HL Deb 21 June 1906 vol 159 cc299-319

[SECOND READING.]

Order of the day for Second Reading read.

Moved, That the Bill be now read 2a.—(The Marquess of Ripon.)

VISCOUNT ST. ALDWYN

My Lords, it is not my intention to detain your Lordships at any length with observations upon the Second Reading of this Bill, because in the first place, I am cognisant of the constitutional limitations which govern our action in this matter, and in the second place, I have no desire whatever to oppose the Second Reading of the Budget Bill of the year. It was admitted by the Chancellor of the Exchequer in introducing the Budget that it was in the nature of a provisional financial arrangement, and that we must wait until next year for the complete financial policy of His Majesty's Government. That was a very proper and natural suggestion, and I do not in the least complain of it; but precisely on that account I desire to make some observations on one particular point of the financial arrangements of the country—namely, the present position of the income-tax.

The estimated product of the income-tax for the present year is £31,250,000, at the rate of a shilling in the pound. The Chancellor of the Exchequer made some very forcible and true observations on the present position of the income-tax. He said— An income-tax at a uniform rate of a shilling in the pound in time of peace is impossible to justify and difficult to defend. It is a burden upon the trade of the country, which, in the long run, affects not only profits but wages; and it presses with extreme and peculiar severity on that large class of the community with incomes from £700 to £2,000 a year, who pay it in addition to their full share of taxation on articles of consumption; and it tends to destroy, or, at any rate, to contract a most readily available reserve on which the State can draw in a sudden and unforeseen emergency. I wish entirely to associate myself with those sentiments. When I had the the honour to be Chancellor of the Exchequer I did my best to carry out those views. When at the commencement of the South African war, I had to look about for increased sources of taxation, besides increasing the income-tax, and besides adding to the indirect taxation upon alcohol, tea, and tobacco, I induced Parliament to assent to three new and important indirect taxes—the duties on sugar, corn and coal. Thus I endeavoured to divide fairly the cost of the war between the comparatively small class of the community liable to direct taxation through the income-tax, and the people as a whole. But I find no attempt whatever on the part of the present Government to carry into effect the wholesome doctrine laid down by the Chancellor of the Exchequer in regard to the income-tax.

The Chancellor of the Exchequer said that to reduce the income-tax by a penny would cost him £2,600,000, and that the means at his disposal were insufficient for the purpose. The right hon. Gentleman budgeted for a surplus of £3,074,000; and in my belief it would have been perfectly possible for him, even if he had considered it necessary, as he did consider it necessary, to add £500,000 to the unprecedented amount which this year will go to the repayment of debt, to reduce the income-tax by a penny, because the loss to the revenue by such a reduction would not amount in the first year to the total yield of a penny in one year. But instead of reducing the income-tax, the Chancellor of the Exchequer proposed to reduce the tea duty by a penny in the pound, and to abolish the coal tax as from November 1st. As to reduction of the tea duty, I would only say that no one for many years has touched the tea duty by less than twopence in the pound, and for the simple reason that the poor consumers of tea, upon whom the tea duty falls infinitely more heavily than upon the larger consumers, are only able to buy their tea in such small quantities that a reduction by a penny can hardly by any I possibility reach them.

As to the coal duty, I have never argued that it was free from objections. Every tax has its objections; and there were objections, not merely theoretical, to imposing an export duty on any article of production in this country. But the result of the coal duty has not been what its most vigorous opponents prophesied at the time of its imposition. They said that the imposition of 1s. duty would lead to the closing of mines in this country, and would practically lead to many ships being deprived of outward cargoes altogether, and therefore being laid up. The picture drawn of the terrible state to which some parts of England and Scotland would be reduced owing to the imposition of the coal duty was a very lurid one indeed. But what has happened? There has been, I believe, and I think it fair to state it, some reduction in our exports of medium quality coal to the markets of North Europe; but, with regard to our general export of coal, that has continued to increase since the imposition of the duty, though not at so great a rate as before.

Considering that the duty produced £2,000,000 a year, and that the effects of it did not bear out the prophecies that had been made, I must say I believe it would be extremely difficult for any Chancellor of the Exchequer to discover any indirect tax which would produce more to the revenue at less cost to the industry of this country. But that is not all. In some respects the repeal of that duty will be a loss to this country. An instance has come to my knowledge in which a London company, which has to purchase large quantities of Welsh smokeless coal, directly the announcement of the repeal of the coal duty was made had notice from the contractors that in any renewed contract a shilling a ton more would be charged for the coal. And why? Because the contractors expected that by the repeal of this tax the foreign demand for this class of coal would be so much increased that the price might be safely raised to the home consumers.

