HL Deb 07 August 1907 vol 180 cc16-52


Order of the day for the Second Reading read.


My Lords, it would not be consistent with my position hero to attempt to make, and certainly I doubt whether I should be capable of making, any sort of Budget statement on this occasion. That has not been the general practice in your Lordships' House. I therefore formally move the Second Reading of the Bill, but I shall be prepared later to answer any observations that may be made by any of your Lordships on the subject to which it relates.

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


My Lords, this is a Bill which, I believe, your Lordships cannot amend, and which, I am quite sure, you would not desire to reject. But still it does afford a convenient and, I think, a constitutional opportunity for any observations which your Lordships may desire to make on the important question of the finances of the country; and as I was responsible for a good many years for those finances I hope I may not be deemed to be wasting your Lordships' time if I make some observations this evening both upon the general financial policy, as I under stand it, of His Majesty's Government, and also upon the provisions of this particular Bill.

When His Majesty's present advisers came into office there was, I think, a widespread expectation that their first Budget would show, if not a new departure in finance, at any rate a very large reduction of the expenditure of the country. For many years previously they and their followers had made continued and bitter attacks upon the financial policy of their predecessors. Extravagance was almost the least of the charges they brought against that policy. But when the first Budget of the new Government was produced, that expectation was dispelled Last year the present Chancellor of the Exchequer admitted, in the discussions on the Budget, that it had no pretensions to be anything but a commonplace Budget, and said that in the circumstances in which he found himself it could not be otherwise, because he was practically bound by the Estimates of the late Government, for which he could not be responsible. That was a perfectly fair and definite position to take up. I never complained of it, and I think it was generally accepted as practically relieving him from criticism as to his proposals last year.

But at the same time the Chancellor of the Exchequer took occasion to refer, greatly to the disadvantage of his predecessors, to the enormous growth of the Estimates in the ten years preceding 1906, and he said that the amount of £111,000,000, at which the Supply Service stood for 1906–7, was excessive, and made a return to more thrifty and economical administration the first and paramount duty of the Government. He added that he believed that twelve months after that time he would be able to announce, without any weakening of the national services, a substantial saving. The mountain laboured for something like 14 months, but the result has been very small indeed. That £111,000,000 has been reduced in the present year to £110,112,000—a reduction of a good deal less than 1 per cent. I do not complain of that fact. I never expected the great reduction which the Chancellor of the Exchequer anticipated in 1906. I knew something of the difficulty of keeping the Estimates down, and the greater difficulty of reducing them. But I do venture to suggest to your Lordships that the fact that the Chancellor of the Exchequer has not been able to do more scarcely justifies the continued and bitter accusations made by Ministers and their colleagues against their predecessors. There are many supporters of the Government who are not a little disappointed by that result. They consist of those Members of Parliament to whom the Array and Navy Estimates are a form of expenditure which they would desire to abolish altogether. That, of course, is not the view of His Majesty's Government, and I am very glad that that is so. But I it may be said that the small reduction to which I have referred may be, after all, but a beginning. I would suggest that, looking to the general policy of His Majesty's Government, there can be no reason whatever to expect any great reduction in future, and it is far more likely that there will be a considerable increase.

I will first take the Navy Estimates. The Navy Estimates for 1906–7, for which the late Government were responsible, were £31,869,000; this year they are £31,419,000—£450,000 less. There is another matter to be borne in mind, that provision is made to some extent in the Estimates of this year for expenditure on works which in previous years might have been borrowed. I mention that point, in passing, because it has this bearing on the future, that as there are to be no more loans of this kind the Estimates of next year must be charged with further amounts for works, and that applies also to the Estimates of succeeding years. Further, when those Estimates were prepared there was some anticipation, in the mind of the Prime Minister, at any rate, that something would result from The Hague Conference which would allow of a reduction of armaments; but nobody expects that now, and if it does not occur the Admiralty are pledged to build at once another "Dreadnought," and I they will probably have an increase of the shipbuilding vote in other ways, and I am certain that my noble friend opposite, the First Lord of the Admiralty, will not tell the House and the country that he anticipates any reduction in the Navy Estimates in the future.

Then I come to the Army Estimates. The Army Estimates are £27,760,000, or £2,036,000 less than last year. I think it has been clearly shown, in the debates in this House on Mr. Haldane's new scheme, that the normal Army Estimates in future could not be less than 28 millions; and then there are always what are called "automatic increases"—a phrase perfectly odious to the Treasury, but extremely dear to the Admiralty and the War Office. In addition to that, there is usually some abnormal expenditure to be incurred by the War Office. At one time I had to find ten millions for a great reserve of stores and clothing, and since three millions have been required for the rearmament of the Artillery; and I believe the Army Estimates will never be without some abnormal expenditure of that kind. Therefore, again I say, there can be no expectation whatever that the Army Estimates are likely to be reduced in future years. And then the Chancellor of the Exchequer has very properly laid down that it is necessary to improve the national credit by making large provision in future Budgets for the repayment of Debt. I am very glad that he proposes to do so, but that means a great addition in the amount to be levied by taxation.

As to the Civil Services, there seems to be no bounds to the expenditure desired, even by the economists, on matters like education. And then, as if that were not enough, His Majesty's present advisers have undertaken a great policy of social reform, which was eloquently referred to by the Chancellor of the Exchequer in his Budget speech, especially in improving the education of our children, and in the establishment of old-age pensions. There was a time when old-age pensions were advocated as a kind of reward in old age to poor hard-working men who had shown some special merit, or contributed in some way towards the pensions which they would receive. That has long gone by. The demand now is for pensions to be given to everybody who arrives at a certain time of life, who has not done any special service to the State, and without regard to any special merit or even any special need. In my opinion, pensions of that sort are worse than a waste of public money; they are the greatest possible incentive to the absence of self-reliance and thrift. I am sorry to see that the principle of pensions of that kind has been, if I understand rightly, accepted by the Prime Minister and by the Chancellor of the Exchequer, and in this Bill now before us the country is asked to provide a sum of a million and a half to be temporarily devoted to the payment of debt and to form a nest-egg towards the, establishment of a Pension Fund. It has been estimated that any scheme of that kind must lead to an annual expenditure of something like 26 millions. I think I have satisfactorily established the fact that so far from its being likely that there will be any diminution of expenditure in the years to come expenditure is likely to be very largely increased.

Then comes the question, On what principles do his Majesty's advisers intend to provide for that expenditure? I hope the noble Marquess will not reply: "Sufficient for the year are the finances thereof," because I observe that the Chancellor of the Exchequer stated that he proposed to lay down the principles that would guide him during the next few years. I have studied this Bill; I have studied the speeches of the Chancellor of the Exchequer; and I will endeavour to place before your Lordships the result of that study. I am bound to say that it is not to me at all clear what those principles are. They are not, I think, the principles somewhat rashly laid down in a moment of enthusiasm by Mr. McKenna, who informed the House of Commons that he would gladly see indirect taxation altogether done away with, including, I suppose, the taxes on alcohol and tobacco. I do not think Mr. McKenna has given quite the study to financial questions which would have befitted the position of Financial Secretary to the Treasury. I hope his educational studies may make him a more efficient Education Minister. I do not suppose, however, that the sentence I have quoted represents the views of the noble Marquess or of the Chancellor of the Exchequer, but their policy, nevertheless, so far as I can understand it, is hopelessly drifting in that direction.

