-Jones, Dr. J. H. (Denbigh) Walker, J.
Hastings, Dr. Somerville Morrison, Herbert (Hackney, South) Wallace, H. W.
Hayday, Arthur Morrison, Robert C. (Tottenham, N.) Wallhead, Richard C.
Hayes, John Henry Mort, D. L. Watson, W. M. (Dunfermline)
Henderson, Arthur, Junr. (Cardiff, S.) Moses, J. J. H. Watts-Morgan, Lt.-Col. D. (Rhondda)
Henderson, Thomas (Glasgow) Mosley, Lady C. (Stoke-on-Trent) Wedgwood, Rt. Hon. Joslah
Henderson, W. W. (Middx., Enfield) Muggeridge, H. T. Wellock, Wilfred
Herriotts, J. Murnin, Hugh Welsh, James (Paisley)
Hirst, G. H. (York, W. R., Wentworth) Naylor, T. E. Welsh, James C. (Coatbridge)
Hirst, W. (Bradford, South) Oldfield, J. R. West, F. R.
Hoffman, P. C. Oliver, George Harold (Ilkeston) White, H. G.
Hopkin, Daniel Owen, Major G. (Carnarvon) Whiteley, Wilfrid (Birm., Ladywood)
Horrabin, J. F. Palin, John Henry Wilkinson, Ellen C.
Hudson, James H. (Huddersfield) Paling, Wilfrid Williams, David (Swansea, East)
Hunter, Dr. Joseph Palmer, E. T. Williams Dr. J. H. (Llanelly)
Hutchison, Maj.-Gen. Sir R. Perry, S. F. Williams, T. (York, Don Valley)
Jenkins, W. (Glamorgan, Neath) Peters, Dr. Sidney John Wilson, C. H. (Sheffield, Attercliffe)
John, William (Rhondda, West) Pethick-Lawrence, F. W. Wilson, R. J. (Jarrow)
Johnston, Thomas Phillips, Dr. Marion Winterton, G. E. (Leicester, Loughb'gh)
Jones, F. Llewellyn- (Flint) Picton-Turbervill, Edith Wise, E. F.
Jones, Morgan (Caerphilly) Pole, Major D. G. Wood, Major McKenzie (Banff)
Jones, T. I. Mardy (Pontypridd) Potts, John S. Young, R. S. (Islington, North)
Jowett, Rt. Hon. F. W. Price, M. P.
Jowitt, Rt. Hon. Sir W. A. Quibell, D. J. K. TELLERS FOR THE AYES.—
Kennedy, Thomas Ramsay, T. B. Wilson Mr. Allen Parkinson and Mr.
William Whiteley.
Actand-Troyte, Lieut.-Colonel Baldwin, Rt. Hon. Stanley (Bewdley) Bird, Ernest Roy
Albery, Irving James Balfour, George (Hampstead) Boothby, R. J. G.
Allen, Sir J. Sandeman (Liverp'l., W.) Balfour, Captain H. H. (I. of Thanet) Bourne, Captain Robert Croft
Amery, Rt. Hon. Leopold C. M. S. Beamish, Rear-Admiral T. P. H. Bracken, B.
Ashley, Lt.-Col. Rt. Hon. Wilfrid W. Beaumont, M. W. Brass, Captain Sir William
Astor, Maj. Hn. John J. (Kent, Dover) Bennett, Sir Albert (Nottingham, C.) Buchan, John
Atkinson, C. Bevan, S. J. (Holborn) Butler, R. A.
Cadogan, Major Hon. Edward Haslam, Henry C. Roberts, Sir Samuel (Ecclesall)
Carver, Major W. H. Henderson, Capt. R. R. (Oxf'd, Henley) Rodd, Rt. Hon. Sir James Rennell
Cattle Stewart, Earl of Heneage, Lieut.-Colonel Arthur P. Ross, Major Ronald D.
Cautley, Sir Henry S. Hennessy, Major Sir G. R. J. Ruggles-Brise, Lieut.-Colonel E. A.
Cayzer, Sir C. (Chester, City) Herbert, Sir Dennis (Hertford) Russell, Alexander West (Tynemonth)
Cecil, Rt. Hon. Lord H. (Ox. Univ.) Hills, Major Rt. Hon. John Waller Salmon, Major I.
Chamberlain, Rt. Hon. N. (Edgbaston) Horne, Rt. Hon. Sir Robert S. Samuel, A. M. (Surrey, Farnham)
Churchill, Rt. Hon. Winston Spencer Howard-Bury, Colonel C. K. Samuel, Samuel (W'dsworth, Putney)
Courtauld, Major J. S. Hudson, Capt. A. U. M. (Hackney, N.) Sandeman, Sir N. Stewart
Cranborne, Viscount Hurd, Percy A. Savery, S. S.
Croft, Brigadier-General Sir H. Hurst, Sir Gerald B. Shepperson, Sir Ernest Whittome
Croom-Johnson, R. P. James, Lieut.-Colonel Hon. Cuthbert Simms, Major-General J.
Culverwell, C. T. (Bristol, West) Jones, Sir G. W. H. (Stoke New'gton) Skelton, A. N.
Dalrymple-White, Lt.-Col. Sir Godfrey Kindersley, Major G. M. Smith-Carington, Neville W.
Davidson, Major-General Sir J. H. King, Commodore Rt. Hon. Henry D. Southby, Commander A. R. J.
Davies, Dr. Vernon Knox, Sir Alfred Spender-Clay, Colonel H.
Davies, Maj. Geo. F. (Somerset, Yeovil) Lamb, Sir J. O. Stanley, Lord (Fylde)
Davison, Sir W. H. (Kensington, S.) Lane Fox, Col. Rt. Hon. George R. Stanley, Maj. Hon. O. (W'morland)
Dawson, Sir Philip Leighton, Major B. E. P. Thomson, Sir F.
Dixey, A. C. Lewis, Oswald (Colchester) Tinne, J. A.
Dugdale, Capt. T. L. Locker-Lampson, Rt. Hon. Godfrey Titchfield, Major the Marquess of
Edmondson, Major A. J. Macdonald, Capt. P. D. (I. of W.) Tryon, Rt. Hon. George Clement
Elliot, Major Walter E. Macquisten, F. A. Turton, Robert Hugh
Erskine, Lord (Somerset, Weston-s. M.) Marjoribanks, E. C. Vaughan-Morgan, Sir Kenyon
Ferguson, Sir John Meller, R. J. Wallace, Capt. D. E. (Hornsey)
Fermoy, Lord Merriman, Sir F. Boyd Ward, Lieut.-Col. Sir A. Lambert
Ford, Sir P. J. Monsell, Eyres, Com. Rt. Hon. Sir B. Wardlaw-Milne, J. S.
Forestier-Walker, Sir L. Morrison, W. S. (Glos., Cirencester) Warrender, Sir Victor
Fremantle, Lieut.-Colonel Francis E. Morrison-Bell, Sir Arthur Clive Wayland, Sir William A.
Ganzonl, Sir John Muirhead, A. J. Wells, Sydney R.
Gault, Lieut.-Col. Andrew Hamilton Newton, Sir D. G. C. (Cambridge) Williams, Charles (Devon, Torquay)
Gilmour, Lt.-Col. Rt. Hon. Sir John Nicholson, Col. Rt. Hn. W. G. (Ptrsf'ld) Wilson, G. H. A. (Cambridge U.)
Grace, John Nield, Rt. Hon. Sir Herbert Windsor-Clive, Lieut.-Colonel George
Graham, Fergus (Cumberland, N.) O'Neill, Sir H. Withers, Sir John James
Grattan-Doyle, Sir N. Peake, Capt. Osbert Womersley, W. J.
Guinness, Rt. Hon. Walter E. Peto, Sir Basil E. (Devon, Barnstaple) Worthington-Evans, Rt. Hon. Sir L.
Gunston, Captain D. W. Pilditch, Sir Philip
Hacking, Rt. Hon. Douglas H. Ramsbotham, H. TELLERS FOR THE NOES.
Hamilton, Sir George (Ilford) Rawson, Sir Cooper Captain Margesson and Sir George
Hammersley, S. S. Reynolds, Col. Sir James Penny.
Harvey, Major S. E. (Devon, Totnes) Richardson, Sir P. W. (Sur'y, Ch'ts'y)

I beg to move, in line 6, at the end, to insert the words: Provided that in the case of reserves of public companies income tax shall continue to be charged as if the standard rate were four shillings in the pound. This raises the question of Income Tax on the reserves of public companies, and I admit that the Amendment, even if it were accepted, would bring only a small relief. The real purpose with which the Amendment is moved is to enable us to hear, before the time for the Finance Bill arrives, the opinion of the Government upon this subject, and not, I must confess, in any hope of the Chancellor accepting it. Optimist as I am, my hopes do not run higher than the very modest one that I may be able to fulfil my duty this evening without engendering that heat which these Budget Debates have tended to engender, and looking at the Front Bench opposite, as it is now constituted, I am even confirmed in that hope. During the last three hours we have been discussing the very much wider question of the effect of direct taxation, and of Income Tax in particular, on industry as a whole, and we have had for that purpose to deal with rather imponderable subjects, but this Amendment raises the question in a much smaller, more compact, and more direct form, namely, the question of the effect of direct, taxation on industry as it can be seen in its action in the reduction of reserves.

There is quite an arguable case that Income Tax of itself has a direct effect on industry. The right hon. Gentleman quoted the Report of the Colwyn Committee in an opposite sense, but he knows, I am sure, that evidence was given before that Committee by a gentleman of great reputation that Income Tax did form part of the computed cost of production, and that therefore an increase in Income Tax meant an increase, not in the actual cost of production, but in the assessed cost which a manufacturer arrived at before he quoted the price of his article, and in that way had a direct effect. Be that as it may, there is no question at all that the action of direct taxation and of Income Tax in diminishing the amount of reserve which is put aside by a company year by year must have a direct effect upon industry. This is a question which has been raised a good many times before, and there is nothing novel in it, but what is novel is the circumstance under which it is raised to-day, the circumstance that for the first time since the War we are facing a situation when the Chancellor of the Exchequer is not minimising but aggravating the ill effects of this form of taxation, and When he is not increasing but depleting the pool of profit which is available to go to the reserves of the companies.

What are the main arguments against this taxation of company reserves? In the first place, I claim that this form of Income Tax is entirely outside the scope of the original intention of the Income Tax Acts. The Income Tax is supposed to be a personal tax. The right hon. Gentleman the Chancellor of the Exchequer, speaking only an hour ago, referred to it the whole time as a tax upon the people who were best able to bear it, upon the people who could pay it without feeling the pinch, upon the rich who would only have to sacrifice a motor car. It is a tax on the individual and the motley he receives. A tax on the reserves of a company is a tax on a corporation, a tax on a company, a tax on money which the individual shareholder of the company may never receive in his life.

Secondly, Income Tax is in principle a tax on ascertained income. It is not just a rough calculation of what a man might make if he worked harder, or some computation of his profit-making capacity; it is in fact a tax on the actual income that he draws year by year. It is true that, through the methods of collection, we have to send in our returns at an early date, but those returns are based on a computation of what we are going to make during the year. In fact, taking it over the whole period of a man's payment of taxation, he pays Income Tax only upon the income which he actually receives; but this tax upon company reserves is an entirely different thing, because the amount put to the reserve of a company is not an income to the individual shareholder.

The most you can say of it is that it represents a possibility of increased profits in the future, but it is a possibility which may quite easily be upset. For instance, a company might put aside in one year £500,000 to reserve, and on that £500,000 it would pay Income Tax. They might subsequently use that sum in the introduction into their factories of some new forms of machinery, in the expectation that it would prove profitable, but they might find in fact that they had been wrong, that it did not increase the profits, and that the whole of that money was lost. You would find therefore that the individual shareholder would never in fact participate in one penny of that £500,000, although the State had drawn Income Tax upon it as if it had formed part of a man's individual profits.

The truth is that this taxation of company reserves is a matter of collection. It is adopted simply because it is the easiest and simplest way of getting the money, not because it is the best way of levying the tax; and although, of course, we all sympathise with the desire of successive Governments to raise the necessary taxation with the minimum of expense and trouble; yet if it is really, as I believe it to be, a question of machinery, if you are faced on the one hand with this question of machinery and on the other with what I believe to be a real and undisputed hardship to the industries of the country, it is obvious that the one that ought to go to the wall is the machinery and not the industry.

How great is the hardship which this taxation of company reserves puts on the industries of the country? No one, I think, will deny, in the first place, the importance of adequate reserves being maintained by industrial companies. It seems to me that there are three things which make these adequate reserves essential. They are needed, first of all, for the year-to-year renewal of your machinery and the year-to-year repairs to your factories; they are needed, in the second place, in anticipation of developments for the future; and, thirdly, they are required as a stabilisation fund, from the point of view of the rewards in the future both for capital and for labour. With regard to the first, the question of the year-to-year requirements for the wear and tear on your industry, that, theoretically at least, is provided for in the depreciation allowance which the Treasury gives to the industry, the amount which the company is allowed to write down on its factories and machinery and count as part of its annual expenditure for the purpose of Income Tax. Although I do not want to develop that point, hon. Members would find a general consensus of opinion among those responsible for the conduct of industry that the amount allowed for depreciation year by year for machinery and for factories is on too low a scale.

The effect of that is extremely unfortunate. Although there is no compulsion, the psychological effect of the Treasury fixing an amount which the industrialists can write down without that becoming liable for Income Tax is to make the industrialists regard that amount as the proper one for depreciation which should be provided year by year. Therefore, you have the position that the amount of depreciation in a company is being fixed every year, not by someone in the industry who would wish that the depreciation should be as big as possible, so as to make it easy for industrialists to scrap old machinery and replace it with new, but by people who are responsible only for taxation and whose interest it is to fix the depreciation as low as possible. It is the fact that this depreciation is so low that part of the year-to-year renewals have to be met out of the general reserve of the company which is subject to Income Tax.

There are few companies to-day in a satisfactory position who do not look forward to a wider and wider expansion, to new developments, to large additions. All these require capital, and they can only be financed either by the savings of the company or by going to the investing public. The cheapest of the two ways is by financing, as far as possible, from the savings of the company itself. The right hon. Gentleman has made that the more necessary in the last few days, because he has made it more difficult for a company to go into the open market and there get the money. The increase of direct taxation has reduced the fund available for investment. He has also made it dearer, in the long run. Everyone who has followed the normal investment rate in the last few years must be struck with the rise from the pre-War days in the rate that is expected of money. It is almost the same as the rise which has taken place in the incidence of direct taxation. There is a large number of people who believe that capital will be found to insist on a normal return and that that normal return will be demanded irrespective of what Income Tax is put upon it, and, therefore, that that Income Tax will have to be added to the rate demanded for its services.

Thirdly, comes the question of stabilisation. It is essential that a large company should maintain a reserve capable of carrying it through the difficult times ahead, something on which it can fall back. If you get a fall in commodities such as we have had in the last few months, there is nothing out of which it can meet the consequent loss. It is only the stabilisation of reserves that will enable the company to give regular employment in good and had times, and without that reserve any sharp reaction in trade will result in the company closing down, for it cannot carry on without reserves during bad times, and give to the shareholder adequate dividends and to labour a fair rate of wage. There is not much dispute regarding the necessity of retaining these high reserves.