I am old fashioned enough, in spite of the Report of the Royal Commission on Coal Supplies, to believe that it is not to the interest of this country to encourage the export of smokeless Welsh coal, which is of such enormous value to the Navy as well as to the industry of this country. But I entirely admit that both in this matter and in the reduction of the tea duty the proposals of the Chancellor of the Exchequer commended themselves generally to the House of Commons. It is possible that if instead of making these proposals the Chancellor of the Exchequer had proposed to reduce the income-tax, he would not have had the assent of the present House of Commons. But the important point is this—that having £3,000,000 to deal with, and being able thereby to reduce a shilling income-tax by a penny, the Chancellor of the Exchequer has found it necessary instead to reduce taxation on tea and coal, which I think no one can say pressed really hardly on the people.

What sort of hope does that give to the income-tax payer, to whose condition the Chancellor of the Exchequer referred with so much sympathy, of any reduction on the present rate at any future time? Of course, it may be said that it is hoped by His Majesty's present Government that there will be a material reduction in the expenditure of the country in future years. I can conceive one quarter in which there might be a considerable reduction. The Chancellor of the Exchequer quoted some remarkable figures in his Budget speech with respect to the increase in recent years of the cost of the Army and Navy. I will quote them again, as I believe that the attention of the country cannot be too much directed to the remarkable nature of these figures. The right hon. Gentleman said that in the year 1896–97 the Army, the numbers of which were voted at 156,000 men, cost £18,270,000 in the Estimates, whereas in 1906–7 the numbers of men voted were 204,000 and the cost £29,800,000 showing an increase of 30 per cent, in the men and of 63 per cent, in their cost. Those are very remarkable figures, and they are even more remarkable when compared with the Navy. The numbers of men voted for the Navy in this year, as compared with 1896–97, have increased by 41 per cent., but the cost has only increased 43 per cent. Does not that give us—I am bound to say it gives me—a prima facie ground for believing that there must be great waste in our Army expenditure, which is susceptible of material reduction without loss to the efficiency of our Army?

But what is there to be said on the other side? Supposing His Majesty's present Government are able materially to reduce the Army Estimates without injuring the efficiency of the Army, there must certainly in the future be an increase under the head of works both in the Army and in the Navy Estimates if they carry out the policy which they have declared, and on which, I hope I may add without offence, they are very much disposed to plume themselves. In 1895 Lord Rosebery's Government initiated the policy of providing for the charges of military and naval works by a system of loans for a term not exceeding thirty years. That policy was continued by the late Government, and the total addition to the debt incurred by that policy is considerable. But the policy was necessary. Necessary works had been allowed to fall behind through mistaken ideas of economy, and the increase in the size of our ships, the increase in the number of soldiers and sailors, necessitated exceptional expenditure in providing new dockyards in different parts of the world, in barracks, hospitals, training grounds for soldiers, and in permanent works, which in our judgment was more fairly spread over a period of thirty years than imposed on the taxpayers of the present day. There is no doubt that the system has its faults, for probably there have been instances in which it led to unnecessary expenditure on ill-considered schemes and money has been wasted in that way. But if you abandon it there is this danger on the other side, that for the sake of economy and in order to diminish the Army and Navy Estimates of the year, the Chancellor of the Exchequer of the day will reduce the item of works in his Estimates to a point which is inconsistent with the efficient maintenance of the Army and Navy. That was done in previous years, and I hope that it will not be done again. But if it is not done, the item of Works in the Army and Navy Estimates will show a considerable increase in future years.

But can anyone who has watched the action of the House of Commons throughout this session believe that it will be possible for any Government, however strong their desire for economy, to make any very great reduction in the expenditure of the country? Resolutions have been passed one after another in the present House of Commons in favour of adding largely to the expenditure on elementary education, which has already increased 60 per cent. in the last ten years, by providing meals for hungry children; in favour of imposing the cost of elections on the public, of providing payment for Members of Parliament; of providing employment for those who call themselves "unemployed;" of providing better housing accommodation for the poor; and finally of giving pensions to all persons indiscriminately over the age of sixty-five; and also there is a constant pressure on the Government largely to increase the pay and other advantages enjoyed by those who are employed in the public service.