What are the principal financial proposals in this Bill? The Bill makes permanent the additional duties on alcohol and tobacco which I imposed for the purposes of the war. But practically, so far as any changes in taxation are concerned, it deals solely with direct taxation. It makes two changes in that respect. It proposes to increase the estate duties by a very considerable percentage on estates over £150,000 in value, and an additional supertax, I think it is called, on estates over one million in value; with this result, that an estate, say, of three millions in value, which before the passing of this Bill would pay £240,000 in estate duty, would in future pay £400,000. I have no personal interest in this matter. My withers are entirely unwrung, and that, I think, is a very general view. But I would say this, that I am afraid the financial expectations of the Chancellor of the Exchequer as to the revenue resulting from that change will be very much disappointed. You may go a great deal too far, for financial purposes, in attempting to tax wealthy persons. Wealthy persons have discovered already various ways of evading the death duties, and to increase them to the extent proposed on the estates of those who are best able to pay for the cleverest advisers to look after their interests, will not, I think, produce that additional yield of £1,200,000 a year to the revenue which the Chancellor of the Exchequer anticipates.

The other change is the adoption of differentiation between earned and unearned incomes. That is a very old idea, and until the present year I thought it had been effectually exploded by Mr. Gladstone in his well-known speech of 1853. I really do not believe there was any sufficient reason for that change. As Mr. Gladstone himself urged, there is an important difference between the assessment of incomes under Schedule D and Schedule A. Incomes under Schedule D are self-assessed, with the result, as we know, that the assessment is very seldom accurate, or rather very often utterly inaccurate. The incomes under Schedule A are assessed by other persons than those who receive them. Therefore those assessments not merely accurately represent the real income of the person who receives that income, but, as a rule, very much more than the net income which goes into his pocket. There is another point. Persons whose incomes are precarious are relieved from a tax upon that portion of their incomes used for life assurance, and, lastly, Sir W. Harcourt's Budget in 1894 so largely increased the death duties on realised property that the direct taxation on incomes derived from property and on incomes derived from professions and trades may be considered to be on a level.

I do not however object to the allowance made by this Bill, which is confined to incomes not exceeding £2,000 in all, because everybody must feel that the income-tax presses more hardly on the comparatively smaller incomes. But as Mr. Gladstone urged in 1853, nothing is more dangerous than the attempt to remove an anomaly in the income-tax, for it is almost certain to create or to aggravate others. There is grave cause for complaint that in dealing with the matter the Chancellor of the Exchequer has entirely neglected to consider the position of income-tax payers under Schedule A, individual owners of houses or lands. I will not say that incomes from these sources are earned incomes. Schedule A imposes a property tax rather than an income-tax, but the fact is that there is greater exertion required from the owners of agricultural land or of small tenements in properly looking after their property than is required from many a sleeping partner in a business or professional firm, who have only to receive their incomes, which yet are to be treated as earned. The taxation of incomes under Schedule A is grossly unfair, as compared with incomes of companies. Companies are allowed all kinds of deductions not allowed to house and land owners, for management, for law charges, for insurance, for repairs, to the full extent of their expenditure; but the owners of land and houses are only allowed the 12½ or 16⅔ per cent. granted by Sir W. Harcourt in 1894, as some compensation for heavily increased death duties. Much fairer allowances are made in assessing property of this kind to estate duty, and there can be no reason whatever why it should not be treated equally for both kinds of duty, or why individuals should be more heavily taxed than companies.

These are important points of detail, but they are entirely neglected in the changes made by the Chancellor of the Exchequer. The points were brought forward in the House of Commons, but the only reply of the Chancellor of the Exchequer was that I, when Chancellor, had not made the allowance, and he would not do so. The answer was not quite fair, for I never felt myself in a position to differentiate between earned and unearned incomes. I only hope the matter will not escape notice in future years. It is not in the interest of anybody except, perhaps, of those who desire to tax landowners out of existence, that such property should be taxed unfairly as compared with other incomes.

I turn from a point of detail to principles. The Chancellor of the Exchequer held out no hope of a graduated income-tax, and he was wise; the attempt would be attended with enormous difficulty, and would lead to many evasions of the law. He held out a promise of a tax on motor-cars, an admirable suggestion; but I think the proceeds would be properly devoted if they went to the maintenance of highways. Further, there was a suggestion of an increase at some, time of the duty on public-house licences. Well, my Lords, I have looked into that matter. I think he might possibly derive some income from an increase of those duties, but the amount would not be large, because it must be principally obtained from the most valuable houses, which are comparatively few, and the great mass of public-houses or beer-houses could not afford in these days of temperance to pay much increase without being taxed out of existence; so that, whatever the results might be, increase of revenue for the Exchequer would not be among them.

I think we may assume that in this Budget the changes in the direction of increasing the burden on the wealthier and lessening it on the poorer classes who pay direct taxation has been settled by the Chancellor of the Exchequer so far as his future policy is concerned, and the question is, what will be required to meet the large expenditure of the future? Is there always to be a shilling income tax in time of peace? The answer, of course, will depend on the policy of the Government in regard to indirect taxation. When I had to increase the revenue of the country for war purposes, and for peace purposes, I am sorry to say, as well, what I did in the way of indirect taxation was to raise the duties on tobacco and alcohol, to raise the tea duty, to impose the sugar duty and the corn and coal duties. After the war was over the tea duty and the income-tax were together lowered. The corn duty was abolished by Lord Ritchie, a step which many must now regret, for the abolition, while doing no good to anybody, deprived the Exchequer of two and a half millions of revenue.

Last year the present Chancellor of the Exchequer took a penny off the tea duty, but I do not believe that the benefit reached the consumer. It has been held by previous Chancellors of the Exchequer, and the opinion has been confirmed by business men in the trade, that a reduction of less than 2d. in the tea duty does not reach the consumer. The same opinion led the Chancellor to reject the proposal for a reduction of a penny this year. The shilling export duty on coal was abolished by the present Government, at a loss of £2,000,000 a year to the Exchequer, and that has put some money into the pockets of coal producers and their workmen, but the whole of that duty certainly did not reach their pockets at the time of its abolition. I know, as Chairman of the Coal Conciliation Board for South Wales, that many coalowners maintain strongly that they only benefited by 3d. a ton, the rest having gone to foreigners, middlemen, shippers, and others. However that may be, undoubtedly the repeal of the coal duty had the effect of increasing the foreign demand for coal, and that increase has assisted in enormously raising the price to the British consumers, who after all, are the mass of the people, much more numerous and more important than those engaged in the production of coal. The effect to the British consumer of the abolition of the coal duty has been that he has to pay more for his coal than he paid when the tax was on. That has been the result of repealing the taxes which I imposed on corn and on coal.