What is the effect of this Income Tax being levied upon these reserves? You have to-day a pool of profit available for distribution either as dividends to shareholders or as reserves for the company. Before you decide in what ratio you are going to make that division the Income Tax authorities come along and take nine-twentieths of that sum. I leave out the case of a company on the borderline, which is just making a small profit, because it is obvious there that the whole of that taxation has to be paid out of what would have been put to reserve. I leave out the fewer cases where a company is so prosperous it can well pay taxation and give an adequate return to the shareholders. Larger bodies find themselves in the position of having to choose whether, in the payment of this taxation, they will reduce the amount which should go to reserve or the amount which they wish to go as dividends to shareholders. Hon. Members may say that all they have to do is to put to reserve the exact amount, taxed or not taxed, and let the Income Tax for the whole lot fall on the shareholders in the form of a decreased dividend. The result of that would be a great inequality between shareholders, for the whole of that tax burden is borne by the holders of ordinary stock. The holders of prior issues have a guaranteed dividend. They enjoy increased security because of this amount that has been put to reserve. No part of the Income Tax can be extracted from their dividends, but only from the ordinary shareholders. You are, in fact, discouraging exactly those investors whom you have to encourage if you wish to maintain the capitalist system. They are a class who do not depend on a guaranteed income, but who come in as co-partners and share in the risks of business. It is penalising them for the sake of the holder of the prior securities.

Of course, in the case such as I am quoting, where the amount of distribution is not large, the company is averse to reducing the dividend to an amount below the normal rate of profit which could be expected in such a class of enterprise. It is not a good advertisement for any industry for it to have a bad market reputation, to be reducing its dividend, to see its shares standing at a large discount. Secondly, you have to remember that big developments may force it sometimes to go into the market for fresh capital, and, unless it has earned a good reputation and pays its shareholders a normal return upon the money invested, its hopes of obtaining fresh capital in the open market is a bad one. Therefore, you have these factors working against this company when it goes to this division, and it means, in many instances, that an easy way out is taken and an insufficient amount is put to reserve. You have also the other and clearer case where the profit is not big enough to pay dividends and ought to have been put to reserve and nine-twentieths is taken instead by the State.

I do not know who will reply to this Amendment, but I anticipate the arguments which will be made against it. The argument against the proposition of leaving a company's reserves free from Income Tax will be two-fold: First of all, the financial one, the amount it will cost, and, secondly, the question of machinery. The financial argument—the question of how much it will cost—is, I think, a very dangerous one in the mouth of the hon. Gentleman who will reply. It must not be forgotten that the amount of financial loss which will be entailed by the alteration of this system is the exact sum of the injustice which this system is doing. The other question is that of machinery. It is, I know, a difficult thing to exempt these reserves of companies without opening the door to the invasion of taxation, which no one in any part of the House desires to see. I believe that the right hon. Member for Epping (Mr. Churchill) was approached on similar lines, and he found himself unable to devise machinery which would leave the revenue unimpaired by evasion. I do not suppose that the present Chancellor of the Exchequer would be impressed with that. He is not the man to believe that what someone else has found impossible he cannot do. It is, in fact, a direct challenge to him to show that he can.

8.0 p.m.

I must admit that I am not such a special expert on the machinery of taxation as to know whether or not such a system could be devised, but there is an alternative, and I want to ask the hon. Member, or the right hon. Gentleman, these two questions. First of all, what is the Government's view of the effect of this taxation of reserve? Do they believe, as we believe, and as most people in business believe, that it is unfair and prejudicial and imposes—whatever you may think about the ordinary effect of direct taxation, of the Surtax, or the Death Duties, and so forth—a direct burden on industry, and imposes a burden which is heavier the more efficient and the more economic and the more cleverly business is run. The more that is put to reserve the more the tax that is collected. If they believe, as I think they do, that this taxation of reserve is injurious to industry, then I should like to know what are the difficulties of machinery Are these so great that we have to abandon any hope of their being overcome? Are they not difficulties which a little care and risk may overcome? Must we put out of our mind the possibility of exempting reserves from taxation under the present system? If the hardship is a very great one and if machinery for remedying it is impossible, then we are forced to consider whether there is not an alternative system which, despite these disadvantages, we ought to adopt to get rid of this difficulty. If you compare the system in America, you will find that the burden placed on money in reserve is just about half in proportion to the burden which is put upon the company in this country. They have adopted there the principle of the normal tax—the Corporation Tax which is levied like it is here. That normal tax is kept on a low level. It is, I think, something like 11½ per cent., whereas in the reserves of companies in this country it is 22½ per cent. It may be that, if this grievance is a very real one, we shall have to consider some such system, some reduction of the Income Tax to a much lower level similar to that of the normal tax in America and the drastic lowering of the income which would be liable to Surtax. You might then get the effect of partially, at least, exempting reserves of companies from this taxation. I should be very grateful if I could hear from hon. Members opposite what are their views as to the effect of this taxation, and what is the possibility of remedying the grievance under the present system of dealing with it.

In conclusion, I hope that it will be found possible, quite apart from party considerations, to do something sooner or later. Probably it cannot be this year. We do want in these days of rapid capital development, of the necessity of large expenditure, to encourage thrift in the one place where thrift is possible, and that is in the company itself. You make saving almost impossible for the individual. I believe it would be a far greater incentive to industry. It would hold out far more hope if they could be told that any surplus which the next Budget will show would be used for the relief to them of a burden of this kind, instead of telling them that any possibility of a reduction of taxation in the next few years is already earmarked for the withdrawal of the McKenna Duties and other allied duties. I hope that the hon. Gentleman will be able to give us something in the future as a result of this discussion.


I beg to second the Amendment.

I propose to keep the House a very few minutes, because of the exhaustive explanation given by the Mover of the case he wished to put. In raising this Amendment in its present form, it is obvious that the advantage of 6d. in the £ on the Income Tax could not have the desired results. I imagine that it would either be necessary to absolve money put to reserve by companies, or, at any rate, do something really adequate such as allowing them to pay half tax. I do not see why the revenue should be the loser by it in the long run. One of the objections would be that from time to time companies capitalise reserves and issue bonus shares to shareholders. We all know that is done, but I do not see any reason why the law should not be so drawn that on any distribution of reserves the Income Tax should become payable.

There is another aspect of this case. In past times, most of the big businesses in this country and other countries were carried on by private firms. To-day every big business is carried on by limited company. There was always the special inducement in the case of private firms to build up reserves in their business, and they could not unduly distribute profit. After all, the partners in a private firm had a personal liability for the solvency of that firm. That is not the same with limited companies. That liability was in itself a strong inducement to go cautiously and keep money in hand against unforeseen difficulties. To-day many well-known companies follow similar lines, but a great many do not, and it certainly would be a great inducement, and mould make for greater stability, if companies could really be encouraged to put more money to reserve and build up strong financial positions. Another thing which might also be borne in mind is that from time to time, very often following a period of bad trade, a period of stringency, when the money market is difficult and the rates of interest are high, a company has had to raise fresh capital perhaps to replace plant, and tide itself over to a better period of trade. During a time like that, to raise money by debentures, mortgages or preference shares is a very difficult operation. The high rates of interest tell not only on the ordinary shareholders, but are a charge upon industry, and also, to some extent, a charge upon the workers in that industry. I submit that it is just as much, perhaps even more, in the interest of the workers that anything that can be done to ensure better stability of the company industry of this country should be done, and I hope that this matter will be given very careful consideration. I hope, when the right hon. Gentleman replies, he will give us an assurance that it will be carefully looked into and explored, so that something may be done next year.


This proposal is one that has often been considered, but I do not think the point in its favour has been more favourably put than by the Proposer. One of the principal wants of our basic industries is want of reserves. The hon. Member for Lichfield (Mr. Lovat-Fraser) some time ago urged, and a leading man of my own party in the "Times" some weeks ago made a brilliant contribution urging that what was wanted was to bring plant up-to-date. They spoke of modern methods and made various other criticisms of that kind, and they did not know anything about it. One was a peer and the other was a lawyer. If they had only known what a difficult thing it is to run a business prosperously. It is all very well if you are a mere salesman. You just give them a good dividend. One gentleman, when he was urging that co-operators had no profits, and was asked what about dividends, explained that dividends were the amount which they overcharge their customers. What our basic industries need is more funds for development, and, under the present system of taxation, they have the greatest difficulty in accumulating such funds. The allowances for depreciation are quite contemptible. You cannot really build up a fund for the renewal of plant; it is impossible. In a wasting asset like mines it is almost negligible.

What is the principal strength of some of our leading companies? Take the silk company of Messrs. Courtauld. It is the enormous resources and reserves they have in the United States that have enabled that company to weather the Chancellor of the Exchequer and to stand up to his attacks upon them. Yet hon. Gentlemen opposite do not know that the entire profits of Messrs. Courtauld are appropriated by His Majesty's Government. All the profits made by that great concern go to the Chancellor of the Exchequer. The huge works are carried on for the benefit of the taxpayers in this country. Not one penny returns to their shareholders except the amount that comes from the United States. It is a good thing to see something coming to this country from the United States. It is because they have these reserves that they are able constantly to develop and renew their machinery and take up the latest possible models and make continual improvements.

This is not a new proposal, because it is recognised in Holland, where taxation on limited companies is imposed only on the dividends that they pay. Everything that goes to reserves is free of taxation. Nothing at all is taken off, because the Dutch, being a very sage people, realise that there is nothing more necessary for the development of their industries and the employment of their people than that commercial companies should be encouraged to save money for that purpose. So they say, "That which you hand out as dividends must be taxed, but whatever you retain for the purpose of strengthening your business, and securing that it shall stand through times of bad trade, will not be taxed." Take the business of gold mining. There is nothing more essential than that a gold mining company should have very large reserves, because ever and anon it may get into bad country, but if they spend without putting by for reserves, the time comes when they get into a tract of bad country. Unless they have funds to carry on, they cannot go back to their shareholders, so somebody comes in with fresh capital, buys out the undertaking for a song, drives a few feet in one or two directions, and finds another El Dorado.

I have seen that happen in case after case within my personal knowledge. A thriftless board of directors yield perhaps to the clamour of one or two people instead of taking the wise and sage course of going right ahead, developing and strengthening the concern. I have seen spendid enterprises that had to be given up because there was not the capital with which to develop them. The reason was that they had taxation to pay and there were people who were clamorous for their money. Our basic industries were not only subject to Super-tax, but to Excess Profits Duty during the War, when they might have been piling up large reserves. They made considerable profit in spite of that, but the slump came in March, 1920. I was warned by a far-seeing man in December, 1919, that it would come in June. How he knew, I do not know, but he told me, and I was much obliged to him for the information, because it enabled me to get out. The crash came, and any number of our basic industries have never lifted up their heads since, because they have not the reserves necessary, and they cannot get them if they are to be taxed and nine out of every 40 sixpences is to go into the maw of the Treasury.

The proposal in this Amendment ought to be given effect to. I do not believe that it is impracticable. The figures put into reserves are perfectly easily ascertained, for they appear in every balance sheet. There was a provision in the 1927 Budget that extravagant sums put to reserves for the purpose of avoiding taxation can be questioned. A company is given the right to consult the Inland Revenue beforehand what is the proper sum to put to reserve, and the Revenue is protected against grotesque sums being put down. The best possible thing that could happen for industry is that the great corporations, which are the principal employers of labour in this country, should be encouraged to build up as large reserves as possible in order to secure their permanence and stability.


The House is obliged to my hon. and gallant Friend for having brought up this matter, which is of immense importance to-day to all who are interested in trying to see the recovery of our industry, which is the one thing which gives employment. This is not a matter which should acrimoniously, or indeed at all, divide the two sides of the House. The question of the capital reserves of industry is not a question of whether we should have the private capitalistic system, which so many hon. Members opposite deplore, and of which they hope soon to attend the obsequies. Whether the State be the controller or private enterprise be the controller, the provision of capital with which to run industry is absolutely essential. This Amendment deals with the whole question of what is often called the life-blood of industry, that is, capital and the constant renewal of capital.

Those whose lives have been spent in the position of weekly wage-earners in industry find that the situation which they occupy is bound to be separated from these larger considerations which keep the industry going. They do not realise that nothing can stand still, and that the business must be constantly renewed or expanded if it is not to shrivel or disappear. That not only applies to the provision of necessary reserves, but to that side of business activity which performs certain vital functions in connection with the constant renewal of the life-blood. Anyone who is trying to test the soundness of a business, and the business-like ability of those who are responsible for its conduct, look upon two things—first at its dividends and profit-earning capacity, and then at the reserves of the company. When we speak of a company which is in a strong position and is soundly and conservatively conducted, one looks at once to see what is the policy of the directors in regard to the reserves. Why is that the test? In the first place, there is the ordinary wear and tear, for which the statutory provision is grossly inadequate, and then there is the question of what comes under the heading of renewals.

The cry in industry to-day is rationalisation. The criticism is made that our industrial leaders are not up-to-date with the latest developments in the best type of modern inventions and machinery, such as will increase output either with a less labour cost, or with less arduous labour on the machines. That is one of the advantages which a country with a system of taxation such as that of the United States has over us. I know that from personal experience in the industry in which I have been engaged for many years. It is an industry which has to keep abreast of the times by adopting new inventions and by scrapping machines which, although they may have a long life of efficiency in them, have become out-of-date through the invention of something better.

The normal attitude taken up on this question is to say, "What are the savings I can make by scrapping existing machines and putting up new ones? How many years purchase does that represent?" If we have a system of heavy taxation on reserves, that introduces a further calculation, and it becomes difficult to decide whether it is better to continue with the existing and obsolete machinery or to replace it, owing to the tax which has already been paid on the reserves put by to provide for the replacement of machinery. If we are to believe that there is anything in rationalisation, and that the best way of reestablishing industry is to keep ourselves abreast of scientific and other developments, it is a short-sighted policy on the part of any Government to take the course we are now pursuing. I am not particularly criticising the present Government, because we are now debating this matter from a national and not from a party point of view; it is the duty of any Government to consider very carefully whether the method we have followed for so many years is calculated to encourage those developments in industry which we must regard as so desirable.

Another consideration comes into this question of the provision of reserves. The one job-giving institution in this country is its industry. What is it the hundreds of thousands of unemployed people want? Not doles, but jobs; and they get their jobs from industry. If we are to keep abreast of the demands arising from our normal growth of population, not only must our obsolete machinery be constantly replaced by new inventions, but there must be a constant process of development, whether in the growth of existing industries or the starting of new industries, such as the artificial silk industry. In order to do this any company, any body of people, any Government, if you like, must have the necessary capital funds, and the best thing for art existing company to do is to provide that fresh capital from its own resources. It is an expensive operation to go to the investing public for additional capital. Costs are incurred and there is always the risk of underwriters being left with a certain amount of stock; therefore, a successful concern ought to look first of all to the building up of capital reserves. If we have a system of taxation which deliberately penalises this process in industry we are following a short-sighted policy.