All these proposals together would involve an enormous increase in expenditure. How have they been met by the Chancellor of the Exchequer? They have been met with great sympathy, with speeches to the effect that he would be glad to accede to the demands, but he had no money. But what is the first thing that the Chancellor of the Exchequer does? Having a surplus of £3,000,000, he abolishes an equivalent amount of taxation. I wish to credit the House of Commons and the Government in accepting resolutions of this kind with a sincere desire to carry them out, but this desire is surely somewhat inconsistent with the repeal of £3,000,000 a year of taxation, which, as far as I know, has not pressed, with any real hardship on any one. I am confident, however, that this plea of there being no money will not last much longer, and that when the Gentlemen who are in favour of this increase of expenditure make these proposals again they will not be satisfied with such an answer, but will require that means shall in some way or other be provided by the Chancellor of the Exchequer to meet them. Well, my Lords, what does this mean? Is there any form of indirect taxation to which a Chancellor of the Exchequer, representing the present Government, could resort with a view to adding to the revenue of the country and in order to provide for the increase in expenditure suggested? Of course, His Majesty's present Government cannot adopt the proposals of the Tariff Reform League for levying duties on all manufactured and partly manufactured imported goods. I should entirely agree with them in objecting to any such proposals, because I believe that any reasonable study of the past would show that the result of duties of the kind would be infinitely more injurious to the trade and industry of the country than it would be beneficial in the majority of cases to the Exchequer. His Majesty's Government are debarred by their own opinions from any course of that sort. They have repealed the taxes to which I have referred. Is there any other indirect tax which it is possible for them to impose in their place. I do not believe that there is one. This means, therefore, that the present expenditure of the country, and any increase of expenditure that may be required on account of what I have mentioned, will have to be provided by the direct taxpayer—in other words, by the payers of the income-tax.

I may be told that a Committee has been appointed by the House of Commons to inquire into the present incidence of the income-tax, and whether it is possible to introduce any graduated system by which it would press less severely on smaller incomes—I suppose between £700 and £2,000 a year—and more upon the wealthier classes. Personally I am glad that the inquiry has been instituted. I have no objection on principle to graduation. We have accepted it in this country for many years in the house duty, and more lately in the estate duty. But I believe that the practicability of increasing the revenue by graduating the income-tax is a very doubtful matter indeed. I do not know how it can be done unless you are to single out through the officials of the Inland Revenue persons who might be suspected of having more than the limit of income above which you propose to impose a higher rate of taxation, require them to return the total amount of their income, and levy an additional income-tax upon them. I am sure that nobody who has the least acquaintance with the working of the income-tax would desire to see its mainstay removed—namely, the payment of the income-tax at its source. Supposing that such an additional tax were levied, there would be even a greater inducement than now exists, in schedule D of the income-tax, to make an incorrect statement of the total income. There would be, I believe, so many cases of incorrect statements of the kind on the part of persons who might be liable to the additional tax that its yield would be very small, and the Exchequer would run the risk of a very grave loss on the existing sources of revenue, because many taxpayers, thinking an additional tax unjust, would endeavour to avail themselves of all kinds of means to receive, in a way that the Inland Revenue, could not ascertain incomes from foreign dividends or foreign business, and matters of that kind, incomes which are now paid through bankers in London who deduct the income-tax before the dividends or profits are paid. I do not anticipate, therefore, that, even supposing this Committee should report that it would be possible in some way or other to graduate the income-tax and that the Government should adopt some proposal of the kind next year, the increase of the yield on the present income-tax would come to any very large amount.

I have been referring to the matter merely so far as it affects the burden on the income-tax payers in time of peace; but I believe there is a more serious and a more important side to the question, as it affects the resources of the country in time of war. When I was Chancellor of the Exchequer, during the South African war I had to raise a large increase of revenue to provide for the war charges. I turned, like all my predecessors, in the first place to the income-tax, which at the beginning of the war, stood at 8d. in the £. I raised it until in one year it reached 1s. 3d. in the £. But the income-tax now stands at 1s. in the £. Supposing it unfortunately happened that next year we were involved—and nobody can tell when this may happen—in some serious and costly war, the Chancellor of the Exchequer of the day would start with an income tax of 1s. in the £. He would be deprived of no less than £10,000,000 a year which was available to me for war purposes, and which is now being dissipated in time of peace.