Now I come to the tax on sugar. The tax on sugar was strongly attacked in the House of Commons this year. It was attacked, I am sorry to say, not merely by a number of those Members of Parliament, not all of them, who had promised their constituents to vote for the repeal of the duty, but also by members of the political Party to which I myself belong and who had made no such promise, but who, I think, must have forgotten on that occasion that there is a responsibility upon the Opposition to assist the Government of the day in providing the ways and means to meet expenditure of which the Opposition has approved. The tax was bitterly opposed, but the Chancellor of the Exchequer said he could not spare the money and resisted the attack. But did he defend the tax on its merits? No, my Lords, what he said was this, that— The sugar tax ought not to form a permanent part of our fiscal machinery because it is vicious in principle, burdensome in its incidence, and unequal in its operation between different classes, but to halve it would do no good whatever to the great bulk of the consumers. What does that mean? It means that the sugar tax will soon go like the other taxes to which I have referred; and yet that duty is not open to any objections on the ground of free trade. No doubt sugar is a raw material in the manufacture of confectionery and mineral waters; but as they are not necessaries of life, I do not see why they should not bear some taxation. This I do know, that the manufacture of mineral waters is a profitable industry even under the sugar duty, and that our export of confectionery, which has to compete against the confectionery of other countries where the sugar duty is higher than here, has actually increased since the sugar duty was imposed. I admit that sugar is a necessary of life. But is it to be an established doctrine nowadays that the people as a whole are to be relieved of all burdens of the State if they do not consume alcohol or tobacco? The tea duty was attacked this year as well as the sugar duty; and yet these are the only taxes by which the great mass of the people are obliged to contribute something towards the necessary expenditure of the country.

Mr. Gladstone made a remarkable observation on this matter in the year 1860, when the tea duty was 1s. 5d. in the £ and the sugar duty was far higher than it is now. He said— If we are to have a very large scale of expenditure— such as we have now, as well as a very high income tax which would have horrified him— I cannot think, while the bulk of the burden should fall on the shoulders of those having property, that it is otherwise than desirable that the labouring classes should bear their share of the burden in a form in which it will be palpable and intelligible to them"; and only the other day Mr. Asquith, while referring to his scheme for social reform, supported this view by saying— If we are to have social reform we must be willing to pay for it, the working and the consuming classes as well as the wealthier classes of direct taxpayers. How does the Chancellor of the Exchequer propose to make the working and the consuming classes pay for social reform? I believe it is impossible to devise indirect taxation which will be more productive, of its kind, and less burdensome to the people, trade, and industry of the country than the taxes on tea and sugar. It is impossible to think that Mr. Asquith intends to adopt the proposals of the Tariff Reform League and to institute a duty on manufactured or partly manufactured goods. There is one thing upon which the Government are absolutely pledged, and that is that they will have nothing to do with protection in any form. I am glad to hear noble Lords opposite cheer, because in my belief such duties would not only do serious injury to the trade and industry of the country, but would produce very much less revenue than those who recommend them at present seem to anticipate.

I hope that I shall have some answer to the questions I have ventured to ask the noble Marquess, because if indirect taxation, with the exception of the taxes on alcohol and tobacco, is entirely to disappear in this time of very great expenditure, all I can say is that I see no possible result except the permanent maintenance of the income-tax at 1s. in the pound, and its probable increase considerably beyond that amount. I regard that as grossly unsound finance. I look upon it as not only very unfair to the very small proportion of people who bear the burdens of direct taxation, but as a policy which would, by removing so much of their incomes from the possibility of affording employment to others, do far more in the end to injure trade and industry than could possibly have been done by the continuance of the corn, coal, and sugar duties. But what is even worse is that if ever a time of trial again comes to this country, and come it will some day, an income-tax in time of peace at 1s. in the pound or more will be dangerous to the maintenance of the Empire and even possibly to the existence of our country, because it deprives us of the full use of the most important, most easy, and most convenient weapon of finance in time of war. My apology for detaining the House so long is that I desire to do my best to impress upon the Government and the country the danger of drifting, as they seem to be, in this direction in their financial policy, and of the probable result if they are going to abolish, as I fear they intend to do, further important sources of indirect taxation.


My Lords, before the noble Marquess replies I should like to be permitted to say a few words. The noble Viscount, who filled under the late Government the important position of Chancellor of the Exchequor with so much ability, has made a speech of a very interesting, and, in some respects, of a very caustic character. He began by not exactly attacking the Government, but rather by twitting them for not having reduced the expenditure of the country by more than they have done; and he ended his speech mainly by a defence of his own fiscal arrangements during the war.

With regard to the first part of his speech, it seemed to me that the noble Viscount hardly gave the Government credit for what they have clone during the year and a half in which they have been in office, and it is on this point that I desire to make the principal observations that I shall address to the House. It seems to me that during the eighteen months that the Government have been in office they have done a great deal to improve the financial position of the country. In the first place, there is strong evidence, I think, that a spirit of economy has at last been introduced into the Departments, and that the Treasury, which, in my opinion, had lost control to a large extent over the expenditure of the Departments, has regained that control. The best proof of this is to be found in the fact that the expenditure of the country, during the year ended March 31st last, was no less than two millions below the estimated expenditure in the Estimates of the year. I believe that that difference is greater than has ever occurred in any previous year.

Credit is also due to the Government for having reduced the expenditure on the Army and Navy during the year and a half they have been in office by something over four millions. The noble Viscount did not give the figures, and he appeared to think that very little effect had been produced upon the expenditure of the Army and Navy during the time the present Government have been in power; but the figures I have before me show that the expenditure for the Army and Navy together for 1905 was £63, 200,000 and the Votes for this year are £59,100,000—a difference of £4,100,000. I will not say that the reduction is sufficient. On the contrary, I hold the opinion very strongly that further reductions should and may be made, but at the same time this is a long step in advance in the direction we are aiming at, and I think the Government deserve considerable credit for having done so much.

But the most important point in which the Government seem to me to have done well in their finance is one on which the noble Viscount was entirely silent—I refer to the complete stoppage they have put to the vicious and unwise system of borrowing money for new military and naval works all over the Empire. This vicious system was begun, I must admit, by the late Liberal Government in the year 1895, but it was extended to a very much larger extent by the Government who followed, and at last had reached a point which really amounted to a scandal. The waste of expenditure on works of this kind which shortly afterwards proved to be useless has been enormous. I do not know whether your Lordships have read the recent Report of the Public Accounts Committee of the House of Commons, in which illustrations are given of the waste of expenditure in this direction. It appears from that Report that works were undertaken at a cost of no less than £1,000,000 at Tidworth in furtherance of the then Secretary of State for War's scheme of six Army Corps. Barracks were erected there at this gigantic cost in order to provide accommodation for eight battalions, but by the time the barracks were completed the scheme of six Army Corps was abandoned and it was found that only four battalions had to be provided for, and therefore half a million of money was wasted. Then at another place, Stobs, wherever that may be, it was proposed to buy training ground for one of these Army Corps at a cost of £750,000, but fortunately it was discovered in time that the site was not wanted, and only £56,000 was wasted on it. Another item of £150,000 is mentioned as having been spent at East Bulford on an establishment for the training of mounted infantry. The scheme of training mounted infantry appears to have been dropped, and that £150,000 has been wasted. There was an expenditure for a similar purpose elsewhere at Fermoy, the amount wasted being £35,000.