I realise the difficulties which have faced Governments in many countries when they have sought to levy appropriate taxation on the profits of industry and to prevent dodging devices under which profits which are really distributable profits are put aside for a period of years and eventually given to the sharholders as a stock bonus. But there are two sides to that question. I myself have been connected with a company which more than quadrupled itself and never paid a dividend for 20 years. When it paid its first modest 2½ per cent. It was no longer a company producing 750 tons of sugar per annum, it was producing something like 10,000, 12,000 or 15,000 tons. The company had given an enormous amount of employment, paid an enormous sum in taxes, and paid enormous sums to transportation companies, insurance companies and the like. It may be said that the profits ought to have gone to the shareholders in the way of dividends, but the money went back into the industry and was ultimately distributed in the way of stock bonuses. There was not a single drop of watered stock in the company. The reserves had been built up and were finally capitalised; the plant was there. That process is common in industry all over the world. Companies build up capital reserves so that they may not have to go into the public money markets, so that they may always have a fund, like the camel has his hump, ready for any emergency. To penalise this process by taxation is further to handicap our people in their efforts to bring about the expansion of industry and to provide further employment. I am no more optimistic than my hon. and gallant Friend that this Amendment will be accepted, but when occasions arise on which we can discuss the effects of taxation upon industry it is well worth while for hon. Members, many of whom have greater experience than I have in these matters, to take into serious consideration whether we are following the wisest course in laying heavy imposts upon what should be the lifebuoy of industry.


As a justification of this increase of 6d. in the £ on the Income Tax, we have been told that it will not impose any special tax on industry. The Chancellor of the Exchequer has said that the burden will fall upon taxpayers who will be able to bear it without sacrificing anything more than luxuries. That argument does not apply, however, to the extra 6d. of Income Tax levied upon the money placed to reserves by industrial companies. It is a tax directly upon the capital, upon the life-blood, on which a company depends. What is the principal source of the revenue from profits which the Exchequer now enjoys? The right hon. Gentleman the Member for Epping (Mr. Churchill) spoke of the vast number of our great productive industries which are below the profit making level and make no contribution whatever to the total of the Income Tax. There is one branch of the trade of this country, namely, the retail trade, which is undoubtedly making very large contributions through the Income Tax to the revenue, in fact the retail trade is far and away the greatest Income Taxpaying section of the community. How is the retail distributing trade being treated under this taxation? At the present time, the Chancellor of the Exchequer proposes to charge on every pound placed to reserves for developing business and acquiring new businesses a charge of an additional 6d. in the £. At the same time there is a very large body of retail traders in the country who can place to reserve any amount of money they like, without paying any Income Tax. That applies to the co-operative trade of the country. When you raise taxation upon one portion of the retail trade of the country, it immediately brings up this question of the monstrous unfairness of allowing sums to be placed to reserves by co-operative societies without any payment of tax, because by that method you are only increasing the burdens of that part of the retail trade which has to compete with co-operative societies, and which has to pay this tax. No doubt I shall be told that this is an important question from the point of view of revenue collection, but it is simply killing the goose that lays the golden eggs.

The co-operative trade of the country to which I am referring has an annual turnover of about £300,000,000, and it places to reserve every year, without paying any Income Tax, over £2,000,000. Quite recently we have had a Royal Commission dealing with this question, and its principal recommendation was that the income derived from invested reserves, irrespective of the particular mode of investment, should be subject to taxation. That recommendation refers to the co-operative trade of the country, and it has never been carried out. We do not know at the present time what is the Basis of the calculation made by the Chancellor of the Exchequer in regard to this question.


It seems to me that the hon. Member is arguing in favour of increased taxation, and he is not dealing with the question raised by the Amendment, which asks for a reduction of taxation.


I think that it is very unfair to increase the taxation of the reserves of public companies from 4s. to 4s. 6d. without dealing with the other section of the retail trade to which I have referred. I do not want to pursue that argument, because, obviously, it comes within the Ruling of the Chair, but I think I am entitled to point out that the proposal of the Government is increasing the injustice, and is helping to carry on the policy adopted by the co-operative trades. The aim of co-operative trading is to extinguish the ordinary retail trade of the country, which is paying such a vast proportion of the Income Tax of the country and upon which it is now proposed to impose an extra tax to the extent of 6d. in the £.

On the general question, I have no hesitation in saying that there is no case to show that the proposal to levy an additional 6d. in the £ by means of the Income Tax, is not a, direct burden on the taxpayer. Whatever may be said about it being a burden on productive industry, at any rate it is a burden upon the trade of the country. The sums of money which are placed to reserve are used for the development of the particular business concerned, and while it may be true that there is some difficulty about imposing two rates of Income Tax on the retail trade, it is quite clear that, so far as this part of the increase of the Income Tax is concerned, it is a direct tax upon industry, and consequently upon employment. I do not know how far one can go in the direction of dealing with this contrast in the way of one form of industry and another, but it seems to me that this is an appropriate occasion to point out that the increase in taxation, as proposed, is an increase in the contrast now existing which is already unfair to the retail trade of the country, which is paying so large a proportion of the tax at a time when the revenue of the co-operative trade of the country is allowed to escape this tax. We have not been told up to the present what is the magnitude of the business done by co-operative societies according to the estimates made by the Treasury.


The hon. Member is using an argument for the imposition of taxation in a certain direction. May I point out that this Amendment is concerned only with the question whether the rate of taxation of the reserves of public companies shall be 4s. or 4s. 6d.


I hope that I have now established the fact that this increase in the taxation of the retail trade of the country is a fresh injustice, and it is a direct tax upon the sums placed to reserve for the development of businesses. When businesses place money to the reserve fund, instead of being able to use those sums to the extent of 16s. in every £ for the purchase of fresh business premises, and other things necessary for the development of their businesses, they are to be penalised to the extent of another 6d. in the £ on the Income Tax. In those circumstances, I think it is not only bad business, but it has been clearly shown that it is a direct tax upon industry, and is bad finance from the point of view that you are making it still more difficult for the retail traders of the country to earn the profit from which alone in the past they have been able to support the revenue of the country. I hope that the Amendment will be very seriously considered, and if it cannot be accepted in this form—the Chancellor of the Exchequer told us in his Budget speech that he was anxious to find some method of dealing with this question—I hope that further consideration of the question will enable him to find some method of dealing with this question. I do not believe that the right hon. Gentleman wants to place a direct tax upon the sums available for reserves in the development of industry. That being agreed it is merely a question of ingenuity as to how the question is to be dealt with, and I should hope that far from there being a discrimination between 4s. and 4s. 6d., I hope that the right hon. Gentleman will find some method of placing the two forms of industrial undertakings of this country, so far as the retail trade is concerned, upon a level basis.


The hon. Gentleman is again arguing on something which does not arise at this moment. The question before the House is the difference between 4s. and 4s. 6d. on reserves.


I quite agree. I was only saying that I hoped that the Chancellor of the Exchequer would not only be able to grant this very small relief, but would be able to go further and grant a still greater relief; and my reason for putting that forward was that he told us that he would seek for some method of doing so. That is not an increase of taxation at all, but a further reduction in the taxation which bears so heavily on the development of trade and industry in this country, and which, when it is increased from 4s. to 4s. 6d., will bear still more heavily upon it.

The PRESIDENT of the BOARD of TRADE (Mr. William Graham)

I should like to acknowledge the kindly words that were said by my hon. Friend the Member for Westmorland (Mr. O. Stanley) in moving this Amendment, which, as he and other speakers pointed out, raises a question which has been before the House in one form and another in practically all the Finance Bill discussions of recent years, and which was considered by the Royal Commission on the Income Tax in 1919, and again at very considerable length by the Colwyn Committee on National Debt and Taxation. In attempting briefly to outline the view of the Government on this Amendment, I will try to concentrate on what are plainly the main points. What we are asked to do here is to leave the standard rate of Income Tax at 4s. in the £ on that part of income in the case of public companies which is put to reserve; in other words, the Amendment asks that there should be no change in that burden of taxation.

Whatever view we take of the Income Tax or of the burdens which are imposed under it, I think the House will agree that, if it is to proceed in equity and fairness at all, it must proceed in terms of certain well-defined principles. One of the great principles underlying Income Tax in this country is, as hon. Members know, that it has been applied to the actual income or incomings, and, to all intents and purposes, the destination of any part of that income has been excluded in fixing the burden. No doubt certain reliefs have been given in other directions, but the destination has been practically excluded. Plainly, what this Amendment asks us to do in principle at the moment is to look at the destination, and to say that, because a certain part of the income is placed to reserve in a public company, that should be taxed, not at the new standard rate of 4s. 6d. in the £, but at the old standard rate of 4s.

It must be plain to hon. Members that to admit a principle of that kind would lead immediately, not only to very large difficulties in principle, but also, as hon. Members have themselves recognised, to very great difficulties in administrative practice. If I may group them for the sake of convenience under the heading of administration, it is clear that it would not be possible to confine this relief to a reserve in the case of a public company, but that, over a very large part of the industrial and other enterprise of this country, there would be a perfectly sound case for a similar concession, and many participants in that effort would be able to show that they were in fact of perhaps greater importance to the community than participants in the enterprise of public companies which, because of their particular position under the law, were to obtain the concession outlined in the Amendment. In other directions of administrative practice the hon. Member for Gravesend (Mr. Albery), in supporting the Amendment, recognised that there would be the difficulties of destination to which I have called attention in regard to other parts of Income Tax practice. Hon. Members know that in another sphere, where appropriate sums are not, in the opinion of the Inland Revenue, distributed—where, in fact, there is not a proper distribution for the express purpose of evading Sur-tax on the individual recipient—a distribution of the total profits is assumed for the purpose of dealing with a difficulty of that kind.

Very much the same kind of consideration is raised here. For example, the hon. Member for Gravesend quite clearly pointed out that in fact sums were placed to reserve which might, as the Amendment stands on the Paper, lead to a substantial distribution in the following year, and he asked what the Inland Revenue was to do regarding that distribution. He replied that the only course would be to make an additional call on that distribution to make good the sum which had been granted in relief for the purpose of reserve, not for development or renewal or anything like that, but merely in postponement, and to get the additional distribution in the following year. There are, first of all, great difficulties in regard to the broad principle of the Income Tax, and, in the second place, there are undeniable difficulties in administration, and it is no secret, of course, that it is mainly the combination of those difficulties in past years that has made it impossible for any Chancellor of the Exchequer in any Government to entertain this proposal.

When we leave that part of the problem and come to its practical application, I think the House will agree that, whatever may be the superficial attractions, the difficulties and dangers that would be introduced are very great. For instance, my hon. Friend suggests a concession of 6d. in the £ on these sums put to reserve. In actual cost to the Exchequer, that would involve about 6,000,000 in the financial year, and that £6,000,000 can, I think, quite fairly be related to the £46,500,000 on new revenue which is raised under the changes introduced in the present Budget. I do not think that anyone will suggest that that is a very large contribution; indeed, the Movers of the Amendment did not suggest that it was; they were more on the principle than on the actual result. That is not a very impressive contribution, even as related to the new burden, and perhaps still less as related to the great range of industrial enterprise in this country.

Let us look, however, a little more closely at the manner in which this £6,000,000 would in fact be applied. On as careful an analysis as can be made by the Inland Revenue authorities, I find that only about £1,200,000 would, in fact, be applicable to the distressed heavy industries of this country, which I have no doubt my hon. Friend and other Members have particularly in mind in moving an Amendment of this description. By far the greater part of the £6,000,000 would go to industries which, even in existing conditions, are relatively prosperous, and that is an admirable illustration of the difficulty of introducing any device on the lines of the Amendment. Plainly, it must be applied to all classes of reserves, and, of course, it is a fair argument that, where large sums are put to reserve, they are put to reserve by companies that are well able to do that, whereas the heavy industries in recent times have, by common acknowledgment, not been able for the most part to make adequate reserves, and under this proposal they would get an infinitesimal part of the benefit.

These are very strong and overwhelming reasons on the practical side why it is impossible for the Government to accept the Amendment. My hon. Friend referred to certain other difficulties that are introduced to the disadvantage of ordinary shareholders when these sums are put to reserve, or insufficient reserve is made, as compared with preference shareholders who are entitled to a fixed distribution. No doubt there are certain disadvantages of that kind, but of course there is a very great deal of argument in financial practice regarding other benefits or advantages which are open to ordinary shareholders, particularly in times of prosperity, who would normally participate to a much larger extent than the fixed preference contribution to the capital.

These are some of the reasons which, I am afraid, make it impossible, apart from the loss to the Exchequer of £6,000,000, for the Government to accept this proposal, but my hon. Friend quite properly asked me two questions which deserve a reply. He asked first of all, do we agree that there is a burden on industry in the present system and, in the second place, could I hold out any hope that at some date in the future this matter might be considered. I go back to-night to long discussions in the Royal Commission on Income Tax in 1919, of which I was a member, and to discussions in various other financial Committees on which I have served, and it so happens that the hon. Baronet the Member for Barnstaple (Sir B. Pete) has taken part in this Debate. I think he will recall that, in the Parliament of 1918, he and I were associated, on different sides of the House, in an effort to get some kind of allowance in respect of wasting assets, but I have also in mind at that time questions of depreciation, as well as wasting assets.

I am not committing the Government to anything at all in this reply, because I have no authority to do so, but, looking back on the time that has elapsed from the report of the Royal Commission in 1920 to the present day, it is broadly true to say that the concessions recommended in that report have been granted in certain directions, but the constructive part of the report as applied to industry and commerce has only been made applicable probably to a limited extent. I sun speaking quite for myself, but I agree that there are large questions of depreciation and obsolescence and wasting assets of the highest importance to industrial reorganisation which I should like to see carefully considered, and which I have no doubt the Government will keep in view from time to time in the future. Beyond that I could not go to-night, but I want to close on that note in order to recognise, so far as it is possible to recognise, the difficulties of industry especially in existing conditions, while it is not on financial and administrative and other grounds possible to accept the Amendment.

9.0 p.m.


We always welcome the presence of the President of the Board of Trade among us and, still more, his intervention in Debate, particularly so, perhaps, after some of the interventions of the Minister in charge of the business of the House. The right hon. Gentleman has dealt with the matter, of course, with full knowledge, unrivalled experience and study of the matter and he was able at the end of his remarks to hold out some hope that, although he would have to refuse the actual Amendment, still the underlying principle of it was a thing whose importance he fully admitted and which he hoped the Government of which he is so distinguished a Member might deal in the near future. But he qualified these remarks very considerably by stating that he was speaking for himself alone and must not be taken as committing the Government in any way. I could have hoped that perhaps the Financial Secretary might have given us some indication as to whether his redoubtable chief would homologate his expressions of sympathy and, indeed, his half promise of future action.

The business community as a whole will, I am sure, be indebted to my hon. Friend the Member for Westmorland (Mr. O. Stanley) for raising the matter if only on account of the expression of sympathy and the half-pledge of future action that we have received, because this question of reserves, replacement of plant, a question which is closely bound up with obsolescence and depreciation, is one that is becoming yearly of more importance in the conduct of business. The velocity of the changes that are necessary in the replacement and renewal of plant nowadays is infinitely greater than that of which we had experienced in the days of our grandfathers, or even of our fathers. We have seen repeatedly, more overseas than here, great modern plant ruthlessly scrapped because of the necessity of meeting competition which was becoming imminent through the discovery of some new process, and not through the exhaustion or wearing out of the plant.