I wish I could impress sufficiently on the House and on His Majesty's Government how seriously I regard this diminution of the necessary resources of the country in the event of a possible war. You may invent, as I had to invent, other kinds of taxation, but there is no tax which is so essentially useful in time of war as the income-tax. There is no other conceivable tax which can be raised and which can be lowered again without the smallest injurious effect on trade, commerce, and industry; and looking to the financial condition of the country, anything which deprives us of the full yield of that tax for meeting the cost of war is to my mind a very serious financial danger.

I thank your Lordships for the patience with which you have listened to my observations. I will conclude by saying that I make these criticisms in no hostile spirit to the Budget of this year or to His Majesty's Government. What I do desire is that in that large consideration which they have promised of the finances of the country this important fact should not be lost sight of—that an income-tax of 1s. in the £ is hard on the income-tax payers, most of whom are comparatively poor men, and in time of peace is utterly indefensible, as depriving us of necessary resources in time of war.

LORD WELBY

My Lords, I have listened with very great attention to the speech that has just been delivered by the noble Viscount, and with a very largo part of his observations, if I may venture to say so without presumption, I agree I cannot help regretting, however, that the noble Viscount devoted some part of his speech to a defence of the coal duty. The noble Viscount, when he was proposing the tax, guarded himself by saying that care must be taken in aiming at revenue not to sacrifice trade. I cannot help thinking that the experience we have had of the working of the coal tax shows that we have endangered trade in seeking revenue from that source.

It appears to me that a duty of this kind must have one of two results—either it must add to the price and so far handicap the English trader, who is exposed to very great competition both from Germany and America, or it must diminish the productiveness of the trade, and to that extent diminish the fund from which the wages of the labourers employed are met. I lay stress upon this last point because of the very large proportion labour occupies in the cost of the production of a ton of coal. It is, I believe, admitted that the labour in- volved in the production of a ton of coal represents 80 per cent, of the whole cost. If that is the case, it appears to me that the imposition of any duty which has the effect of restricting either the export of our coal or the output, and thereby diminishing the labour employed, is a very serious matter, and I venture to think that the late Chancellor of the Exchequer, in seeking revenue, to a great extent endangered trade. I gathered that the noble Viscount did not object very greatly to the course that has been taken. Indeed, it would be somewhat hard for noble Lords opposite to do so seeing that the Chancellor of the Exchequer of the late Government had announced his intention of giving up this duty. On both sides of politics this duty was regarded as one of the first to be surrendered.

I have much sympathy with the noble Viscount when he speaks of the difficult position in which we stand with regard to taxation. I hope that before any preconceived doctrine is laid down that direct taxation has a prior claim upon the Government, care will be be taken to review the whole position of the taxpayer. I am constantly struck with the fact that an enormous amount of property is in the hands of a very small number of people. For instance, if we look at the Inland Revenue returns we see that something like 4,000 people in a short time died leaving £300,000,000 of property. Taking into consideration the deductions which are now made from the lower incomes, has a case been made out for a reduction of income-tax in preference to a reduction on those articles of consumption the tax on which weighs so heavily on the wage-earning classes?

I do not wish to offer any criticism upon the action taken this year by His Majesty's Government. It is clear that it would be impossible for a Government coming into power in the month of December to effect any great change in our financial system in their first year. The difficulty of ascertaining the real facts of the financial situation is at once a bar to any effective action being taken by a Government in the first year. If I might express a pious opinion, I should have been very glad if His Majesty's Government had seen their way not to reduce taxation this year, but to devote the money which they would then have had in hand to the reduction of debt, so that next year, when they had thoroughly studied the financial situation, they might have been in a stronger position to carry out important financial reforms. I remember that, in the year 1873, Mr Gladstone devoted a large surplus to paying off the Alabama debt instead of reducing taxation, and thereby he secured in the following year a revenue which gave an opportunity, which I suppose has never since been enjoyed by a Chancellor of the Exchequer, of carrying out large and important financial reforms on a scale in ordinary years impossible. But in the case of a new Government having just taken office, I quite admit that that is a policy which they could hardly be expected to follow. I think by next year the Government ought to have fully considered the situation and be in a position to give effect to some of the large financial measures which are before the country.