I have obtained a Return from the War Office showing what number of works authorised by the late Government have been abandoned during the last year and a half as useless. These works are ten in number, upon which no less than £3,826,000 was intended to have been spent. Fortunately, those works have been abandoned, and that money is saved. I have a list of thirteen other works on which large sums of money have been spent and all of which have since been given up as useless. They include barracks at St. Lucia, £241,000; barracks at Halifax, £59,000; barracks at Wei-Hai-Wei, £52,600; and barracks at St. Helena, £22,000. I have been unable to obtain a similar Return from the Admiralty, but I am assured, on authority which I cannot doubt, that works, involving the expenditure of many millions, authorised by the late Government, have been abandoned by the present Government within the last year and a half as useless and the money saved, and that other works costing millions of money, undertaken and carried out by the late Government are now recognised by the Admiralty as useless. In the aggregate no less a sum than £62,000,000 has been authorised for expenditure out of loan on works of this kind, and £51,000,000 have been actually expended; and it would be interesting to know how much of that has been wasted upon works which are now proved to be useless.

The present Government have determined to bring this system to an end, and, with the consent of all parties in the House of Commons, and urged on by the late Chancellor of the Exchequer, Mr. Austen Chamberlain, they have decided that in future works of this kind shall be voted in the Estimates for the year, according to the old tradition, whereby much saving will be effected. One of the worst features of this loan system has been that, while it lasted, there was practically no reduction of the debt. While with one hand the country was paying off debt by means of the Sinking Fund, with the other it was incurring debt, so that the one transaction balanced the other.


That was not so. A sum was placed every year on the Estimates for the repayment of capital and interest in connection with these loans.


My figures show that in one year at least there was a balance of expenditure over the money paid off by means of the Sinking Fund.


You are absolutely mistaken.


I have not got the exact figures with me, but I will undertake to say that during the three or four years before the present Government came into office the amount of money borrowed for the purpose of works of this kind nearly balanced the money paid under the Sinking Fund in reduction of debt. The abandonment of the loan system by the present Government has resulted almost immediately in a real reduction of debt, and in their first two years of office the present Government will have repaid £23,000,000 of debt, as compared with almost nil during the previous three or four years.




I say that is a great achievement on the part of His Majesty's Government, and one for which they deserve every credit. In addition, the Government since they have been in office, have reduced taxation by about £4,000,000, representing almost exactly the amount of reduction effected in military and naval expenditure. I cannot say that I am satisfied with the amount of reduction on the Army and Navy, and I cannot but hope that the reductions will be carried further. Recollecting that the expenditure upon the Army and Navy is still £14,000,000 greater than it was immediately before the South African war, that it is no less than £24,000,000 greater than it was when the last Liberal Government were in office in 1895, and looking to the much more favourable position of international politics, the great changes that have taken place in Europe, the disappearance of the Russian Fleet, and the agreement we have come to with France, I cannot but hope that there will be yet further reductions in military and naval expenditure.

The noble Viscount, towards the end of his speech, referred to the taxes which he imposed in the years 1901 and 1902 for the purpose of the late war. I think his argument was this, that he considered it wise to spread the taxation of the country over a wider area than we now do, and he argued in favour of continuing those taxes rather than maintaining the income tax at a high figure. The noble Viscount was not altogether fortunate in his attempt to impose new taxes. The noble Viscount told us that he imposed three new taxes—the corn tax, the coal tax, and the sugar duty. He has informed your Lordships that he appproved of the corn tax, and that in his opinion it was unwise to repeal it. The noble Viscount declared that it had been no burden to anybody.


I said that its repeal had done no good to anybody.


I recollect that when he proposed this tax the noble Viscount expressed the opinion that the burden would not fall on the consumer; he thought the amount of the tax was so small that it would not increase the price of broad, and therefore would not fall on the consumer. But I recollect that later on he made a speech at Manchester in which he admitted that he had made a great mistake on that point.


Not a great mistake.


I have his words. I carry this extract with me because I find it a very good vade mecum to meet tariff reformers, who always say that the tax imposed on corn by the noble Viscount did not raise the price to the consumer. This is what the noble Viscount said at Manchester on the subject— I thought that my duty last year on corn was so small that it would not increase the price of bread. I made a mistake. I found that in not a few cases it had the effect of giving an excuse to bakers to raise the price of bread, and therefore I confess I believe the doubling of that duty, and also the adding of new duties on meat and dairy produce, must increase the cost of food to the working-classes. The duty was repealed, I think very wisely, because it was found that the duty cast a burden on the consumers, and increased the price of bread.


Can the noble Lord show that the price of bread or corn was a farthing cheaper after the repeal of the duty?


The £2,500,000 must have fallen on somebody. May I ask the noble Viscount on whom it fell?


That is a question no one can answer.


My opinion is that in the nature of things the tax fell ultimately on the consumers, as all these taxes on articles consumed by the people ultimately fall. The next tax that the noble Viscount imposed at that time was the coal tax, and I think there, again, he said that the tax would fall upon the foreigner and not upon the people of this country. As a matter of fiscal economics I believe it to be impossible for a country to impose a tax within itself so as to fall upon the people of another country, and indirectly this coal tax fell upon the people of this country. No doubt the foreign consumer paid somewhat more for the coal, but in the long run the effect of the tax was to lessen the export of coal from this country and pro tanto to reduce the wages fund of this country. Last year that tax was repealed with the general assent of the House of Commons, though not without protest from the noble Viscount.

The third tax which the noble Viscount raised in 1902 was the sugar tax, estimated to produce six millions, and there, I think, he admitted that it was to fall upon the consumer, because his argument was that it was desirable that the labouring people should contribute their share towards the expenses of the war—an argument with which at the time I quite agreed, for I think it was right that those who voted for the war should contribute to the expenses of it. But the sugar tax is a very bad tax, for it is levied upon an article of consumption second in importance only to corn. It has been, in my belief, a great burden to every working man's family in the country, and it is also a burden on a large number of manufactures; and I think the noble Viscount must have felt very sore a few weeks ago; when the Party to which he belongs in the House of Commons voted unanimously for the repeal of the tax. I was glad that the Chancellor of the Exchequer, in debate upon the subject, admitted that it was a bad tax, and I hope that the half-promise he gave that it should be repealed will be redeemed before long; and then the last of the noble Viscount's taxes will have disappeared. My own impression is that I the burden of present taxation upon the labouring people on sugar, tea, beer, tobacco, and spirits is a very heavy one. One proof of that is the want of elasticity in the revenue derived from these articles in the Customs and Excise. Not withstanding the great prosperity of trade during the past year, there has practically been little or no increase in the receipts from these taxes, and I believe the cause to be that the burden is being severely felt. There are other bad symptoms showing the pressure on the people of taxes of this kind. Pauperism and offences against property began to increase from 1901–2 when these taxes were imposed, and have gone on increasing since then. I venture, therefore, to hope that the Government will be able to carry out the promise given by the Chancellor of the Exchequer, and that the sugar duty will be repealed at an early date.