On these lines, it is necessary for us to press again upon the Government the fact that we are dealing here with this novelty in the situation, that this taxation is being increased and not decreased, that the burden upon our renewals is being made greater and not less, and that, in particular, the international competition to which our great manufacturers are exposed is becoming yearly more acute. The administrative and mechanical difficulties of any sort of concession along this line have been made clear by the right hon. Gentleman, but as has been pointed out by more than one speaker, these difficulties have been met and surmounted by certain of our trade rivals and, therefore, it becomes all the more necessary to realise that this is a situation which cannot be allowed simply to remain where it is. The difficulty of plant in competition with plant of a similar nature overseas has been recognised in the case, for instance, of the Navy under the present Government, and it has been certainly found necessary by this Government, by no means too favourably disposed to keeping up to date its war-making plant, to fall into an agreement with other nations that it can only postpone the replacement and reconditioning of its great naval units in so far as it is allowed to do so by similar concessions by the proprietors of similar plant overseas. The concessions which have been given by the naval staffs of the navies of America and Japan—


The hon. and gallant Gentleman has been in order up to now, but he cannot here enter into the merits of these concessions.


I was just about to state, and I think that I am strictly in order in this, that the postponements of renewals and replacements which have been guaranteed in the case of naval ships are by no means guaranteed to our manufacturers by the great business houses of America and Japan. They are ruthlessly and remorselessly bringing their plants up-to-date. For that purpose they have disposed of reserves which we all know are very much greater than the corresponding reserves available to business houses and manufacturing firms in this country. I was merely contrasting, for the purpose of illustration, the fact that we were only enabled to allow a postponement in the one case because of agreement with our rivals which we were able to get for military purposes, and which it would be impossible to expect that we should obtain for commercial purposes. The scrapping and renewal of plant will take place with an increasing velocity, and the dissipation of our reserves by taxation is one of the most immediate ways of producing and maintaining unemployment in this country.

The President of the Board of Trade has indicated that he himself, while deprecating the Amendment which is under consideration, would propose to impress upon the Government and to bring forward for the sympathetic consideration of the Chancellor of the Exchequer the desirability of pressing forward along some other line which would give the same result as the principle of the Amendment which my hon. Friend the Member for Westmorland and his friends have brought before the House this evening. We welcome that promise, and we shall raise the matter again on the Finance Bill. We hope that by that time he may be able even to go a little further than on this occasion by having the matter implemented by a similar promise from the Chancellor of the Exchequer.

The question of the difficulty of making this concession, available to the heavy industries of the country as compared with the other companies which, as he truly says, may be placing larger sums to reserve at this moment, is a real difficulty, yet it must not be considered in the present state of British trade that companies at present prosperous and placing considerable sums to reserve may not have need of all these reserves to modernise and bring their plant up-to-date. It would be a mistake to concentrate our efforts solely upon those industries which are in a very grave state of depression just now, because other industries, new and expanding industries, which may be prosperous and setting aside sums for reserves of one kind or another, now may need those reserves sooner than they think. At any rate, it is exactly to those industries that we are looking for the absorption of the great mass of the unemployed people, who are necessarily thrown out of employment as certain old industries become obsolescent, and perhaps pass out of production altogether. Therefore, we are more indebted to the right hon. Gentleman for the favourable consideration which he has given to the principle of the proposal, and I am sure that the business community will be more than grateful to the two hon. Gentlemen who moved and seconded this Amendment.


I wish to impress upon the House a certain aspect of this question which I do not think has been dealt with by any of the previous speakers. It is well known, not only to Members on this side, but to Members on the other side of the House, though they always seem to ignore it, that this country, owing to the conditions of its existence, is bound to import, or to purchase, whichever way you like to put it, from abroad 90 per cent. or thereabouts of its foodstuffs and some 60 per cent. of its raw material. Unless it is able to do that, it means that this country will ultimately starve. That being so, it is surely obvious that the means of payment are simply the products of our industries, and the services which we render in one way or another to the world in return for those necessaries of life which the world gives to us. If we are to compete in the markets of the world, as we are bound to do, with our industries and with the products of our factories and workshops, surely it is essential that those industries should be as efficient as possible. It is folly that we should tax the reserves. I agree that there are cases where, perhaps, the reserves are not properly used, but, broadly speaking, they are used in order to keep our industries efficient and up-to-date. As my hon. and gallant Friend the Member for Kelvingrove (Major Elliot) says, there has never been a time when the changes in industry were so frequent, and when the need for keeping our industries up-to-date has been so great as it is at the present time. The application of science to industry is daily becoming more important, and our neighbours in the United States, as has been said, think nothing of scrapping a whole plant if they can make their industry more efficient. It is only by the efficiency of our industries and our powers to compete in the markets of the world with other nations that we are able to feed our population.

Hon. Members opposite, when we talk about these question of taxation, seem to think that we are only thinking of our own pockets. We are not thinking of our own pockets at all. We are thinking of the masses of the people of this country who can be fed only as the result of the efficiency of our industries. Hon. Members opposite think that it is a good thing to tax these reserves, to take this money and to distribute it, as I think the hon. Member for Bridgeton (Mr. Maxton) said, to the suffering poor in order that they can spend it in the shops of the country, and so increase the prosperity of this country. Under our present fiscal system there is no guarantee whatever that when money is spent over the counters in this country it is spent on goods made in this country. In other words, it is only going to increase the great danger of the exchanges moving against us. If the exchanges move against you because you are unable to pay for what you must import in order to feed the people of the country, what happens? The cost of living of the people goes up.


The hon. and gallant Gentleman must avoid entering into questions of this kind on this Amendment.


I was only trying to prove that if you prevent the industries of this country from becoming efficient, the people of this country will starve. Surely that is a pertinent argument and one which I have a right to put in this House?


The hon. and gallant Member was answering an argument which was put before this House some time ago. The Amendment does not admit of a general discussion upon these matters.


I will put it positively, and repeat it again, and say that if you are going to tax the reserves of the industries of this country you will make it more difficult for those industries to compete in the markets of the world and sell their goods in the markets of the world, and, therefore, supply the purchasing power for the necessaries of life for our people. That is my argument. I say that to increase the purchasing power without increasing production would only be to increase the danger, because it would increase the danger of the exchanges moving against this country, thereby increasing the cost of living of the people. The time is rapidly coming when hon. Members will have to meet the problem of the movement of the exchanges against this country, and the consequent increase of the cost of living. Like the Gadarene swine, they are running down a steep place into the sea, and before they are very much older they will wake up to that fact.


The point raised by this Amendment is one of some interest, and that is whether, by a judicious manipulation of taxation, one can help industry in one way or another. The Amendment seeks by the removal of this 6d. of taxation on reserves to help the reserves of the companies. The President of the Board of Trade has told us that if the Amendment were carried it would cost the Chancellor of the Exchequer something like £6,000,000. That is to say, the proposal of the Chancellor of the Exchequer involves the withdrawal from the reserves of the companies of a sum amounting to £6,000,000. The Financial Secretary shakes his head. If that is the sum which the acceptance of the Amendment would cost the Chancellor of the Exchequer, surely it is right to say that the companies would be prevented by this legislation from putting that £6,000,000 to reserve.


The reserves are created very often for the purpose of paying Income Tax, and used for that purpose.


The hon. Member states that reserves are made for the purpose of paying Income Tax.


Often, not always.


I am very glad that the hon. Member makes that exception, because there are very many other purposes for which reserves are made. If reserves were made only for the purpose of paying Income Tax, the businesses of this country would be in a very bad way. Reserves are made for the purpose of renewing plant, increasing the scope of business and for many other purposes. If this sum of £6,000,000 were allowed to go to reserves it would produce more employment than it could do in any other way. The businesses of this country are giving employment, and that is what we want at the present time. This £6,000,000 would in the main be used for the increase of employment. Therefore, to take this £6,000,000 out of the companies and to prevent them from putting it to reserve is a direct encouragement of a reduction of employment. A sum of £6,000,000 is not very large compared with the concessions which the Chancellor of the Exchequer has made in many other directions, but it is a very large sum when we consider the question of finding employment.

The President of the Board of Trade said that there were certain difficulties, especially administrative difficulties. In that respect I would point out that the differentiation of 6d. is not a very large one, and if the House would admit the principle that reserves are sound things, which require favourable treatment, here is a very good opportunity of doing something in that direction. The reason why the Treasury have been against any differentiation in the amount of tax levied on reserves and levied on the sum of money distributed as profit, has been that if there was a great differentiation companies would place very large sums to reserve and would not distribute so much, and the sum so reserved would remain in the possession of the company and they could at some later date distribute it in the shape of increased capital or bonus shares.

The President of the Board of Trade suggested that such sums might be reserved only for one year and be distributed in the succeeding year. That might be a good argument if we could be assured that the tax would be reduced in the second year, but if sums were reserved only for one year to be distributed in the next year and if the country should be so unfortunate as to have a Labour Government in office in the second year, and the taxation still remains at 4s. 6d., the sums so distributed would pay the whole tax, just as if they were distributed in the first year. The inducement unduly to reserve could hardly operate with so small a differentiation as 6d. in the pound. That would not be a sufficient inducement for companies to over reserve, against the general pressure to make a handsome distribution of profits.

It seems to me that the President of the Board of Trade rather exaggerated the difficulties of administration. Companies submit to the Income Tax and Revenue authorities their balance sheets, and the authorities are cognisant of every item of expenditure; therefore, to say that there is real administration difficulty in the Revenue authorities distinguishing between the sum of money placed to reserve and the sum distributed as profit, is an exaggeration. Ire the old days, when Income Tax was low, this question did not matter much, but the higher the Income Tax the more important the question of reserves becomes. I hope that the President of the Board of Trade will pursue the line of hope which he held out in the latter part of his speech, in which he seemed to say that a very important point of principle had been raised, and that we may be given some concession at a later stage.

Lieut.-Colonel HENEAGE

I want to ask a question of the Financial Secretary on a point which I should like cleared up. Members on this side are interested from the point of view of agriculture. We know that agriculture,

as a whole, does not go in for companies, but there are a certain number of subsidiary companies which are interested in agriculture, either in supplying agriculture or dealing with agricultural produce. Therefore, we who claim to represent agricultural constituencies have a right to know from the Government exactly what is the effect of the Amendment. The hon. Member for Romford (Mr. Muggeridge) made some extraordinary statements. He said that reserves were used for the purpose of paying Income Tax. That explains the attitude of the Socialist party towards this tax. There are in their minds rich and important companies with large reserves which they claim are to be used for the purpose of Income Tax, and they say, "Let us tax them, no matter how many people suffer. Here are rich and important companies. Let us tax them." The hon. Member for Romford is one of those who apparently shares that view.

I want to ask a question about it. If the reserves are used for the purpose of Income Tax, what is the use of putting money to reserve at all? A company pays Income Tax on profis, and, if all the profits are distributed to shareholders, there can be no profits on which they pay Income Tax except reserves. So I want to have from the Financial Secretary an explanation as to why he shook his head at the very sensible suggestion made by the hon. Member for Horncastle (Mr. Haslam). The Financial Secretary should explain this matter, because it is most important and may affect our point of view. Are the companies going to be mulcted of this £6,000,000 which has been spoken of, and which they might otherwise put to reserve? I should like an answer to these questions.

Question put, "That those words be there inserted."

The House divided: Ayes, 113; Noes, 239.