I remember a conversation I once had with the late Lord Northbrook, a statesman of very great practical knowledge and at the same time one of the most prudent financiers. From his long experience at the War Office and the Admiralty, Lord Northbrook had a full sense of our responsibilities in the matter of defence, and his general training led him to know how dangerous it was to diminish or endanger our resources in time of war. He told me that he had before him at one time several recommendations from his expert advisers regarding fortification in India. He told me that the demand was large, and he referred it back to them in order that they might endeavour to reduce it and bring it more within the limits which he thought they could afford. They were not able to present a result such as he desired, and he then said that he could not agree to it. In a question of this kind there were, he pointed out, two dangers—the danger of not being provided with a sufficient military force, and the greater danger of putting the finances of India out of gear; and for the moment he felt that he must give the preference to establishing and maintaining a sound financial condition in India. I was very much struck by the manner in which he told me that, and I think it is important that this should be borne in mind in dealing with this question. I venture to hope that His Majesty's Government will accept the canon which Lord Northbrook then laid down.

The noble Viscount referred to the position in which we were in 1899. In the whole course of our experience there has hardly been a more favourable year, financially speaking, then 1899. For years we had been reducing the taxation of the country. We had also been reducing the Debt, and our Consols stood higher than ever before. Not only had the Debt been very largely decreased in consequence of the action of Chancellors of the Exchequer of both Parties, but owing to one of the most difficult and at the same time successful measures which. I remember during my career at the Treasury—namely, the conversion of the Debt by my noble friend Lord Goschen—the charge of the Debt had immensely decreased. Never before in our history were we in such a favourable position to face the heavy cost of war as in 1899, owing to the wise finance of both Parties, in the State for many years previously.

What is the position in which we find ourselves at the present moment? The reduction of the Debt, which had amounted to ƣ150,000,000 in the space of thirty years, has been obliterated, and our Debt stands now at a higher figure than, or at as high a figure as, it has stood since since 1870. The sum of ƣ23,000,000 has been added to our taxation, and on every side we see symptoms of excessive expenditure. One result has been that whereas in 1899 Consols stood at 110, or, perhaps at 109, allowing for the fact that Consols were bearing for a year or two a quarter per cent, additional interest, they are now at eighty-nine or ninety.

The country possesses two great instruments for employment in the case of such an emergency as war. The first is its defensive forces, and the second its financial position. It is difficult, in my opinion, to say which is the more important. But I am afraid that should the emergency of war now arise the country would not be able to start from the sound condition of finance from which it was able to start at the outbreak of the South African war. The position is therefore a very grave one, and I hope that during the present year His Majesty's Government will be able to give such consideration to the national finances as will restore them to a sound basis. In this connection I would again quote the late Lord Northbrook, who declared that if he must run some risk he would rather run the risk of not accepting some of the recommendations of his expert advisers than endanger the stability of Indian finance. It ought to be the canon of every Chancellor of the Exchequer that under no circumstances will he endanger the stability of English finances.

The noble Viscount held out very little hope of reduction of expenditure in the future. Indeed, he apprehended rather an increase. If the House of Commons is bent not only on maintaining the present scale of expenditure but on listening to every demand that is made upon it for fresh expenditure, I fear that the present unsound condition of the national finances will not be removed, and that if the present strain is long continued the country will be in a most unfavourable position to meet an emergency.

VISCOUNT GOSCHEN

My Lords, I shall trouble your Lordships with only a few observations. I can associate myself entirely with the principles laid down by my noble friend Lord St. Aldwyn, and I think that he has rendered a great service by placing before your Lordships his review of the financial situation. There is one remark which I would like to add in consequence of what has just fallen from my noble friend Lord Welby. The noble Lord quoted, naturally with admiration and approval, the doctrines laid down by Lord Northbrook, but I venture to think that such a question cannot be decided by any general principle. It must depend entirely upon the circumstances of each successive phase of European and other politics.

If there arose an emergency in which the country were called upon to act suddenly, there might be a frightful disaster if we were not prepared sufficiently with our naval and military defences, and certainly it would be a greater disaster than a disarrangement of our finances. It is essential, therefore, to look around, to consider the risks, in order to judge of the present necessity for preparedness. If there is one fact that must be borne in mind, a fact of supreme importance, it is that in the most modern wars they who strike first and hardest are most likely to win. I agree with Lord St. Aldwyn that there may possibly be room for considerable reduction in the Army expenditure, though I cannot form a judgment upon it, because my experience of the Navy shows how exceedingly difficult it is for those who are not acquainted with the inner working of the establishment to judge upon general principles as to whether there is extravagance or not.

