§ It follows, therefore, that I have to propose additional taxation of that order in the current year. There is, in fact, a two-fold justification for this, first, the rising cost of the war and the consequent increase in the excess of expenditure over revenue, part of which we must certainly pay for as we go and, secondly, the necessity for curtailing purchasing power still further by additional taxation.
§ In considering how the additional taxation should be imposed, the facts of the situation lead me to the same broad conclusions as they did when I opened my Budget a year ago. Apart from the financial considerations I have already mentioned, the primary object of the new taxation must be further to reduce purchasing power, and its type and method must be designed accordingly. For that purpose some significant figures will be found in the special White Paper. Table F shows that 83 per cent. of the total of all individual incomes remaining in 1941–42, after payment of Income Tax and Surtax, was found in the range of incomes up to £500. Further, Table II shows that whereas the total of personal incomes increased by £668,000,000 during 1942, no less than £439,000,000 of that increase occurred in the wages group. It is clear that if the object of the additional taxation is to be achieved, it must be as widely spread as possible, and it must deal with the excess purchasing power in the lower as well as in the higher ranges of income. We must also remember that while many 970 millions of incomes have increased during the war and continue to increase, there are large numbers which remain fixed and not a few which, as a result of the war, have diminished. Income Tax is framed to take account of capacity to pay and is generally acknowledged as a fair tax, but in these times of drastic and unequal changes of income, a blending of direct and indirect taxation is the appropriate way of tempering the severity with which the necessarily heavy tax burden falls on the most difficult cases. As I have already pointed out, the extra burdens imposed during the war, excluding Excess Profits Tax and National Defence Contribution, have so far been higher on the direct than on the indirect side, and on the existing basis of taxation the disparity would grow greater during the year.
Such considerations have led me quite clearly to the conclusion that on this occasion I ought not to increase our direct taxation, and that any additional taxation should take the form of levying a further toll on expenditure which can, if necessary, be avoided or curtailed. I think the Committee will agree, therefore, that I have no option but to increase some of the indirect taxes. I think they will, in fact, have been partly prepared for that conclusion by the figures of consumption which I gave just now for liquor and tobacco. The facts that despite the heavy war-time increase in duties consumption has risen to such a high level and that the demand continues in some cases to exceed the supply suggest that expenditure on tobacco and beer is a proper subject for increased taxation. Spirits and wines fall naturally into the same category; and in view of the continued heavy attendance at cinemas and theatres, I do not think any elaborate justification is needed for an increase in the Entertainments Duty. These are stern times, and the longer this exacting war goes on the stronger are the reasons why, if further taxation is to be imposed, it should be borne, not by those who, whatever the size of their incomes, are already making a heavy, if not a maximum, contribution to taxation and savings, but by those who have at any rate some money to spare for expenditure of the kinds I have mentioned. I will now give the Committee the details of the increases which I propose.