Division No. 266.] AYES. [9.29 p.m.
Acland-Troyte, Lieut.-Colonel Bird, Ernest Roy Churchill, Rt. Hon. Winston Spencer
Albery, Irving James Boothby, R. J. G. Colman, N. C. D.
Allen, Sir J. Sandeman (Liverp'l., W.) Bourne, Captain Robert Croft Courtauld, Major J. S.
Ashley, Lt.-Col. Rt. Hon. Wilfrid W. Bracken, B. Cranborne, Viscount
Astor, Maj. Hon. John J. (Kent, Dover) Brass, Captain Sir William Croft, Brigadier-General Sir H.
Atkinson, C. Cadogan, Major Hon. Edward Croom-Johnson, R. P.
Baldwin, Rt. Hon. Stanley (Bewdley) Carver, Major W. H. Culverwell, C. T. (Bristol, West)
Balfour, George (Hampstead) Castle Stewart, Earl of Davidson, Major-General Sir J. H.
Beamish, Rear-Admiral T. P. H. Cayzer, Sir C. (Chester, City) Davies, Dr. Vernon
Bevan, S. J. (Holborn) Chamberlain, Rt. Hon. N. (Edgbaston) Davies, Maj. Geo. F. (Somerset, Yeovil)
Dawson, Sir Philip Jones, Sir G. W. H. (Stoke New'gton) Sandeman, Sir N. Stewart
Dixey, A. C. Kindersley, Major G. M. Savery, S. S.
Edmondson, Major A. J. King, Commodore Rt. Hon. Henry D. Shakespeare, Geoffrey H.
Elliot, Major Walter E. Knox, Sir Alfred Shepperson, Sir Ernest Whittome
Erskine, Lord (Somerset, Weston-s-M.) Lamb, Sir J. O. Smith-Carington, Neville W.
Ferguson, Sir John Leighton, Major B. E. P. Somerville, D. G. (Willesden, East)
Ford, Sir P. J. Lewis, Oswald (Colchester) Southby, Commander A. R. J.
Forestier-Walker, Sir L. Margesson, Captain H. D. Spender-Clay, Colonel H.
Fremantle, Lieut.-Colonel Francis E. Marjoribanks, E. C. Stanley, Lord (Fylde)
Ganzonl, Sir John Mason, Colonel Glyn K. Stanley, Maj. Hon. O. (W'morland)
Gault, Lieut.-Col. Andrew Hamilton Merriman, Sir F. Boyd Thomson, Sir F.
Gilmour, Lt.-Col. Rt. Hon. Sir John Monsell, Eyres, Com. Rt. Hon. Sir B. Tinne, J. A.
Gower, Sir Robert Morrison, W. S. (Glos., Cirencester) Titchfield, Major the Marquess of
Grace, John Morrison-Bell, Sir Arthur Clive Tryon, Rt. Hon. George Clement
Graham, Fergus (Cumberland, N.) Muirhead, A. J. Turton, Robert Hugh
Greene, W. P. Crawford Nield, Rt. Hon. Sir Herbert Vaughan-Morgan, Sir Kenyon
Guinness, Rt. Hon. Walter E. Peake, Capt. Osbert Ward, Lieut.-Col. Sir A. Lambert
Gunston, Captain D. W. Peto, Sir Basil E. (Devon, Barnstaple) Wardlaw-Milne, J. S.
Hacking, Rt. Hon. Douglas H. Ramsbotham, H. Warrender, Sir Victor
Hammersley, S. S. Rawson, Sir Cooper Wells, Sydney R.
Harvey, Major S. E. (Devon, Totnes) Reynolds, Col. Sir James Williams, Charles (Devon, Torquay)
Haslam, Henry C. Richardson, Sir P. W. (Sur'y, Ch'te'y) Windsor-Clive, Lieut.-Colonel George
Henderson, Capt. R. R. (Oxf'd, Henley) Roberts, Sir Samuel (Ecclesall) Withers, Sir John James
Heneage, Lieut.-Colonel Arthur P. Ross, Major Ronald D. Womersley, W. J.
Hills, Major Rt. Hon. John Waller Rothschild, J. de Worthington-Evans, Rt. Hon. Sir L.
Howard-Bury, Colonel C. K. Ruggles-Brise, Lieut.-Colonel E. A.
Hudson, Capt. A. U. M. (Hackney, N.) Russell, Alexander West (Tynemouth) TELLERS FOR THE AYES.—
Hurd, Percy A. Samuel, A. M. (Surrey, Farnham) Major Sir George Hennessy and
Hurst, Sir Gerald B. Samuel, Samuel (W'dsworth, Putney) Captain Wallace.
Adamson, Rt. Hon. W. (Fife, West) Edmunds, J. E. Kinley, J.
Adamson, W. M. (Staff., Cannock) Edwards, C. (Monmouth, Bedwellty) Lang, Gordon
Addison, Rt. Hon. Dr. Christopher Edwards, E. (Morpeth) Lansbury, Rt. Hon. George
Alpass, J. H. Egan, W. H. Lathan, G.
Ammon, Charles George Elmley, Viscount Law, Albert (Bolton)
Arnott, John Foot, Isaac Law, A. (Rosendale)
Aske, Sir Robert Forgan, Dr. Robert Lawrence, Susan
Attlee, Clement Richard Freeman, Peter Lawrie, Hugh Hartley (Stalybridge)
Ayles, Walter Gardner, B. W. (West Ham, Upton) Lawther, W. (Barnard Castle)
Baker, John (Wolverhampton, Bilston) George, Major G. Lloyd (Pembroke) Leach, W.
Baldwin, Oliver (Dudley) Gibbins, Joseph Lee, Frank (Derby, N. E.)
Barnes, Alfred John Gibson, H. M. (Lancs, Mossley) Lee, Jennie (Lanark, Northern)
Barr, James Glassey, A. E. Lees, J.
Beckett, John (Camberwell, Peckham) Gossling, A. G. Lindley, Fred W.
Bellamy, Albert Graham, D. M. (Lanark, Hamilton) Lloyd, C. Ellis
Bennett, Captain E. N. (Cardiff, Central) Graham, Rt. Hon. Wm. (Edin., Cent.) Logan, David Gilbert
Benson, G. Gray, Milner Longbottom, A. W.
Bevan, Aneurin (Ebbw Vale) Grenfell, D. R. (Glamorgan) Longden, F.
Birkett, W. Norman Griffith, F. Kingsley (Middlesbro' W.) Lovat-Fraser, J. A.
Bowen, J. W. Griffiths, T. (Monmouth, Pontypool) Lowth, Thomas
Bowerman, Rt. Hon. Charles W. Groves, Thomas E. Lunn, William
Broad, Francis Alfred Hall, F. (York, W. R., Normanton) Macdonald, Gordon (Ince)
Bromfield, William Hall, G. H. (Merthyr Tydvil) MacDonald, Malcolm (Bassetlaw)
Bromley, J. Hamilton, Mary Agnes (Blackburn) Macdonald, Sir M. (Inverness)
Brooke, W. Hamilton, Sir R. (Orkney & Zetland) McElwee, A.
Brothers, M. Harbord, A. McEntee, V. L.
Brown, C. W. E. (Notts, Mansfield) Hardie, George D. Mackinder, W.
Brown, Ernest (Leith) Harris, Percy A. McKinlay, A.
Brown, Rt. Hon. J. (South Ayrshire) Hastings, Dr. Somerville MacLaren, Andrew
Burgess, F. G. Haycock, A. W. Maclean, Sir Donald (Cornwall, N.)
Buxton, C. R. (Yorks, W. R. Elland) Hayday, Arthur McShane, John James
Buxton, Rt. Hon. Noel (Norfolk, N.) Hayes, John Henry Mansfield, W.
Caine, Derwent Hall- Henderson, Arthur, Junr. (Cardiff, S.) March, S.
Cameron, A. G. Henderson, Thomas (Glasgow) Marcus, M.
Cape, Thomas Henderson, W. W. (Middx., Enfield) Markham, S. F.
Carter, W. (St. Pancras, S. W.) Herriotts, J. Marley, J.
Charleton, H. C. Hirst, G. H. (York W. R. Wentworth) Marshall, Fred
Church, Major A. G. Hirst, W. (Bradford, South) Mathers, George
Clarke, J. S. Hoffman, P. C. Melville, Sir James
Cluse, W. S. Hollins, A. Messer, Fred
Cocks, Frederick Seymour Horrabin, J. F. Milner, Major J.
Cove, William G. Hudson, James H. (Huddersfield) Morgan Dr. H. B.
Daggar, George Hunter, Dr. Joseph Morris, Rhys Hopkins
Dallas, George Hutchison, Maj.-Gen. Sir R. Morris-Jones. Dr. J. H. (Denbigh)
Davies, Rhys John (Westhoughton) Isaacs, George Morrison, Herbert (Hackney, South)
Day, Harry Jenkins, W. (Glamorgan, Neath) Morrison, Robert C. (Tottenham, N.)
Denman, Hon. R. D. John, William (Rhondda, West) Mort, D. L.
Dickson, T. Johnston, Thomas Moses, J. J. H.
Dudgeon, Major C. R. Jones, Morgan (Caerphilly) Mosley, Lady C. (Stoke-on-Trent)
Dukes, C. Jones, T. I. Mardy (Pontypridd) Muggeridge, H. T.
Duncan, Charles Jowett, Rt. Hon. F. W. Murnin, Hugh
Ede, James Chuter Jowitt, Rt. Hon. Sir W. A. Naylor, T. E.
Edge, Sir William Kennedy, Thomas Oldfield, J. R.
Oliver, George Harold (Ilkeston) Scurr, John Thurtle, Ernest
Owen, Major G. (Carnarvon) Sexton, James Tinker, John Joseph
Palin, John Henry Shepherd, Arthur Lewis Toole, Joseph
Palmer, E. T. Sherwood, G. H. Walker, J.
Parkinson, John Allen (Wigan) Shield, George William Wallace, H. W.
Perry, S. F. Shiels, Dr. Drummond Wallhead, Richard C.
Pethick-Lawrence, F. W. Shillaker, J. F. Watson, W. M. (Dunfermline)
Phillips, Dr. Marion Shinwell, E. Watts-Morgan, Lt.-Col. D. (Rhondda)
Picton-Tubervill, Edith Short, Alfred (Wednesbury) Wellock, Wilfred
Pole, Major D. G. Simmons, C. J. Welsh, James (Paisley)
Potts, John S. Sinkinson, George Welsh, James C. (Coatbridge)
Price, M. P. Smith, Alfred (Sunderland) West, F. R.
Quibell, D. J. K. Smith, Frank (Nuneaton) White, H. G.
Ramsay, T. B. Wilson Smith, H. B. Lees- (Keighley) Whiteley, Wilfrid (Birm., Ladywood)
Raynes, W. R. Smith, Rennie (Penistone) Whiteley, William (Blaydon)
Richardson, R. (Houghton-le-Spring) Smith, Tom (Pontefract) Wilkinson, Ellen C.
Riley, Ben (Dewsbury) Smith, W. R. (Norwich) Williams, David (Swansea, East)
Riley, F. F. (Stockton-on-Tees) Snowden, Rt. Hon. Philip Williams Dr. J. H. (Llanelly)
Ritson, J. Snowden, Thomas (Accrington) Williams, T. (York, Don Valley)
Romeril, H. G. Sorensen, R. Wilson, C. H. (Sheffield, Attercliffe)
Rosbotham, D. S. T. Stamford, Thomas W. Wilson, R. J. (Jarrow)
Rowson, Guy Stewart, J. (St. Rollox) Wise, E. F.
Salter, Dr. Alfred Strachey, E. J. St. Loe Wood, Major McKenzie (Banff)
Samuel, Rt. Hon. Sir H. (Darwen) Strauss, G. R. Young, R. S. (Islington, North)
Samuel, H. W. (Swansea, West) Sullivan, J.
Sanders, W. S. Sutton, J. E. TELLERS FOR THE NOES.—
Sandham, E. Taylor, R. A. (Lincoln) Mr. Paling and Mr. B. Smith.
Sawyer, G. F. Taylor, W. B. (Norfolk, S. W.)

Fifth Resolution read a Second time.

The following Amendments stood upon the Order Paper in the name of Sir L. WORTHINGTON-EVANS:

In line 1, after the word "for," to insert the words "the last six months of."

In line 1, to leave out "1929–30," and to insert instead thereof "1930–31."

In line 2, leave out from the word "shall," to the word "be" in line 3.


I do not propose to move the Amendments standing in my name, but I propose to join in the general discussion on the next Amendment.

Captain BOURNE

I beg to move, in line 7, to leave out from the beginning to the end of the Resolution, and to insert instead thereof the words:

For every pound of the first thousand pounds of the excess Ninepence.
For every pound of the next thousand pounds of the excess One shilling.
For every pound of the next two thousand pounds of the excess One shilling and sixpence.
For every pound of the next two thousand pounds of the excess Two shillings.
For every pound of the next three thousand pounds of the excess Two shillings and sixpence.

I can hardly hope that the Chancellor of the Exchequer is likely to accept this Amendment and it has not been designed with that object, but in order to put forward the view which I and several of my hon. Friends on this side of the House hold on the subject of the Surtax in general. The Amendment sets out what I conceive to be the highest rate of Surtax which any Government has any right to demand from the citizens of a country in times of peace. Under this Amendment—the last Resolution having been accepted by the House—the highest amount chargeable would be 10s. in the £, or half of a certain percentage of any man's income above a certain figure, and I submit that that is a far more extortionate rate than was ever applied in the days when kings employed barbarous methods to extract wealth from the Jews. I do not expect to see the present Chancellor of the Exchequer locking up rich men in the Tower of London and extracting their teeth one by one in order to make them disgorge their wealth. [HON. MEMBERS: "Why not?"] No, I do not think the right hon. Gentleman would adopt that method. I think he would prefer to rely on the ordinary processes of the law and trust to the law-abiding consciences of the citizens of this country, to obtain whatever taxation Parliament may demand from them. That he will use the majority in this House to tax these people to the utmost, I do not doubt, but I feel sure that he will employ what is perhaps a more humane but not less irksome a method of inducing them to pay.

I do not believe that high taxation in itself is a good thing. The Chancellor of the Exchequer speaking on an earlier Resolution, challenged any Member on this side to show any proof that the reductions in Income Tax made by my right hon. Friend the Member for Hillhead (Sir R. Horne) and other Chancellors of the Exchequer earlier, had produced any good to British trade. I ask the right hon. Gentleman if he will take the trouble to look at the figures of unemployment and the figures of taxation from 1922 onwards. If he does so, he will notice that each reduction of taxation was followed by a reduction in the number of unemployed and this reduction went on, quite steadily, until the General Strike in 1926. [Laughter]. In mentioning the General Strike, which raises such hilarity among hon. Members opposite, I am merely taking that date, because the unemployment figures rose again then. In 1921, at the end of the year, I think, speaking from memory, that the unemployment figures stood at close on 2,000,000 and, in May, 1926, they stood at a little under 1,000,000 and although having some training in logic I do not argue that it is, necessarily, a case of post hoc ergo propter hoc, yet I suggest that these figures are worthy of the consideration of the Chancellor and I think he might spend some his spare time in pondering over the question of whether there is not a relationship of cause and effect between high taxation and heavy unemployment.

As I have said, I think 10s. in the £ is a heavy enough tax to take out of any part of the income of any citizen, and although I have not the advantage of the right hon. Gentleman in having the assistance of the Treasury experts, I have done my best to draft a table of taxation, taking that as the maximum and working down to a minimum of 9d. in the £ on incomes of £2,000 to £3,000 a year. I wish to point out that the increases now suggested by the right hon. Gentleman press with particular severity on the professional classes whose capacity for earning at a high rate does not last very long, who have to undergo an expensive training, who often have to wait long years before they begin to earn very much, and whose position in their old age depends on their savings. There is perhaps no class in the community likely to be harder hit by the taxation which the right hon. Gentleman proposes. The right hon. Gentleman also said that he did not regard taxation as influencing the capital needed for industry. The right hon. Gentleman said with perfect truth that capital in industry is very largely represented by lands, buildings, machinery and other fixtures, but he seems to have forgotten that everybody irrespective of party, and not last his right hon. Friend the Lord Privy Seal, has been saying that the main need of British industry is fresh capital in order to remove obsolete machinery and plant and buy new equipment.

Where does the right hon. Gentleman think that that capital is going to come from if he puts these enormous taxes on income? Capital, after all, is international. It will seek that country where it can get the best return for its investments, like everything else, including labour, which will go to that employment where it can get the best return in wages; and if the right hon. Gentleman makes the position of capital in this country so intolerable, it will go to other countries, where it can get a better return, and they will have new machines and the reconstruction which we want, while our industries will be bound to carry on with the same obsolete machinery.

The right hon. Gentleman is fond of denouncing what he calls the reactionary and obsolete methods of British industry. Does he never think that possibly this high taxation, of which he is so ardent an advocate, is one of the reasons why these industries do not move so quickly as their foreign competitors? He has promised the direct taxpayer that if he remains in office, whatever else may happen, the direct taxpayer can look for no relief. Does he not think that it discourages people from expending money, energy, and trouble when they have the certain knowledge that if their venture is successful, a large part, and perhaps nearly half, of the profit will be collared by the right hon. Gentleman, and that, if it is not successful, the entire loss will fall upon themselves? I think he is doing a great deal to cripple progressive people, when if we were wise, we should do all in our power to help them and to develop our industries.

That would be a sufficient reason to vote against these Surtax proposals of the Chancellor, but I want to touch very briefly on another aspect of the situation which has been raised earlier to-night, namely, that it is very undesirable, from a moral point of view, that the taxation of this country should be paid by a very small class and that political power should rest with people who are not directly affected by taxation one way or another. Hon. Members opposite, I believe, disagree with that doctrine, but none the less political power does bring responsibilities, and one of the things which is most desirable is that those who exercise that power and consequently have to bear the responsibility for the action of the Government which they put into office should feel, and feel directly, the effect of the policies which they support. I believe that that is the only way in which any State has ever remained stable or ever will remain stable, and on that ground also I should denounce the policy of the Chancellor of the Exchequer.

There is one other ground, which may perhaps appeal rather more to hon. Members opposite. The Chancellor of the Exchequer apparently, and most of his supporters, and many hon. Members below the Gangway on this side of the House seem to hold what is, to my mind, the extraordinary theory that you can tax the rich without thereby affecting the poor or the industries of the country. From what sources can taxation be obtained? There are only three in this country, so far as I know, and I shall be grateful to any hon. Member who can supply a fourth. The first one is from the profits of productive industry, the second is out of the services which we render to other nations, and the third is from foreign investments. Obviously—and this applies to all taxes, whether direct or indirect—every single tax has got to be found out of one of those three sources, and the effect of high taxation is merely to reduce the amount available for distribution among the people who are engaged for the most part in productive industry.

The right hon. Gentleman, I know, does not agree with that theory, and I shall be glad if, when he replies, he will deal with it, but from what other source can his money come? It must come out of the wealth produced in the country, and ultimately the higher the taxation, the less there is available for those engaged in productive industry; and it is my firm belief that high taxation tends to depress wages all round and that ultimately, although you may camouflage the thing temporarily by saying that it is put on the rich, it is paid by the workers of this country to a very large extent. [HON. MEMBERS "Hear, hear!"] I am delighted to get the acceptance of that theory by hon. Members opposite because it is the point that whatever form of taxation you may impose it must be paid by the people, and it will ultimately be paid by every human being in the country; and the only effect of puting up the taxation is to make the worker poorer, like everybody else, although you may hide it from him for the moment. It has been calculated that the cost of our national administration is £3 per family per week, but I think that, if the people of this country realised that they were paying £3 per household per week for maintaining the administration of the country, there would very soon be a great outcry against high taxation.