But with regard to the Navy, you must take into consideration the new developments of foreign navies. Navies have been developed by three nations which before counted far less in any review of naval power. Therefore the public ought not to take it for granted that because the present cost of the Navy is much larger than it was ten years ago, there is now an opportunity for reduction in naval expenditure. The Chancellor of the Exchequer in his able speech in the other House quoted comparative figures in relation to the increase in expenditure and said, "These facts speak for themselves." That is just what they do not do. The facts do not speak for themselves. If a battleship that formerly cost £750,000 now costs £1,500,000, it is idle to charge the Admiralty with extravagance because they have spent £500,000 more upon the battleship. The additional £500,000 spent on the ship is now absolutely necessary.

I think the public will delude itself, and the Radical Party will delude itself, if it thinks the Navy offers any wide scope for economy in the coming years. Those who have read the political programme of other countries this year must see that we live in times when a reduction in our defensive forces would be one of the greatest mistakes of which the country could be guilty. I therefore offer these few words, not of warning, but of caution, that the hopes of those who so much desire a reduction in expenditure are, so far as the Navy is concerned, doomed to disappointment.

LORD JOICEY

My Lords, I have some hesitation in intervening in this debate after the speeches to which we have listened from noble Lords who are recognised throughout the country as great financial experts. But, though I have not had the experience that the noble Lords who have spoken enjoy, I have been largely concerned in great financial operations of different kinds. I cannot agree with the noble Viscount who spoke first that the Chancellor of the Exchequer was wrong in remitting the coal duty. My views are pretty well known on that subject, and I have as large an experience of the effect of that duty upon the general trade of the country as anyone. Your Lordships must not forget that this question was gone into very carefully by a Commission appointed by the late Government, and that that Commission decided clearly and distinctly that the duty was a very serious injury to the trade of the country and ought to be abolished at the first opportunity.

VISCOUNT ST. ALDWYN

Will the noble Lord quote the words of the Report? I do not recollect that.

LORD JOICEY

I cannot quote the words, but that was the spirit of the whole Report. I know that many people are under the impression that the coal duty was not paid by this country, but by the consumers of coal abroad. But as the frontier that was taxed was the frontier between this country and the foreign consumer only, and all other countries which produced coal were open without the tax, it was quite impossible to make the consumer pay the tax. I have been asked more than once how it was that the consumer in this country paid the tea duty, and yet the consumer abroad did not pay the coal duty. Surely the answer to that is obvious. If a tax were put upon tea coming into this country by the east coast, and the whole of the west coast were left entirely free from duty, could anyone argue for a moment that the tax would be paid by the consumer?

The coal tax has now gone. It was based, in my judgment, on a wrong principle. I do not believe in any export tax. I think it is always in restraint of trade, and I hope this country will never again be so foolish as to put a tax on anything exported from this country. I am bound to say that with much that fell from the noble Viscount I entirely agree. The great increase in the expenditure of this country got its impetus during the South African War, and we are now feeling the effects of that enormous expenditure, and it will be many years before we shall be able to relieve ourselves from them. I agree with the noble Viscount that the income-tax is a great advantage in time of war. It is a tax which can be very easily levied and collected, and a huge sum can be secured in that way in a very short time. But I cannot take quite the same alarming view as the noble Viscount. While our taxation in this country is increasing to a serious extent our wealth and our population are increasing certainly at the same ratio, and I do not think, therefore, that we need be unnecessarily alarmed, even if the income-tax should stand at 1s. in the £.

What may take place after the Committee which has been appointed by the present Government to deal with this question has reported I am unable to say. At the same time, I do not think it will be any serious burden upon people who have large incomes if they have to pay a larger proportion to the Exchequer than they are paying at the present time. I do not think that there are any men with huge incomes who would not willingly pay at all events their fair share to maintain the services of the country. With regard to the Navy and Army, there is no doubt that the country fully believes in their being kept up to the highest point of efficiency. So far as I have been able to gather the feeling of the country, I have never found a man, I have certainly never found any body of men, in favour of reducing the efficiency of the Navy. With regard to the allusion made by the noble Viscount opposite to the desire of certain Radicals to get the expenditure on the Navy reduced, I am bound to say that so far as I have had experience of the working classes, in particular in the north of England, I have always found them thoroughly in favour of maintaining the Navy at the highest point of efficiency, and if further money should be required for that purpose I think it would be forthcoming, and would be given freely by the country if the Government could show that it was absolutely necessary.