My Lords, I should like to associate myself with the noble Lord who has just sat down in expressing the hope that His Majesty's Government will realise the great importance of reducing our enormous National expenditure. The first thing which will probably strike anyone as regards the Budget is that, though we have had a period of peace and prosperity, we have no substantial and general reduction of taxation. At the same time this is not my main complaint, for I recognise the difficulty of any rapid decrease in expenditure, and appreciate the desire of the Chancellor of the Exchequer to make a substantial reduction of the National Debt. I cannot, however, but regret that he has not realised the importance of reducing the income-tax generally. Mr. Gladstone, we know, was opposed to the continuance of the tax.

For my own part, I have never advocated the entire abolition of the income-tax. It is, indeed, a tax on thrift, and very objectionable in that respect; though no doubt it has some advantages. In a sudden emergency—in time of war, for instance—it can be raised with perhaps less disturbance of financial arrangement than is possible in other ways. But, in order to be able to raise it in war, you must lower it in peace. To keep it, therefore, at the present excessive rate is impolitic. It is also unjust for several reasons. In the case of "wasting securities" it is a tax, not upon income, but on capital. Take, for instance, a mine, or quarry, with a life of, say 20 years. The annual tax is really five per cent. annually on the capital. Such a tax must, of course, tend to discourage our mining industry, both at home and abroad, and other similar cases might be given.

At first sight, no doubt, there is something plausible to be said for taxing the interest of investments at a higher rate than the income derived from present personal exertion. In the new jargon of the day one is said to be earned, the other unearned income. A man works hard, lives economically, invests his savings, and we are told that the income from his savings is unearned. Could there be a more misleading, a more absurd term, to apply? As Mr. Gladstone said— Take the poor widow with £300 a year derived from investments, and bringing up a family; is she to be placed in a worse position and to be taxed at a higher rate than the small business or professional man making £300 a year from his business? The Chancellor has made an exemption for pensions, and I am glad of it, but surely it gives away his case. One man has an income of £1,000 a year. He saves £100 and invests it; that income is said to be unearned and is taxed at the higher rate. Another has an income of £900 and a pension; this is taxed at the lower rate. Surely, this is a very illogical and unjust arrangement. The fact is that it is impossible to draw any logical distinction between what are called earned and unearned incomes. The boundary is purely arbitrary. Moreover, I much doubt whether the increased expense will not swallow up the supposed advantage. Again, an income derived from an invention, and that of an author from a successful book, are to be treated as unearned income! Surely that is absurd. Further, the Bill repeals Section 133 of the Act of 1842, which allows an abatement of duty at the end of the year of assessment, where it is found that the profits of that year fall short of the average of the previous three years. Now why was this provision inserted? In commerce it often happens that, though a business is good on the whole, it leaves a loss in some years. For instance, most of our Fire Offices lost heavily last year in the San Francisco catastrophe. The arrangement was, therefore, just and equitable, and I submit ought not to have been disturbed.

Moreover, the mode in which it is proposed to levy the tax seriously aggravates the injustice. The Chancellor of the Exchequer, I know, does not intend this. He is under the impression that he is reducing an inequality, while, on the contrary, he is creating one. After a reasonable time the incidence of taxes tends to adjust itself. Wages, salaries, hours of work, and conditions of employment, under the beneficent laws of nature, by degrees arrange themselves equitably. Any alteration disturbs this equilibrium for a time, and, unless absolutely necessary, ought, therefore, to be avoided. But avowedly this Budget is arranged, not merely to raise the necessary amount for the service of the year, but to benefit some classes at the expense of others—or, in other words, to deprive some classes of part of their property in order to give it to others. No wonder a feeling of injustice and wrong is created.

The seizure of property is just as arbitrary, whether the few take from the many or the many from the few. That it is done under the form of law, and not by force, disguises the process, and makes it legal, but cannot make it just. It is really confiscation under the disguise of law. The majority, of course, may take away property from the minority if they choose, but I doubt if they will find it in the long run to be to their advantage, even in a pecuniary sense. Of course, I need hardly say that I am making no personal attack on the Chancellor of the Exchequer or upon noble Lords opposite. No doubt he and they are acting in what they believe to be the interests of the country. But is this so? Mr. Gladstone, we know, always objected to graduation. He maintained that you cannot make any reasonable and fair distinctions. The attempt, he said, would destroy the tax, and I see that Mr. Austen Chamberlain has recently expressed the same opinion. The Chancellor of the Exchequer speaks of— an income-tax logically graduated from the top to the bottom. Where does the logic come in? On what principle are you to go? It is not the amount of extra burden which seems to me the real objection. It must in fairness be admitted that men of wealth are liberal and generous for public objects or the claims of poverty and distress. That is not the real objection. The inherent vice of the system is the uncertainty and injustice. This is creating a feeling of general insecurity.

The Chancellor of the Exchequer has more than once assured us that the Government has no intention of attacking property; that there are no grounds for apprehension. Unfortunately, however, words and deeds do not agree. The Government is really Socialistic. They profess, no doubt quite sincerely, not to be Socialistic. They do not seem to me to know where they are going. The Fabian Society are more frankly Socialistic; they are more thorough-going, and know their own mind. The Government do not seize property all at once: they take one per cent. one year, and one per cent. another, but the principle is, and the ultimate results will be the same. The Chancellor of the Exchequer says he is influenced by the desire to secure equality of sacrifice. This is quite beyond his power. He takes an arbitrary amount of £2,000 a year. Does he suppose that all men of £2,000 a year are equally well off? The idea is absurd. Take two men each with £2,000, the one a bachelor, the other a married man with 10 children. Are they equally well off in a pecuniary sense? Or suppose one has to pay £1,000 a year to his mother, or his brothers and sisters. The fact is that the amount of income is little guide in such matters. One man with £1,000 a year may to all intents and purposes be richer than another with double the income. The Government look to the income, and overlook the responsibilities. They may say that they cannot go beyond the income. That is so, and it is just my argument. It makes their test entirely fallacious and misleading.

Look, again, at the death duties. Sir W. Harcourt imposed very heavy death duties. Who are the real sufferers? Primarily, of course, those who have to pay them. But the duties inflict great suffering on a wide circle. The heir cannot afford to live in the family house. He is compelled to shut it up and go away. Gardeners and others are necessarily dispensed with, they are thrown out of employment; local tradesmen lose their principal and other customers, and the whole village is upset. The poor are really the greatest sufferers. Moreover, Sir W. Harcourt made the death duties graduated. What we felt at the time was that the great evil of this was the uncertainty. Now the Government have increased them again. I believe in the long run the country will be no gainer. I doubt if, without graduation, the duties would not have produced quite as much. This, however, may be contested. It is impossible to prove one way or the other. But the pecuniary advantage, if any, to be gained by graduation, whether of the income-tax, death duties, or in any other form, is dearly bought if we remember the feeling of injustice and insecurity which such provisions necessarily create.