The Chancellor of the Exchequer said earlier that it was the business of the Chancellor of the Exchequer to find money for expenditure. I do not believe it is. I believe it is his business to cut down expenditure, and so long as he takes the view that he must find money and must not resist to the uttermost fresh demands for expenditure, so long will he be driven to impose this and other forms of taxation that press most heavily on the poor as well as on the rich. I was interested to notice the other day that this aspect of the situation is apparently beginning to dawn on the trade unions. I will quote from the report of a sub-committee of the General Federation of Trade Unions, which was published in the "Times": Whatever social improvements are effected have to be paid for by efforts. It is foolish to suppose that the social improvements of many millions can continuously be paid for by exactions from the wealth of a few thousands. However desirable it may be to secure fairer distributions of wealth, it is fatal to national prosperity to eat up that capital which is necessary to finance present and future production. I think the trade unions have shown far greater wisdom in that statement than has been shown by the Chancellor of the Exchequer, and I recommend those words to his consideration and the consideration of those who sit behind him.


I beg to second the Amendment.

I think the Chancellor of the Exchequer will realise that it is not only Members upon this side of the House who hold the belief that the limits of direct taxation have practically been reached in this country at the present moment. I do not claim that hon. Members opposite share that view, but certainly some distinguished economists who are members of the Liberal party expressed the view that the limits of direct taxation had been reached before the right hon. Gentleman introduced his Budget at all, and there was a very remarkable article in the "Nation" some five or six weeks ago, which made it very plain that in the opinion of those responsible for the policy of that organ, which cannot be held to be a Tory organ in any sense, the limits of direct taxation had practically been reached. What I wish to point out is that the Chancellor of the Exchequer admitted in his Budget speech that he was fully aware of the disastrous psychological effect and reactions that this direct taxation might have on trade and industry in this country. We, on this side of the House, claim that the result of the Budget has been to engender a very serious lack of confidence throughout the industrial and financial circles of this country.

The right hon. Gentleman was very indignant with me a little earlier to-day, because I said that since the introduction of the Budget there had been a serious fall in the gilt-edged market. Since I made that observation, I have had the opportunity of looking up what the situation actually is. Of course, I did not refer, in the remarks which I then made, to War Loan, which is a short-dated security, and the very fact that that has risen means that a large number of investors in this country have lost confidence in the long-dated securities and are putting their money into a short-dated, redeemable security in order to save the situation. But whether you take the 3½ per cent. Conversion Loan or the Local Loan or the 4 per cent. Consols or, what is still more important, the 2½ per cent. Consols, which in the eyes of the foreigners are the measure of the credit and prosperity of this country, you will find that since the introduction of the Budget a fall ranging between 2½ to 3½ per cent. in all these stocks, and, in the case of the 2½ per cent. Consols, which, from the international point of view is the most important, the fall has been most serious, amounting to 4 per cent. This lack of confidence engendered by this direct taxation must lead to an outflow of capital from the country, and we claim that capital is leaving the country every day. It is not spectacular, it is going in comparatively small quantities, but it is a steady drain upon our resources.

We have the same evidence in the adverse movement of the foreign exchanges against this country since the introduction of the Budget. It seems obvious, if you have heavy direct taxation such as is being imposed now, that the ordinary investor is bound in self defence to go in for capital appreciation rather than for steady dividend, and that is a tendency one sees at work in the City. One is afraid that investors will put money into American securities in order to go in for appreciation of capital rather than be content with a solid five or six per cent. dividend yield on British industrial securities. That is happening now, and the Chancellor of the Exchequer has chosen this moment, when capital is perhaps most urgently required by industry in this country, to make conditions increasingly difficult for the continued existence of capital here. If you make conditions practically impossible for capital, it has its own remedy; it goes away.

This logical conclusion was reached by the Soviet Government years ago. They made conditions impossible for the continued existence of capital, and thereupon it disappeared from Russia, and ever since the Soviet Government have been on their knees imploring capitalist countries to give them capital, almost on any terms. I do not say that conditions have been made impossible for capital by the Chancellor of the Exchequer, but they have been made more difficult at a time when they ought to have been made easier, for never was capital more required for the purposes of reconstruction and rationalisation than now. An eminent Professor, Professor Bowley, has estimated that the national savings have decreased from 15 per cent. before the War to less than 10 per cent. to-day, and I think it is no unfair estimate to say that at least two-thirds of this increased Surtax is in effect a tax on capital, as it must be paid out of savings. That means no less than £47,000,000 per year taken out of capital reserves which otherwise would be available for industry. It is a large sum, and it means that there is less capital for industrial reconstruction, and it must mean a check upon enterprise in industry throughout the length and breadth of the land.

We are entitled, when we are being invited by the Chancellor of the Exchequer to agree to this substantial addition to direct taxation, to ask how this money is going to be spent? The greater part of the revenue collected by the Chancellor of the Exchequer is going to be spent in the form of repayment of interest on the Debt and also in order to pay for our ever-expanding social and supply services. If you take the first case, I agree that the repayment of interest on Debt is merely a transfer; but in so far as it operates and transfers money from one section to the other it transfers money from the borrower to the lender, and therefore from the active to the inactive section of the community. The whole of this tax transfers money from the people manufacturing goods to the people lending money, and that itself must tend to check enterprise.

10.0 p.m.

So far as the social services and supply services are concerned, they are twice as large here as they are in any other country. Of course, to some extent they are good, but no one can claim that we get any return upon the money we spend on the purely social and supply services. It is unproductive expenditure. Some of us would like to see a large transfer of expenditure from purposes which in essence are wholly unproductive to those which are productive. I would like to see a greater amount transferred from purely unproductive social services to purposes for improving our national equipment, for then we should get a return on our money and be the better enabled to compete with our competitors.

I do not know if the Chancellor of the Exchequer read the remarkable letter written by Lord Lothian which appeared this morning in the "Times." It was a plea for the transfer of expenditure from unproductive to productive purposes. That is the main charge we have to make against the right hon. Gentleman. He is taking the whole of this additional money to further increase unproductive expenditure. We plead that, if there is to be this enormous expenditure, it should be devoted to improving agriculture. We have not had a word about agriculture for 12 months, and the improvement of national enterprises, so as to enable our industries to reorganise. The Chancellor of the Exchequer, in this Budget, and particularly with these proposals which we are considering now, holds out no hope of wise capital expenditure. At the same time he holds out no hope of a decrease in the unproductive expenditure upon social services.

The right hon. Gentleman was very indignant with me for saying, earlier in the afternoon, that he had refused to grant any loans for the purposes of development. I should like to repeat that, on the face of it, there appears in the Budget statement only one single item of £1,800,000 for schemes of national development projected by the Lord Privy Seal. I agree that it represents interest, but it is a very small sum in relation to the enormous schemes promised by every hon. Gentleman on the opposite side of the House at the last election. They said that no party in this country would cure unemployment more quickly and—to use the words of the present Prime Minister—to restore the figures to the normal more quickly than the Labour party. They promised things by the thousand. The right hon. Gentleman has been pressed over and over again by the Member for Carnarvon Boroughs (Mr. Lloyd George) to embark upon a bold, comprehensive scheme of national development. He cannot say he would not have the support of hon. Gentlemen below the Gangway. I repeat that the hon. Gentleman has definitely declined to adopt that course to raise a very large loan for the purpose of national development. He may be right or he may be wrong, but he certainly cannot claim to be held up by Members of this House from doing so. Hon. Members opposite having some dim recollection of what they said at the election are beginning to get uneasy as to the barrenness of the policy of the right hon. Gentleman. I would rather see a certain amount of expenditure upon work of national development, upon agriculture where we may get some return for our money, than in excessive expenditure upon unproductive services.

I cannot see how, under this dual pressure of virulent deflation coupled with punitive direct taxation, industry in this country can be expected to revive. The Chancellor of the Exchequer denied that he had pursued a deflationary policy. I would direct his attention to an article in the "Midland Bank Review," which I have no doubt was inspired by Mr. McKenna. The right hon. Gentleman may dissociate himself from the views of Mr. McKenna, but we should certainly like some reply to the case he has made. As the right hon. Gentleman is so absolutely self-satisfied with the policy he has pursued, he might direct his attention for a moment to the unemployment figures. The Lord Privy Seal, in a speech made early in this Parliament, said he would give one guarantee, that he would make a definite impression on the figures of unemployment by April, 1930. That, the Government have not carried out. The right hon. Gentleman has raised the figures by 500,000. I hope that he will not succeed in raising them by another 500,000 by the end of the present year. It seems to me that the policy of the present Chancellor of the Exchequer could hardly be more likely quickly to achieve that.


I never expected to hear arguments in favour of reducing our debt coming from a Member above the Gangway, the hon. Member for East Aberdeen (Mr. Boothby), who, if he meant anything at all, gave an argument for such a course. He criticised the raising of money to be devoted afterwards to transferring to the rentier class. If that criticism was not meant to be followed by some mitigation of this unhealthy progress, I do not know why he occupied the time of the House in adducing it. Another argument was for schemes of development. Members on these benches and on the benches opposite also have been disappointed at the scale which schemes of development have assumed, and we should be glad if the Lord Privy Seal would give us some more. During the Election, I met with criticism on all hands from the Conservative party that it was useless to raise money for national development, because you would take away in some mysterious way from a limited fund, so that employment was bound to go down. The Member for East Aberdeen, who represents the late Chancellor of the Exchequer in some mysterious way, attacks the Government because they have not adopted the policy which the Conservative party have denounced.

The speech of the hon. and gallant Member for Oxford (Captain Bourne) was interesting, as it always is, but it rested on a false assumption. He assumed that it was a Budget in which the rich were being taxed and the poor were not being taxed. He paid little attention to the facts that were disclosed by the Chancellor of the Exchequer, if he still maintains such an assumption. The poor are being taxed very highly in comparison. You cannot tax the rich without affecting the poor. That is true. But it is no less true that you cannot tax the poor without affecting the rich, for taxation affects the nation as a whole. We have heard a great deal of the limits of direct taxation. There are limits also to indirect taxation, and they are felt by the poor very quickly. It is said, "Reduce your expenditure by various expedients"—by repudiating your debt if you will, as suggested by the hon. Member for East Aberdeen.


I never suggested at any time that we should repudiate any section of our debt.


I withdraw anything which the hon. Member for East Aberdeen wishes me to do. I understand, then, that that part of his speech was not directed against repudiation, and therefore was not directed against anything. There are limits to direct taxation and to indirect taxation, and the argument that you must therefore cut down somehow in expenditure leads us to ask what you are going to cut down; and the answer of those above the Gangway is that you must cut on the social services. If a social service like the cadet corps can masquerade under a Service Estimate, hon. Members above the Gangway will support it. Provided the scheme can put some military or naval dress upon it, they will support it. When they talk of cutting down social expenditure, they must remember that there is also a limit to the patience of the people, and it may be just as disastrous for the country to exceed these limits as a financial limit. I think that the Chancellor of the Exchequer in his speech, whether intentional or not, did go too far for me, at any rate, in suggesting that you could press taxation indefinitely. If the Chancellor of the Exchequer did not mean that, I am very glad.

The process of taxation which is going on at present is, I think, operating a genuine redistribution of wealth. Up to a certain point, I believe that to be a healthy process. It is possible to take too much out of the large collecting agencies, out of the small rich class, because that, on the whole, is the saving class. It is equally possible to take too much money out of the class which creates the demand for goods. The poor cannot on the whole save to any great extent; they are bound to spend, but if you take too much out of their pockets, you are reducing the purchasing power of the nation, and you may very well get a condition in which people are saving a considerable amount, and are looking about for profitable investments and cannot find them, for the simple reason that there is no demand for the goods which are made in the factories.

That is a situation which may very well occur, and we have to try and strike some kind of balance between the amount of money which is put in the hands of those who are likely to save it, and the amount of money which goes into the hands of those who are likely to spend it. If I am asked how this balance stands at the present moment, and whether the signs of the times show that capital is needed and cannot be obtained—which would be a significant thing—or whether they show that capital cannot find for itself a profitable medium of investment because the demand is too little, I should be inclined to think that the balance tends to the latter side. For that reason, on this part of the Budget, at any rate, which deals with the taxation which is put upon the higher incomes, I cannot support the Amendment.


Since the introduction of the Budget, we have had nothing but a continued dirge about the bad effect which it is bound to have on British industry. I have heard prophecies of all kinds of disaster which will overtake trade because 6d. has gone on to the Income Tax. I am not inclined to give too much credit to those prophecies, because I have heard so many from the same quarter. When I was sitting on the other side of the House, and Members on that side were here, they made all kinds of prophecies as to what was going to happen when they had reduced the Income Tax. They have tried all kinds of dodges at all periods of their career since the War. Every dodge that they could possibly try has been applied to this vexed question of trying to get the wheels of industry revolving once more. They tried reduction of wages, which they told us was an important factor, and was absolutely essential if the wheels of industry were to begin revolving again. Wages came down, and they have come down by many millions of pounds a year, but we do not see any of the wheels revolving in consequence.

In their next dodge they were backed by their Press, including the "Daily Mail," which invoked its readers to get pledges from Members of Parliament to reduce the Income Tax. The Income Tax reduction was tried. Why was it tried? The urge was that, if the Income Tax were reduced, trade would improve. It was reduced, and it has been reduced in one form or another by nearly £135,000,000 a year. That was previous to 1929. But the wheels of industry have not revolved any more as a result. There was no improvement in trade. [HON. MEMBERS: "There was!"] There was no real improvement in trade at all. Trade has got steadily worse. When one recalls these prophets of 1925–26–27 and 1928 one is not inclined to pay too much respect to their prophecies now that they are in the opposite camp. The hon. Member for East Aberdeen (Mr. Boothby) had a good deal to say in his speech just now about the rentier and the transference of money from the entrepeneur to the rentier. One would imagine that all the blame for that is to be placed upon the present Chancellor of the Exchequer. In previous years and under other Chancellors there has been some slight transference, but I never heard any denunciations of the rentier, the non-producer, putting his hand in the nation's pocket when the Conservative party sat upon these benches. Under their beneficent rule the rentier has been pretty busy. In 1919 the National Debt stood at £7,435,000,000.

From 1919 to 1928, under the regime for the most part, of the party opposite, we applied to debt reduction £810,000,000, and at the end of that period the national debt was £7,732,000,000, or £300,000,000 bigger than when we started to pay it off. That was not bad—for the rentier! He was "weighing-in" all the time! During this same period, when after paying £810,000,000 off the National Debt we found it was £300,000,000 more than when we started, we had paid in interest more than £3,000,000,000—to the rentier; but there was no denunciation of the non-producing rentier from the class who were handling this vast sum of money. Throughout this period the value of the National Debt to those who held it was increasing by leaps and bounds. Based on 1919 prices, the value of the National Debt has increased by £2,000,000,000. The rentier was gaining; but all the same I was not surprised to hear that the rentiers, who have been getting all they possibly can, are protesting because the present Chancellor of the Exchequer has put his hand in their pockets to extract a paltry £24,000,000 per annum. It does not surprise me that hon. Gentlemen opposite are trying to do their duty by their class, and protesting against what they have called the predatory attempt of the Chancellor of the Exchequer to raise a little more revenue.