As to the Army, certain promises have been held out of a reduction of expenditure. I think it quite possible that there may be means of reducing expenditure on the Army without impairing its efficiency; but if any reduction should be proposed which, in my judgment, would interfere with the efficiency of the Army, I should certainly feel it my duty to oppose it, because I think the vast interests we have to protect demand that we should have both services as efficient as they can be rendered. I congratulate the Government on having got their Budget through without any serious opposition in another place, and I account for it to a large extent by the fact that, as has been stated, this is the Budget of the late Chancellor of the Exchequer. Surely, if it were his own child he could not very well disown and attack it. When the present Chancellor of the Exchequer comes to deal with the financial affairs of the country we shall probably see great changes, and I hope they will be such changes as will conduce to the raising of money easily for the services of the country.

THK LORD PRIVY SEAL (The MARQUESS of RIPON)

My Lords, we have had a very important and interesting discussion, and those who have addressed your Lordships have spoken from various points of view, and with great authority. We all listened, I am sure, with interest to the speech of the noble Viscount opposite, Lord St. Aldwyn, who gave us the result of his long experience. I am not able to agree with all the conclusions at which the noble Viscount arrived, but at the same time every one in this House will recognise that he spoke only from the results of his own experience, which is so great and to which we owe so much respect, and that he did not do so from any Party considerations whatever.

There was a great deal which fell from the noble Viscount with respect to the income-tax with which I imagine most of us will agree, and it is well that he should have availed himself of this opportunity to call attention to the value and importance of the income-tax and to its special position in our system of finance. But, my Lords, I do not think that it would have been possible for my right hon. friend the Chancellor of the Exchequer to have based his financial arrangements this year solely upon a reduction of the income-tax. I do not know where he was to have found the means of doing anything else if he had taken a penny off the income-tax. The noble Viscount made a slight error, I think, in the figures he quoted. He spoke of my right hon. friend as having budgeted for a surplus of £3,704,000.

VISCOUNT ST. ALDWYN

No, £3,074,000.

THE MARQUESS OF RIPON

Then I did not hear the noble Viscount correctly.

VISCOUNT ST. ALDWYN

A reduction of the income-tax would have been possible, but no other taxes could have been reduced.

THE MARQUESS OF RIPON

I do not think that was a possible course for my right hon. friend to have taken. As the noble Viscount knows, very important questions connected with the structure and the mode of raising the income-tax are now under consideration. Those questions have been referred to a Committee. They cover a very wide range. They relate to that difficult question of graduation to which the noble Viscount alluded. They relate also to the problem of the difference between permanent and temporary incomes, a question which I remember was settled in the year 1853 for at least a generation by the great speech of Mr. Gladstone, one of the most remarkable efforts that was ever made by any Chancellor of the Exchequer in the House of Commons. Those questions are under consideration. I do not put that forward as a conclusive reason, but I think it is a reason of considerable weight, against having made a reduction of the income-tax the sole financial arrangement of the year.