The next objection which I have to the Budget is that it seems to be part of a systematic attack on thrift. Savings are to pay a higher rate of income-tax than earnings; a man who spends all his income is to pay a lower percentage than one who is more prudent and economical. When a man has nearly reached an income of £2,000, he has no inducement to make a little more; indeed, he is discouraged from doing so. He is fined if he does. It is, therefore, a discouragement of thrift. Indeed, this is the tendency of much modern legislation. The hope of old-age pensions which is held out is another step in this direction. It is a proposal to revive the disastrous condition which prevailed in the early years of the last century. It was then called outdoor relief; now it is dignified by the name of a pension. But the change of name will not alter the nature of the payment. It will inevitably raise taxation and lower wages.

The proposal of Government takes us back to the time before 1834, when, as the Charity Organisation Review says— almost the whole of the industrial population in many parts of England were in receipt of relief. Practically almost every poor person had an old age pension, and yet the condition of the poor was never so lamentable. There have been five Commissions and Committees on the subject—three of experts and two of politicians. The three of experts were all against, the two of politicians were in favour of old age pensions. I much doubt if the country has at all realised the cost. In the recent Blue-book the Local Government Board put it at £30,632,000, without counting cost of administration, and express the opinion that it would not materially reduce our poor law expenditure. In fact, old age pensions will cost much more than the interest on the National Debt. In the Blue-book we are told that if half the amount was paid from the rates they would be raised no less than four shillings and eightpence in the £1. This would be ruinous to many, and would practically destroy some industries. Moreover, would the amount stop at 5s.? In New Zealand it did not, but pressure was exercised and the amount has already been doubled. The same might and very likely would be the case here. I have not much faith that candidates would be strong enough to resist the temptation to buy votes by conceding the demand. Sir E. Hamilton's Departmental Committee also reported that— there would be an inevitable tendency to reduce wages, as was, we know, the case before 1834. Are the recipients of these pensions to be allowed to eke them out by working? And if not how are they to be prevented? Another evil is that they would probably increase pauperism. Mr. Harold Cox in the House of Commons quoted the Superintendent of the Melbourne Benevolent Asylum in Victoria as having said— I think that the payment of these pensions has a tendency to increase pauperism. Again, the honorary treasurer of the Melbourne Ladies' Benevolent Society was asked whether poverty was increasing or decreasing in Victoria, and replied— 'We do not think that poverty is increasing, but we think the tendency to ask for assistance is increasing. The tendency must also be to lower wages. Mr. Loch, probably the highest authority in the world on such a subject, tells us that— if there is any truth in the teaching of history it is that State relief relaxes effort, prevents accumulation, and conduces to and makes possible the unemployment of labour. A dependent population loses the power of acquisition. It is sometimes, however, said that these pensions are different from outdoor relief as being free from the "taint of the poor law." But as Lord Rothschild's Commission justly pointed out, any stigma must depend not upon the form in which the relief is given, but upon the cause which leads to it. Whatever discredit may attach to the receipt is just the same whether you call it poor relief or an old age pension. A pension which a man earns for himself stands on a very different footing. This form of pension is happily spreading, and will spread if we do not stop it. Various agencies are increasing substantially the number of aged persons in receipt of pensions. The trade unions, friendly societies, railway and other companies are doing much in this direction. The Local Government Board estimate that already no less than 250,000 persons are in receipt of pensions, and Lord Rothschild's Commission pointed out that a large and constantly increasing section of the industrial population of this country do already, by prudence, self-reliance, and self-denial, make their old age independent and respected. All these healthy and natural tendencies will be checked and choked by the hopes held out by Government. It is another step in the fatal process of making people more dependent and less independent; of making our countrymen lean more and more on the State, less and less on themselves; of breaking up the family and substituting the State. In the Colonies we are told that already children are ceasing to feel the moral obligation of supporting their parents. They begin to think that this is the duty of the State—i.e. of others. But, says the Charity Organisation Review, in an excellent article on the whole subject— besides this there are the scarcely less natural obligations of employer to employed, neighbour to neighbour, and friend to friend. All these obligations constitute the repairing force and cement of society, and in displacing them we may be creating a void which the State can never supply. The force of this natural charity is little appreciated by public opinion because it works unseen. The proposal, moreover, raises a number of questions which have not yet received any satisfactory answer.

Why is sixty-five to be the age? Why not sixty or seventy?

How is the age to be ascertained?

Why are pensions to be confined to old age? Why not for infirmity or illness?

Are pensioners to be allowed to work for wages?

If not, how is it to be prevented? If they do, are they to be punished? And if so, how?

Moreover, if they are not allowed to work we know who will find them occupation? Spinoza justly said that— if we wish to promote progress in the future we must retain the relation which Providence has instituted between conduct and consequences. To children it is right that help should be given in the inverse ratio of their strength; to men it should depend on their deserts. These are the conditions of national prosperity, and they cannot be contravened with impunity. They are, moreover, primary principles of justice. It is unjust to deprive a man of the fruits of his industry; but you do him an even greater injury if you take from a man any of the inducements to industry and thrift. Neither course can be adopted without disastrous consequences.

The Budget rests on no principle; it has no finality. The Government are increasing the death duties; where is the process to end? They are taking threepence more from incomes of over £2,000 a year than from those below. Why threepence? And why £2,000 a year? There is no reason, no logic in the proposal. The result is a sense of insecurity which is gradually lowering the value of securities and is most injurious to the prosperity of the country. I submit, then, that the present Budget is unwise—(1) because the income tax is too high; (2) because it will be unjustly levied; (3) because the disposals discourage thrift; (4) because they diminish independence and promote dependence; (5) because they weaken family ties and family responsibility; and (6) because they are creating a feeling of injustice and a general sense of insecurity.


My Lords, I shall only detain you for a few moments. I cannot allow one of the statements made by the noble Viscount with regard to the coal tax to pass unchallenged. I disagree with a great many of the statements he made, but I will confine myself to the coal tax. There is no doubt whatever, in the mind of anyone who knows anything about the coal trade, that the effect of the tax was very disastrous in some parts of South Wales and in parts of England, especially where the percentage of "small" is much above the average. Had that tax been continued very many of the collieries in South Wales would have had to close their pits. I was rather surprised to hear the noble Viscount (Viscount St. Aldwyn) state that some of the colliery owners had told him that the advantages to them of the repeal of the coal tax has only been about 3d. or 4d. per ton. As a matter of fact, contracts are being made for next year at something over 4s. per ton higher than could be obtained when the coal tax was in existence. The price of small coal when the tax was in force was 6s. per ton; contracts are now being made for next year at over 10s. per ton. It is true that the colliery owners did not receive the whole of the advantages of the removal of the tax. Its effect when first put on was greatly to reduce the wages of the men. Since the tax has been taken off the men's wages have advanced more than twenty per cent. Consequently the advantage has been very beneficial all round. And since the tax has been removed the quantity of coal exported has largely increased, thus benefiting the shipping trade, the railway companies, and the dock companies. I will not trespass on the patience of your Lordships by referring to other taxes. It has been proved beyond doubt that this tax was most prejudicial to this particular trade, which at that time was the only one taxed on its produce shipped to foreign countries.