I would like to ask if hon. Members opposite really believe that the trade of this country is in such a deplorable condition that the raising of an additional £24,000,000 or £25,000,000 is going to smash it? Has it come to that? If it has then it is not much credit to them. We have not had the control of industry on this side of the House, and we have never had in our hands the enormous powers residing in the hands of the entrepreneur. In the main the gentlemen who have controlled industry from the time of Adam Smith—[An HON. MEMBER: "Who is he?"]—he is the gentleman upon whose principles you base your political economic theories. I was pointing out that at least the working classes have never controlled the mighty engines of production which have always been controlled by capitalists.

The people who have been running industry and have studied business now tell us that another £20,000,000 raised in taxation will smash this wonderful system which they have built up in the past. I do not believe it. I do not believe that our industries are so poorly equipped as hon. Members opposite would have us believe. I believe that the Chancellor of the Exchequer is on the right lines although, in my oinion, he has not gone far enough. My complaint is that the right hon. Gentleman has not steam enough in his engine yet. Some time ago he told us that if he was asked to produce an extra £200,000,000 he could do so; and he will probably be asked to do so before very long and we shall help him to raise that money. If we are asked why we wish to take more money from the rich we shall use the argument put forward by the hon. Member for East Leicester (Mr. Wise) and urge it on the ground that, in our view, wealth is not produced in the way that hon. Members opposite would lead us to suppose. Hon. Members talk as though a person went into business, built it up, made a profit, and then he was taxed on his profits. That is not the way business is carried on. [An HON. MEMBER: "How do you know?"] There are plenty of hon. Members on this side of the House who know because they have had a go at the game themselves; they have experienced a good deal of success, and have been successful without the aid of Oxford. If I am to believe a statement that I read the other day, by a gentleman who was writing about Oxford in business, Oxford bags and plus fours are really of no use at all.


The discussion has ranged over a pretty wide field, but I do not think that we ought to go as far as that.


With respect, I gathered that the Mover and Seconder had ranged rather widely themselves, and I thought that I was merely covering a little of the ground over which they had taken a preliminary canter. If any excuse were needed for this Super-tax, and for the principle behind it, it is to be found in the deplorable condition of the great mass of the working people of this country at the present moment. It is perfectly clear, as the Chancellor of the Exchequer has insisted this afternoon, that it is not possible to tax the poor more than they are taxed at present. They have little or nothing left with which to pay. Their condition is a disgrace to those who have controlled and managed industry, who have wrung vast wealth out of their labour, who have drawn from their veins the enormous wealth that I have indicated; and, if I am asked to justify a Super-tax, a tax upon the super-rich, to provide a little of the necessities of the abnormally poor, I do so because, in my view, wealth to-day is not an individually created value; it is a socially created value. It is the outcome of the labours of the entire community, and, according to the Socialist point of view, the biggest part of the community are robbed because they are exploited; and we who accept the Socialist faith believe that not until that exploitation stops will a Super-tax become unnecessary, because the people who create the wealth will then have entered into their legal right to enjoy the wealth which their labours have created.


It is not my intention to go into the speech of the hon. Member for Merthyr (Mr. Wallhead); in which he enjoyed so thoroughly his introduction of the French language. In his last paragraph he expressed clearly and fully the difference of view between this side of the House and the other side. I believe that what I possess is just as much my own as the watch which the hon. Member has in his pocket is his. I believe in the difference between meum and tuum, in the right to possess that which I have, and that is the difference between the hon. Member opposite and ourselves. I know that some hon. Gentlemen opposite would strongly object if, for instance, a waistcoat was taken away from them, or if someone got into the house of a right hon. Gentleman and took what he fully believed to be his goods.

I assume, and I think I am probably right, that this tax is the most popular tax in a popular Budget. I assume that it is popular because it attempts to use a very few people in order to extract a very large sum. It is also popular because it caters for that peculiar twist in human nature on the part of those who delight to see their neighbours and their fellow-citizens taxed. Just as it is popular, I think it is unsound, because I am coming to believe that a case is popular in inverse ratio to its soundness, and, therefore, I am prepared to maintain that this is the worst tax in a bad Budget. I maintain that it is unmoral, that it is unsound according to economic doctrine, that it is unwise in its application, and that its results in the end will not be what its advocates think they will be. As to its unmorality, one has only to remember the doctrines laid down by such men as Mr. Gladstone when he pointed out the very great danger of putting into the hands of the many the opportunity of differentiating in taxation against the few.

I have had the opportunity of looking up in the OFFICIAL REPORT the Debate in 1909, when the Budget was introduced by the right hon. Gentleman the Father of the House, who is also the father of this tax. In the Debates that took place then, the hon. Member quoted a sentence from Lecky's "Democracy and Liberty," which to my mind is as true to-day as it was when it was quoted in 1909, and as true as when it was written. I will read it, because it is so very apt: It is obvious that a graduated tax is a direct penalty imposed upon saving and industry, a direct premium offered to idleness and extravagance. It discourages the very habits and qualities which it is most in the interest of the State to foster. It is at the same time perfectly arbitrary. Highly graduated taxation realises most completely the supreme danger of democracy, creating a state of things in which one class imposes on another burdens which it is not asked to share, and compels the State to enter into vast schemes of extravagence under the belief that the whole cost will be thrown upon others. Yet no truth of political economy is more certain than that heavy taxation of capital will fall most severely upon the poor. I maintain that those are words of absolutely sound political economy, as true to-day as when they were written. I maintain that this taxation is also unsound in that it goes away entirely from the doctrine that taxation and representation should go hand in hand. Much blood was shed in the past in order that this doctrine might become part of the constitution of this country. Now it is a doctrine that is almost entirely abrogated, and we find vast taxation with practically no representation at all. Hon. Members may think it a ridiculous argument to put but I think they will realise that it is a fair one that at the present day a man who may be paying £5,000 a year to the State may be out-voted at an election by two girls of 21 years of age. [Interruption.] Hon. Members may cheer that, but I do think it will appeal to the common sense of people who really think.


Does not the hon. Baronet think the balance is made up by the fact that the small number of people who have to pay the heavy taxation almost completely control the newspapers which those two ladies read?


The hon. Lady has a good acquaintance with newspapers and, no doubt, Lord Beaverbrook will be able to pay her something out of which she can pay her Super-tax. There is another theory of taxation which is entirely contradicted by this tax, and that is that, as far as possible, a tax should not cause a sense of gross unfairness to those who have to pay it. This tax does so. Those who are being taxed have no power whatsoever, politically, of resisting. The right hon. Gentleman knows that 999 of them would vote against him. Therefore, it is a mean and despicable tax and one which those who have to pay it will resent, and in all probability use every legal means in their power to avoid. I also maintain that it is a foolish tax, because it ultimately destroys the source from which the taxation comes. By this and other taxes in the Budget, and slight further additions to them, the Chancellor of the Exchequer will in time entirely destroy the source from which he gets his revenue.

Where will all these millions come from when these very few sections of the people are wiped out of existence as hon. Members opposite so urgently desire? I can show ways in which the source of taxation can be destroyed without being taken away or anything of the sort. I will give the House an example of what I mean. I will assume that a man has money invested in the Rolls Royce Company from which he draws an income of £500 a year. It has been the custom of that man, every five years, to purchase from the company a Rolls Royce car. This taxation comes along. [interruption.] It might be an extravagant thing to do. I think it would be, but it is a possible thing to do, and it is not a bad thing for the people who make the cars. But let us assume that every five years he purchases a new car with the money he receives as dividend from the company. On this taxation coming along he says, "No, I cannot get a car every five years, I will put it off and get one every 10 years." A good many other people might say the same thing with regard to their cars, and the consequence would be that the turnover of the Rolls Royce Company would go down very considerably. The profits might disappear and the man who had been receiving £500 a year income from the company might receive nothing. The Chancellor of the Exchequer might have destroyed the source of income and that man be unable to pay taxation because a profit had not been made. [Interruption.] There is absolutely no flaw whatever in the logic of that. I am not pointing out that it is any hardship on a man to do without a Rolls Royce car. He can be perfectly happy and comfortable in any car, but what about the engineers who make it and what about the steelworkers who make the steel?

These are the people who ultimately will suffer. That point of view hon. Members opposite will not see. They seem to think that rich men can eat, drink or smoke away their incomes, which is ridiculous. They have to spend their incomes, and nine-tenths of what they spend is spent on wages. Hon. Members opposite entirely forget that obvious fact. How is this tax going to be paid? It is perfectly obvious that the man who is paying the tax in this way is either at the present time living up to his income or is not. He may be living beyond his income. A good many people have had to borrow money for years in order to pay their Super-tax. [Interruption.] I am absolutely amazed at the ignorance of hon. Members opposite. If they were to ask any branch manager of a big bank in London or in the provinces he would say that they had dozens and dozens of people coming in to ask for overdrafts in order to pay Super-tax. The colossal, abysmal ignorance of some hon. Members opposite, who imagine that they have sufficient knowledge and education to sit in this House and discuss financial matters, amazes me.

I am afraid that repeated interruptions have prevented me from proceeding with my remarks as fast as I had intended. I am sorry to delay the Committee. It is very infrequent that anyone rises to speak on behalf of a small class of people, the Super-tax payers, either because those who are not Super-tax payers do not take any interest in their welfare, while those who are Super-tax payers have not the courage to speak up for the class to which they belong. Before the last interruption, I was pointing out that a man either lives up to his income or he does not. If he does not live up to his income, the amount that he has to pay for his Super-tax will be paid out of what he would otherwise save, but if he does live up to his income, he has to find the Super-tax in some way, and he usually gets an overdraft from the bank, which has to be paid off out of capital. If he is a wise man he will endeavour in some way to find the money out of income.

In 90 per cent. of the cases, the money that is spent by the Super-tax payer is spent on things that mean the payment of wages. The other day a friend of mine told me that he had been for years in the habit of keeping six men employed in doing various improvement jobs on his estate, for his own pleasure no doubt, because he wanted to improve things. That work is being entirely stopped, and these six men will have to join the army of the unemployed. There are other instances on landed estates where people have kept land in cultivation which would otherwise not have been cultivated. They have done that with a desire possibly to keep the people in their village in employment, and also because there is a certain amount of satisfaction in cultivating land and going round to see how the crops are growing. That is pleasure farming. The curtailment of pleasure farming provides an easy way of making economies at such times as these, and there again that will mean loss of employment. This taxation will put thousands of people out of work. This Budget, popular as it may be at the moment, will be execrated in the countryside and in the country generally when the numbers of unemployed go up, because of this and other evils deeds of the present Government. I believe that this tax is unmoral, unsound and unwise, and although our votes here are just as futile as our votes in the country, I shall certainly give my vote against this tax.


The Debate on this Amendment has been interesting, but it leaves me very little to say in reply, because the arguments used in favour of the Amendment have been to a large extent a repetition of the arguments that were used earlier to-day in opposing the proposals of my right hon. Friend with regard to Income Tax. My right hon. Friend dealt with this most efficiently. There were, however, one or two additional arguments brought forward in regard to this upon which I have a word or two to say. The hon. and gallant Member for Oxford (Captain Bourne), who moved this Amendment, put forward two special arguments in its favour. He said that, according to his scheme, proposing different rates, the maximum taxation would be 10 shillings in the £, and he thought that was quite sufficient taxation for any income to bear. In point of fact, under his proposal a tax of 10 shillings would never be reached, and under the proposals of my right hon. Friend 10 shillings in the £ is not reached until after £40,000 a year is the income of the individual.

Captain BOURNE

I only said that it would be on a certain percentage of a very high income. I did not say that it would be on the whole income.


If the hon. and gallant Gentleman means putting 10 shillings on a certain percentage, you can get that, at any rate, of taxation. I do not see any point in that at all. The real question is, what is the real rate of taxation on the income as a whole? Under his scales the 10 shillings would never be reached, and it is not reached under the scales of my right hon. Friend until the income rises over £40,000 a year. The second point made by the hon. and gallant Member was that the scale proposed by the Chancellor of the Exchequer pressed particularly heavily on the professional man. I do not know exactly what would be the definition of a professional man, but I imagine that the hon. and gallant Member had in mind a man earning from £1,000 to £3,000 a year. With regard to the man earning £1,000 a year, the difference between the Income Tax and Surtax paid at the present time and that which is proposed in my right hon. Friend's scale, in the case of a married man with three children, is £2 9s. I can hardly think that, at any rate, would be said to be an example of the specially heavy way in which the new scale presses on professional men. When we come to a little higher figure, it amounts to a little more than that. For a man with £2,000 a year the additional sum is £25, and for a man with £3,000 a year it is about £60. I do not think these figures bear out the suggestion that the new taxation presses so very heavily on the professional man.

Let us see what the effect of this Amendment would be. The hon. Member who introduced it said, quite rightly, that he hardly expected the Chancellor of the Exchequer would accept it. The scale proposed in the Amendment would have the effect of cutting down the yield of Super-tax in a full year by no less than £15,000,000 as compared with what it is at present. The proposal of my right hon. Friend is to make an increase of £12,500,000. Therefore, the proposal in the Amendment would upset the present Budget by no less than £27,000,000 in a full year, and £17,000,000 in the present year. Thus, the expectation of the hon. and gallant Member for Oxford that my right hon. Friend would be unable to accept the Amendment is certainly fulfilled.

In conclusion, I want to say one word only in answer to the speech we have just heard from the hon. Baronet the Member for Ecclesall (Sir S. Roberts). He assumes that every person upon whom this additional burden falls will resent this taxation, and oppose it by any means in his power. I think rather better of human nature than the right hon. Baronet. I know a great many people who will bear a considerable part of the burden which the Chancellor of the Exchequer proposes to impose, and who will not take that view. They will not take that view because their social conscience is greater than personal immediate gain. [Laughter.] Hon. Members opposite may laugh and it may appear to them that people do not take that view but I know several people who do take it, and I believe that a great many take that view because they know that it is in the interest of the country as a whole, that taxation should be placed on the backs most capable of bearing it.


The hon. Gentleman did very scant justice to my hon. and gallant Friend the Member for Oxford (Captain Bourne) who moved the Amendment. What my hon. Friend pointed out was that in the scale provided by the Chancellor of the Exchequer, excess incomes were paying as much as 12s. in the £ in Income Tax and Surtax. That is undoubtedly true and it is not much use for the hon. Member in reply, to refer to some lower rates of income and to say that they do not pay that amount of taxation. This 12s. in the £ is paid out of monies which would otherwise be available for investment and that is the complaint which we are making. When my hon. and gallant Friend produces another scale which would relieve the taxpayers by £15,000,000, that proposal is intended to relieve the fund available for investment in the development of trade and industry.