The noble Viscount touched upon the question of the coal tax, but I do not propose to delay your Lordships long upon that matter. The noble Lords behind me who have spoken have touched upon some of the objections which can be raised to that tax. I venture to think it has not been a successful tax. The noble Viscount seemed to think that the quotation given by my noble friend. behind me from the Report of the Royal Commission on Coal Supplies was incorrect. In one respect I must admit that it was, inasmuch as the Report of the Commission contains the facts which were collected and the results at which they arrived, but does not draw any conclusion. But, on the other hand, the Report tells us that the witnesses generally were of opinion that the maintenance of a large coal export trade is of supreme importance to the country and essential to the prosperity of the coal-producing districts. On page 23 of the Report it is stated that— It is difficult to resist the contention that the tax had some effect in reducing the tonnage exported in the year 1901, although it is probable that the high level of prices, which was still maintained, and the declining condition of trade, both at home and abroad, had some influence on the figures. It will be seen that the total output of coal in 1901 in the United Kingdom was less by 6,000,000 tons than in 1900, but it should be noted that the home consumption in 1901 was 5,500,000 tons less than it was in 1900. It should not be overlooked that the coal-exporter has had the advantage of much lower export freights for coal in 1901 and subsequently than prevailed in 1900, and this must have mitigated the effect of the tax to a large extent. All this tends to show, together with other portions of the Report, that the tax has interfered with trade, and I venture to think there is clear evidence in this Report that it has hampered the operation of our trade in France, Belgium, and Holland, and that in those countries German coal has had a tendency to take the place of British coal. From the facts contained in the Report we find that wages and profits have had a tendency to decline. I think these are good grounds for repealing the tax. Certainly we know that it was the intended policy of the late Chancellor of the Exchequer to repeal the coal tax. Therefore, my right hon. friend cannot be charged with taking a step the necessity of which had not already forced itself upon the minds of those who at the time were responsible for the finances of the country. I need not dwell on that subject. All I say is, that as far as the facts are known to me, I believe the coal tax to have acted in a manner injurious and hampering to our interests, and I think it was one of the first taxes marked for repeal.

The noble Viscount seems very much afraid of what may be done by the House of Commons in regard to the increase of taxes. That is a complaint which ever since I first entered Parliament I have heard made by every Chancellor of the Exchequer and ex-Chancellor of the Exchequer, and there have been but few men who have stood up to demands of that kind in the way in which Mr. Gladstone did. I quite admit that each demand for money for this purpose or for that must be considered not only upon its abstract merits but in connection with the financial condition of the country, and I am quite sure that that is the course which my right hon. friend will take. Large reductions of expenditure, if they are made, must be made upon the large items, while at the same time a careful Chancellor of the Exchequer would always keep his eye upon small items also. The noble Viscount pointed out with great force the startling difference between the rate of expenditure on the Army and the rate on the Navy. I agree with the noble Viscount in thinking that that is a fact which needs most careful consideration, and it is receiving that consideration from His Majesty's Government.

Your Lordships are aware, from what has been said before in this House, that the Secretary of State for War is considering the whole of our military arrangements very carefully and deliberately. I do not think your Lordships will be inclined to condemn him for taking his time over that. We have had too many successive experiments made with the Army during the last few years, and it is very desirable that any further changes should be made with the utmost deliberation. I have every reason to believe that my right hon. friend Mr. Haldane will find it within his power to reduce the Army expenditure in an effective manner, although it is not possible for me at the present moment to make any statement upon that subject. I believe it is probable that an opportunity will be taken by the Secretary of State to make some statement with regard to it in some of the discussions on the Estimates before the end of the session.

I do not know that I need detain your Lordships longer. Unlike the noble Lords who have addressed you, I do not profess to be an expert on this subject. I can only say, however, that I am unable to agree that the one thing to have done was to reduce the income tax. My noble friend Lord Welby seemed to think that the Chancellor of the Exchequer would have done better if he had made no reduction of taxation at all. That, my Lords, is a counsel of perfection, and I do not think my noble friend himself believes that it would have been advisable or possible for the Chancellor of the Exchequer to have taken that course. Neither do I think that it would have been possible for him in the present state of public opinion, in the face of a Parliament like the present, to have reduced the income tax and nothing else. Therefore, he has dealt with two taxes—the coal tax, which was marked especially for removal, and the tea duty, the reduction of which will afford relief—limited relief, I agree—to the people of this country in one of the most important articles of consumption. The noble Viscount said he did not think that reduction would reach the people.

VISCOUNT ST. ALDWYN

The poorest of the people.

THE MARQUESS OF RIPON

The information with which I have been furnished from the financial departments leads me to think that it has had that effect, if not always in the reduction in price, in some cases in the improvement of the quality. The statement made by the noble Viscount at the commencement of his speech really represents the truth of the present position. He said this was a provisional Budget. He accepted it as a provisional Budget. A provisional Budget it is. It is not to be taken as indicating what is likely to be the financial policy of His Majesty's Government in coming years. It is a provisional Budget dealing with the finances as they were left to us by our predecessors, dealing with the Estimates of expenditure which we received from them, and it is intended solely for the purpose of making such reduction—limited, I quite agree—in taxation as was possible in the circumstances in which we took office.

On Question, Bill read 2a; Standing Order No. XXXIX. dispensed with. Bill read 3a, and passed.