My Lords, I should like, with your Lordships' permission, to address you for a few minutes on this Bill. I may say at once that I propose to discuss the question rather from the business than from the political point of view. I cannot say that in my view the Budget is a bad Budget. I think that in many respects it is certainly a good Budget, although, of course, there are things in it with which many of us disagree. I have nothing much to say about indirect taxation except this, that when Mr. Asquith introduced his Budget he made one statement which was received with general acclamation. It was, that as long as there was a war debt remaining, so long should certain war taxes remain in force. I thought that a good and plausible claim. I would point out that the South African war debt now stands at £120,000,000 and the war taxes produce £20,000,000 a year. If those taxes are to remain in force until the war debt is paid off, then that £20,000,000 a year should be applied to the reduction of the war debt instead of being used for the upkeep of the country generally.

The income-tax remains at 1s., and the death duties are still further increased. In consequence capital is getting frightened. Capital is beginning to leave the country, partly because of the high income-tax and the increased death duties, and partly because higher rates of interest are obtained in other countries. In my opinion it is foolish for capitalists to take the risks which they incur by investing their money in foreign countries. But that is, after all, a matter for capitalists. They forget the hidden dangers of investment in foreign countries—the dangers of Government, the dangers of Nature, the dangers of foreign peoples; and are willing to run the risk. Capital is frightened again by the fact that Cabinet Ministers, in addressing meetings in the country, forget that they are Cabinet Ministers, and the effect of their speeches has been to frighten capitalists and to do an immensity of harm. I was glad to see that at the opening of the Hampstead Tube Railway a Cabinet Minister who was present took the right line, and that on that occasion, perhaps for the first time, he was good enough to say that if money was invested in railways the investors should expect to receive an adequate return.

The death duties can be evaded by making gifts in one's life-time. A man hates to give away his money during his life-time, and up to now that has been the salvation of the death duties; but if you make the death duties too high you create a force which is stronger, and he gives away his money in his life-time and so defeats the tax. I begin to ask myself whether it is wrong to amass money, whether it is wrong to inherit money, whether it is wrong that a man should desire that his family should remain strong after his death; because it seems to me that these taxes are aimed against our great families and rich men. I had always thought that our great families and our wealthy men who had made their money by hard work were a source of strength to the country. A rich man walked into one of the insurance offices recently and wanted to insure his life for £150,000. He was sixty-five years of age, and was told that the premium would be £16,000 a year, and he expressed his willingness to pay that sum because he wanted to leave his successor in the position that he was in himself. He went on to say that in the course of nature his son would step into his shoes at about the age of fifty, and would have to pay £10,000 a year every year to leave the property in the same position to his son when he died. These death duties are going to act very prejudicially upon our great families.

An excellent feature in the Bill is the large Sinking Fund, because, after all, the making of a nation's finance consists in a very strong Sinking Fund. The future ascendancy of nations will rest largely on their money-bags, especially in these days when scientific equipment is worth more than even personal bravery and initiative. How should the Sinking Fund be applied? There were rumours at the beginning of the session that the Chancellor of the Exchequer was inclined to lend Sinking Fund moneys to the Irish Land Commissioners. That might have been expedient, but I do not know that it was wise. It was to prevent the Irish Land Commissioners from bringing out another Irish Loan, which would have been inconvenient; but I venture to think the proper policy was after all to support Consols, and for this reason. I have taken the trouble to go carefully through the price of Consols since 1880, taking the yearly yields and reducing to a common denominator the 3 per cents., the 2¾ per cents., and the 2½ per cents. I find that Consols were at their lowest in 1885. You could buy Consols in that year to pay you £3 1s.3d. per cent., from that year the price went up and the yield went down, until we got the highest price of Consols and therefore the lowest yield in 1897, when they paid £2 9s. 0d. percent. Since then the yield of Consols has gone up and they can now be bought to pay about 3 per cent. That seems to me to be one reason why the Chancellor of the Exchequer should buy Consols for the Sinking Fund, especially as he would thereby have supported the whole of the gilt-edged marked.

The Duke of Wellington said in fighting a defensive action— Keep the bulk of your troops ready for counter attack. I say to the Chancellor of the Exchequer, "Keep the bulk of your Sinking Fund money ready to repel an attack on Consols whenever the market should seem about to make one." Something has been said about the price of Consols being lowered by the action and policy of the Government of the day; but the price of Consols is ruled rather by the demand for money all over the world. At present the demand for money is very keen in Japan, Germany, and America, and capital is always inclined to find the market which pays best, and I think on the whole that is the reason why Consols are so low. We shall see a rallying of Consols, probably directly trade begins to fall off, but not until then. There is another thing that may hurt us very much and affect our finance. I allude to the position of labour in South Africa. London is the only free gold market in the world, and London has got accustomed to receive from South Africa no less than half-a-million of gold per week. If that should fall off we should see a further and larger fall in our securities. There has been a reduction in Chinese labour and in native labour of about 4,000 out of 100,000, and if that went on it would interfere with the weekly shipments of gold. I end as I began, by saying that on the whole I do not think this Budget is a bad one. But what I am very much afraid of is the next Budget and the next after that.

The Marquess of RIPON and Viscount GOSCHEN both rose to address the House, but the Lord Privy Seal gave way.


My Lords, I must apologise, in addressing your Lordships for the first time, for venturing to speak upon such a complicated subject as the Budget, and perhaps there are personal reasons which make it more difficult for me to do so; but in the few remarks which I shall make I shall not attempt to deal with any of the technical points which have already been dealt with, but shall confine myself to the general aspect.

It seems to me that three features stand out in this Budget. One is that, as the noble Viscount, Lord St. Aldwyn, said, we cannot look, in the future, in view of the social programme which has been foreshadowed by the Government, to any chance of remission of taxation. Another is that the Government, a free trade Government, has unintentionally dealt a blow at free trade. My views upon this subject are probably more in agreement with those of noble Lords opposite than with those of my noble friends who sit around me, and therefore I do not think noble Lords opposite will feel that I say this from any desire to make a Party point. Undoubtedly there are people who construed the speech of the Chancellor of the Exchequer as meaning that in the future a shilling would probably be the permanent rate at which the income-tax would stand for those who would not have an abatement under the present Bill. If you refer this to that arbiter who is often appealed to in public life, the man in the street, I think that, even though he be a free trader, he would be inclined to say that if in the future he was going to suffer from a permanent income-tax of a shilling and there was no chance of a remission of taxation—and I think it would be very hazardous to prophesy the possibility of any decrease in that direction—he would rather become a tariff reformer and obtain the money by indirect taxation. Personally I do not think that that is a very statesmanlike view to take, but perhaps it is human; and I am afraid there are more people who are guided by human considerations than by statesmanlike ideals.