No one can deny that trade at this moment wants fresh sources of capital and does not want the existing sources to be dried up. The Chancellor of the Exchequer by his scale is taking out of this not too great fund, a sum of £12,500,000, so that if the hon. Gentleman really wants to make a fair contrast he ought to ask which course does the House prefer to take—to take from the fund available for investment an extra £12,500,000, or to replace in that fund a sum of £15,000,000. That is the choice which my hon. and gallant Friend has put before the House. I was disappointed that the Financial Secretary did not endeavour to support the Resolution. He confined himself to answering one or two of the many criticisms levelled against it, but he did not endeavour to defend it. A precedent, and a very bad one, is being created by this Resolution. Surtax based on the income of last year, is being increased this year, and so a new principle is being introduced. Those who have to frame their personal budgets, and to estimate what they are entitled to spend out of their income in the course of the year, will be in the position of not knowing, at the time when they are budgetting for their expenditure, what their actual income is going to be. Supposing that last year an individual's income was "X." He knew what to take as expenditure. He knew he could shape his expenditure within his income, but the Chancellor comes along this year and takes away a large share of the income of last year. It may well be that a thrifty person has thought he was living within his income, and by the arrangement of these Resolutions he will find that he has to pay more taxation in respect of the income of last year, and instead of having a small surplus, he may find he has overspent his income.

11.0 p.m.

That is not the only result of the alteration which the right hon. Gentleman is making. People in business have varying incomes. One year may be a good year, and the next year may be a bad year. Let us assume that last year was a good year, with a relatively high income, but that this year is a bad year. Last year, there would have been a surplus, and the individual could have paid a higher Super-tax, but owing to the Chancellor's alteration in these Resolutions, that higher Super-tax will fall to be paid this year, when the income may be very much less, and the result may be, in a violently fluctuating income arising from a business, that the actual income of this year may be more than taken up in the taxation due to the profits of last year. That is a position which is extremely harassing. No one likes to pay taxation at all, but they dislike it less if they are paying the taxation out of income that is coming in at the time, but if, the year after, you claim a higher rate in respect of the previous year, you may be claiming it at a time when it is almost impossible for the person to find the money.

That is, I know, rousing a feeling of great injustice, and the result will be that there will be less and less feeling of consent to the direct taxation that is being levied. That is a matter of great importance, because without the consent or reasonable good will of the taxpayer, you cannot recover either your Income Tax or your Surtax in full, or anything like it. The reason why you have been able to do it up to the present is because you have had the reasonable acquiescence and consent of the people who are taxed. The Chancellor in two of these Resolutions is endeavouring to stop holes where people are avoiding the Super-tax, the Death Duties, or the Income Tax, but he cannot stop—and the Chancellor knows it—every method of avoiding taxation, and it is only because hitherto you have had the consent of the taxpayer that you have not lost the recovery of a great deal more taxation than you have. You will now lose quite a considerable amount of taxation, and not all that row of Ministers or all the legislation that this House may pass will ever catch the ingenious individual who endeavours to avoid the payment of this type of taxation. [An HON. MEMBER: "Put them in gaol!"] They will, if they break the law, but the hon. Member is not following the point, which is that you cannot, by general legislation which has to apply to everybody, which is restricted because you do not want to injure ordinary trade, meet the individual case, and the individual beats you every time. He is doing it now, and you know, and the Chancellor knows it.

The danger that you are running when you say to a man, "We are going to tax you this year on the income that you made last year, after it has gone through your hands, and after you have regulated your expenditure on last year's income," is that you will aggravate that position, and you will forfeit the consent and support which hitherto you have had from the direct taxpayer; and it seems to me that that feeling of injustice will show itself in the loss of taxation. I am surprised, therefore, that the Financial Secretary took no notice of this point and said nothing to justify this alteration, which will have such serious consequences. My hon. Friend took a rather different ground, and he gave very good reasons for opposing this Resolution. I shall oppose it not only on that ground, but on the grounds that I have ventured to put forward.

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

The House divided: Ayes, 235; Noes, 106.

Division No. 267.] AYES. [11.6 p.m.
Adamson, Rt. Hon. W. (Fife, West) Hayes, John Henry Palmer, E. T.
Adamson, W. M. (Staff., Cannock) Henderson, Arthur, Junr. (Cardiff, S.) Parkinson, John Allen (Wigan)
Addison, Rt. Hon. Dr. Christopher Henderson, Thomas (Glasgow) Perry, S. F.
Alexander, Rt. Hon. A. V. (Hillsbro') Henderson, W. W. (Middx., Enfield) Pethick-Lawrence, F. W.
Alpass, J. H. Herriotts, J. Phillips, Dr. Marion
Ammon, Charles George Hirst, G. H. (York W. R. Wentworth) Picton-Turbervill, Edith
Arnott, John Hirst, W. (Bradford, South) Potts, John S.
Aske, Sir Robert Hoffman, P. C. Price, M. P.
Attlee, Clement Richard Hollins, A. Quibell, D. F. K.
Ayles, Walter Hopkin, Daniel Ramsay, T. B. Wilson
Baker, John (Wolverhampton, Bilston) Horrabin, J. F. Raynes, W. R.
Baldwin, Oliver (Dudley) Hudson, James H. (Huddersfield) Richardson, R. (Houghton-le-Spring)
Barnes, Alfred John Hunter, Dr. Joseph Riley, Ben (Dewsbury)
Barr, James Hutchison, Maj.-Gen. Sir R. Riley, F. F. (Stockton-on-Tees)
Beckett, John (Camberwell, Peckham) Isaacs, George Ritson, J.
Bellamy, Albert Jenkins, W. (Glamorgan, Neath) Romeril, H. G.
Benson, G. John, William (Rhondda, West) Rosbotham, D. S. T.
Bentham, Dr. Ethel Johnston, Thomas Rothschild, J. de
Birkett, W. Norman Jones, F. Llewellyn- (Flint) Rowson, Guy
Bowen, J. W. Jones, Morgan (Caerphilly) Salter, Dr. Alfred
Bowerman, Rt. Hon. Charles W. Jones, T. I. Mardy (Pontypridd) Samuel, H. W. (Swansea, West)
Broad, Francis Alfred Jowett, Rt. Hon. F. W. Sanders, W. S.
Bromfield, William Jowitt, Rt. Hon. Sir W. A. Sawyer, G. F.
Bromley, J. Kennedy, Thomas Sexton, James
Brooke, W. Kinley, J. Shakespeare, Geoffrey H.
Brothers, M. Lang, Gordon Shepherd, Arthur Lewis
Brown, C. W. E. (Notts, Mansfield) Lansbury, Rt. Hon. George Sherwood, G. H.
Brown, Ernest (Leith) Lathan, G. Shield, George William
Brown, Rt. Hon. J. (South Ayrshire) Law, Albert (Bolton) Shiels, Dr. Drummond
Buchanan, G. Law, A. (Rossendale) Shillaker, J. F.
Burgess, F. G. Lawrence, Susan Shinwell, E.
Caine, Derwent Hall- Lawrie, Hugh Hartley (Stalybridge) Short, Alfred (Wednesbury)
Cameron, A. G. Lawson, John James Simmons, C. J.
Cape, Thomas Lawther, W. (Barnard Castle) Sinkinson, George
Carter, W. (St. Pancras, S. W.) Leach, W. Smith, Alfred (Sutherland)
Church, Major A. G. Leg, Frank (Derby, N. E.) Smith, Ben (Bermondsey, Rotherhithe)
Clarke, J. S. Lees, J. Smith, Frank (Nuneaton)
Cluse, W. S. Lindley, Fred W. Smith, H. B. Lees- (Keighley)
Cocks, Frederick Seymour Lloyd, C. Ellis Smith, Rennie (Penistone)
Daggar, George Logan, David Gilbert Smith, Tom (Pontefract)
Dallas, George Longbottom, A. W. Smith, W. R. (Norwich)
Davies, Rhys John (Westhoughton) Longden, F. Snowden, Rt. Hon. Philip
Day, Harry Lovat-Fraser, J. A. Snowden, Thomas (Accrington)
Denman, Hon. R. D. Lunn, William Sorensen, R.
Dickson, T. Macdonald, Gordon (Ince) Stamford, Thomas W.
Dudgeon, Major C. R. MacDonald, Malcolm (Bassetlaw) Strauss, G. R.
Dukes, C. Macdonald, Sir M. (Inverness) Sullivan, J.
Duncan, Charles McElwee, A. Sutton, J. E.
Ede, James Chuter McEntee, V. L. Taylor R. A. (Lincoln)
Edge, Sir William Mackinder, W. Taylor, W. B. (Norfolk, S. W.)
Edmunds, J. E. McKinlay, A. Thurtle, Ernest
Edwards, C. (Monmouth, Bedwellty) Maclean, Sir Donald (Cornwall, N.) Tinker, John Joseph
Edwards, E. (Morpeth) McShane, John James Toole, Joseph
Egan, W. H. Mansfield, W. Viant, S. P.
Elmley, Viscount Marcus, M. Walker, J.
Foot, Isaac Markham, S. F. Wallace, H. W.
Forgan, Dr. Robert Marley, J. Watkins, F. C.
Freeman, Peter Marshall, Fred Watson, W. M. (Dunfermilne)
Gardner, B. W. (West Ham, Upton) Mathers, George Watts-Morgan, Lt.-Col. D. (Rhondda)
George, Major G. Lloyd (Pembroke) Matters, L. W. Wellock, Wilfred
Gibbins, Joseph Melville, Sir James Welsh, James (Paisley)
Gibson, H. M. (Lancs, Mossley) Messer, Fred Welsh, James C. (Coatbridge)
Glassey, A. E. Middleton, G. West, F. R.
Gossling, A. G. Millar, J. D. White, H. G.
Graham, D. M. (Lanark, Hamilton) Milner, Major J. Whiteley, Wilfrid (Birm., Ladywood)
Graham, Rt. Hon. Wm. (Edin., Cont.) Morgan, Dr. H. B. Wilkinson, Ellen C.
Gray, Milner Morris, Rhys Hopkins Williams, David (Swansea, East)
Grenfell, D. R. (Glamorgan) Morris-Jones, Dr. J. H. (Denbigh) Williams, Dr. J. H. (Llanelly)
Griffith, F. Kingsley (Middlesbro' W.) Morrison, Herbert (Hackney, South) Williams, T. (York, Don Valley)
Griffiths, T. (Monmouth, Pontypool) Morrison, Robert C. (Tottenham, N.) Wilson, C. H. (Sheffield, Attercliffe)
Groves, Thomas E. Mort, D. L. Wilson, R. J. (Jarrow)
Hall, F. (York, W. R., Normanton) Moses, J. J. H. Winterton, G. E. (Leicester, Loughb'gh)
Hall, G. H. (Merthyr Tydvil) Muggeridge, H. T. Wise, E. F.
Hamilton, Mary Agnes (Blackburn) Murnin, Hugh Wood, Major McKenzie (Banff)
Harbord, A. Naylor, T. E. Young, R. S. (Islington, North)
Hardie, George D. Oldfield, J. R.
Harris, Percy A. Oliver, George Harold (Ilkeston) TELLERS FOR THE AYES.—
Hastings, Dr. Somerville Oliver, P. M. (Man., Blackley) Mr. William Whiteley and Mr.
Haycock, A. W. Owen, Major G. (Carnarvon) Paling.
Hayday, Arthur Palin, John Henry
Acland-Troyte, Lieut.-Colonel Edmondson, Major A. J. Peto, Sir Basil E. (Devon, Barnstaple)
Ainsworth, Lieut.-Col. Charles Elliot, Major Walter E. Ramsbotham, H.
Albery, Irving James Ford, Sir P. J. Remer, John R.
Allen, Sir J. Sandeman (Liverp'l., W.) Ganzonl, Sir John Reynolds, Col. Sir James
Amery, Rt. Hon. Leopold C. M. S. Gault, Lieut.-Col. Andrew Hamilton Richardson, Sir P. W. (Sur'y, Ch'te'y)
Ashley, Lt.-Col. Rt. Hon. Wilfrid W. Gilmour, Lt.-Col. Rt. Hon. Sir John Roberts, Sir Samuel (Ecclesall)
Astor, Maj. Hn. John J. (Kent, Dover) Gower, Sir Robert Ross, Major Ronald D.
Atkinson, C. Grace, John Ruggles-Brise, Lieut.-Colonel E. A.
Balfour, Captain H. H. (I. of Thanet) Graham, Fergus (Cumberland, N.) Russell, Alexander West (Tynemouth)
Beaumont, M. W. Greene, W. P. Crawford Samuel, A. M. (Surrey, Farnham)
Bevan, S. J. (Holborn) Guinness, Rt. Hon. Walter E. Samuel, Samuel (W'dsworth, Putney)
Bird, Ernest Roy Gunston, Captain D. W. Sandeman, Sir N. Stewart
Boothby, R. J. G. Hacking, Rt. Hon. Douglas H. Savery, S. S.
Bourne, Captain Robert Croft Hammersley, S. S. Shepperson, Sir Ernest Whittome
Bracken, B. Harvey, Major S. E. (Devon, Totnes) Smith-Carington, Neville W.
Brass, Captain Sir William Haslam, Henry C. Somerville, A. A. (Windsor)
Butler, R. A. Henderson, Capt. R. R. (Oxf'd, Henley) Southby, Commander A. R. J.
Cadogan, Major Hon. Edward Heneage, Lieut.-Colonel Arthur P. Spender-Clay, Colonel H.
Carver, Major W. H. Hills, Major Rt. Hon. John Waller Stanley, Lord (Fylde)
Cautley, Sir Henry S. Hudson, Capt. A. U. M. (Hackney, N.) Stanley, Maj. Hon. O. (W'morland)
Cayzer, Sir C. (Chester, City) Jones, Sir G. W. H. (Stoke New'gton) Tinne, J. A.
Cazalet, Captain Victor A. Kindersley, Major G. M. Titchfield, Major the Marquess of
Chamberlain, Rt. Hon. N. (Edgbaston) King, Commodore Rt. Hon. Henry D. Tryon, Rt. Hon. George Clement
Churchill, Rt. Hon. Winston Spencer Knox, Sir Alfred Vaughan-Morgan, Sir Kenyon
Cockerill, Brig.-General Sir George Lamb, Sir J. O. Wallace, Capt. D. E. (Hornsey)
Courtauld, Major J. S. Leighton, Major B. E. P. Ward, Lieut.-Col. Sir A. Lambert
Courthope, Colonel Sir G. L. Llewellin, Major J. J. Warrender, Sir Victor
Cranborne, Viscount Macdonald, Capt. P. D. (I. of W.) Wells, Sydney R.
Croft, Brigadier General Sir H. Margesson, Captain H. D. Williams, Charles (Devon, Torquay)
Crookshank, Cpt. H. (Lindsey, Gainsbro) Marjoribanks, E. C. Windsor-Clive, Lieut.-Colonel George
Culverwell, C. T. (Bristol, West) Mason, Colonel Glyn K. Womersley, W. J.
Dalrymple-White, Lt.-Col. Sir Godfrey Merriman, Sir F. Boyd Worthington-Evans, Rt. Hon. Sir L.
Davies, Dr. Vernon Morrison, W. S. (Glos., Cirencester)
Davies, Maj. Geo. F. (Somerset, Yeovil) Morrison-Bell, Sir Arthur Clive TELLERS FOR THE NOES.—
Dawson, Sir Philip Muirhead, A. J. Major Sir George Hennessy and
Dixey, A. C. Nield, Rt. Hon. Sir Herbert Sir Frederick Thomson.
Dugdale, Capt. T. L. O'Neill, Sir H.

Question, "That this House doth agree with the Committee in the said Resolution," put, and agreed to.

Ordered "That Consideration of the remaining Resolutions be now adjourned."—[Mr. P. Snowden.]

Sixth and subsequent Resolutions to be considered upon Monday next, 5th May.