The third feature is that the policy of the Government has had a depressing effect upon the finances of the country. Everyone knows that the City has been going through a very bad time, and that gilt-edged securities have fallen extremely low. I agree with the reasons given by Lord Faber for that state of things, but I know there are other reasons. I daresay I am the last person in this House who ought to venture a remark with regard to the low rate of interest on Consols, as it may be thought that an inherent responsibility attaches itself to my name. Whether that be so or not, I think that the Government of the day cannot disclaim all responsibility for the fall that has taken place in gilt-edged securities. Undoubtedly the investor has become alarmed at the effect that the Government's legislation, such as their Land Bills, is going to have on the trade of the country. The Government, through the Chancellor of the Exchequer, did do something which temporarily relieved the situation. Mr. Asquith's announcement with regard to the Transvaal loan had a temporary effect on Consols, but it was only an opiate which relieved the patient for a very short time. I am convinced that if you wish to restore a patient to a tranquil state of health, neither opiates nor temporary expedients will do it; you must relieve the patient from the anxiety that is affecting his mind. Until the investor is relieved in his mind, until his fears as to how the policy of the Government will affect capital are dispelled, there will still be a contributory cause of the state of depression existing in the commercial world.


My Lords, I hope neither the House nor the noble Viscount who has just sat down, will think for a moment that I had the slightest intention of standing between him and your Lordships. I believe the noble Viscount addressed this House for the first time. He bears an honoured name, and I am sure your Lordships were glad to hear the speech he has made on this occasion. If I do not reply to the latter part of the noble Viscount's speech, although it involved an attack on the Government policy which I am quite ready to meet, it is because it does not relate to the question of finance. When the Bills which so much alarm the noble Viscount are before the House I shall be quite prepared to defend them.

The noble Viscount who spoke first concluded his most interesting speech with an apology. Nothing, I am sure, could have been more needless. We listened to that speech with the greatest interest; and so far as I am concerned, or the Government which I represent, there was not a word in his speech from beginning to end, of which we have any right to complain. The noble Viscount expressed considerable scepticism upon the probability of further reduction of expenditure in future years. I am too old to indulge in prophecy, and all I can say is that the burden of expenditure which lies on the people is an evil the Government will strive, as they have striven during the short time they have been in office, to reduce so far as may be consistent with the interests of the country. One of the principal results of the financial policy of my right hon. friend the Chancellor of the Exchequer, has been to make a very large reduction in the debt, and especially in the unfunded debt, of the country. That I believe to have been a sound policy. I understood the noble Viscount opposite to say that he agreed in that.


Hear, hear.


The state in which my right hon. friend found the unfunded debt was most unsatisfactory, and I think that it is a great public service which he has been able to render in so largely, so steadily, and so determinedly dealing with that question. The noble Viscount passed to a question of great importance, one that lies at the root of social policy, when he referred to old-age pensions. On that question I do not understand that there is any difference of opinion between the Government and the noble Viscount, except as to the time when it should be dealt with. It was not the Liberal Party who first brought the question into the front rank of political controversy, and perhaps I may be allowed to say that it is a dangerous thing to dangle a promise on the subject before the people and make no earnest effort to fulfil that promise. Personally, and as a member of the Government, I rejoice at the determination of my right hon. friend to make such financial arrangements as will enable him next year to do something substantial in this direction.

The noble Viscount had much to say about the sugar duty, a subject upon which his friends in another place differ in their view. I think it will be agreed that my right hon. friend was wise under existing conditions in not making a reduction. A small reduction, though it might benefit the large industrial businesses in which sugar is a raw material, would not benefit the consumer. There was a further reason in the desire of the Chancellor of the Exchequer to have a source of revenue free to deal with old-age pensions.

A great feature of the Budget is the method of dealing with the income-tax and the attempt to draw a distinction between earned and unearned incomes, and my right hon. friend is to be congratulated upon his attempt to deal with a problem which has in the past presented so many difficulties. I well recollect—I daresay there is no one in this House who recollects it so well as I do, for I was in the House of Commons at the time—the marvellous effect of Mr. Gladstone's speech in the year 1853. If I had been asked the day before he rose to introduce the great Budget what I thought the House would say to a proposal to make no distinction between earned and unearned incomes, I should have undoubtedly said that the House would almost universally have demanded the change. It was by the power of Mr. Gladstone's eloquence, and by his great authority upon fiscal questions, that he converted—and the noble Viscount, I think, will agree with me, that that is not a very easy thing to do—the House of Commons entirely to his own opinion as to the course to be then taken.

But upon what was it that Mr. Gladstone rested his determination not to deal with that question? It was because he looked upon the income-tax as a temporary impost; he declared it was not a permanent impost. He said he sympathised largely with the professional man who earned a large portion of his income, and a large portion of whose income was, consequently, very uncertain; but he regarded the income-tax as a great instrument of taxation to be used for certain large purposes, and he was unwilling to diminish in any way the efficiency of that instrument by introducing changes of this kind. We know the history of the income-tax. We know that there was a time many years ago when this distinction between earned and unearned incomes was tried. It was tried by Lord Henry Petty, the Whig Chancellor of the Exchequer of 1806, but it did not last, and when the income-tax was reverted to afterwards there was no such distinction, and the system which has been in force whenever there has been an income-tax from that time to this was brought into operation.

When Sir Robert Peel, in 1842, reverted to an income-tax he reverted to it in order to make a great operation, one of the greatest financial operations ever undertaken by a Chancellor of the Exchequer in this country—namely, the sweeping away of that multitude of insignificant duties by which the people and the trade of this country were so grievously oppressed. It was for that particular purpose that Sir Robert Peel resorted to the income-tax. Mr. Gladstone, in 1853, had a similar object in view; he had great financial reforms to introduce, and he determined to keep to the income-tax for that purpose. He never contemplated that the income-tax was to become a permanent part of the taxation of this country. He had a dislike to the income-tax; and your Lordships will recollect that at a certain famous General Election—I think in 1875—the principal contents of Mr. Gladstone's address to the electors was an expression of hope that if returned to power he might be able to abolish the income-tax. But he was not returned to power, and the income-tax was not abolished.

I think we may fairly say that we must now regard the income-tax as one of the mainstays of our financial system, not, of course, the income tax at 1s. in the pound, for that is another question; and if it is admitted, as I think it is generally admitted, that it is hard and unjust not to make the distinction which it is now proposed to make between incomes comparatively certain and incomes that are very uncertain, the time has come when the Chancellor of the Exchequer is bound to do what he can to relieve that undoubted grievance if it be possible to do so. Mr. Gladstone, as I understand, never said that it was impossible to do so. What he said was that it would be difficult and that it might impair the certainty of the results of the income-tax, because one of the great advantages of the income-tax is that if a large amount of money is needed for any purpose, it is only necessary to put on an extra penny and you know what you will get. As I have said, the work which the Chancellor of the Exchequer has undertaken is a bold one, but I think it was necessary; for when the Minister expresses his belief that the income-tax must remain a permanent part of the financial system of the country, it is his duty to make it as little burdensome as possible.

Then I pass from the income-tax to the proposals for dealing with the death duties. The result of the proposals in regard to the income-tax was to make a reduction in direct taxation. It was contrary to the policy of my right hon. friend and of His Majesty's Government that if you reduce direct taxation, you should not at the same time reduce indirect taxation; and therefore the Chancellor of the Exchequer had to look where he could find some addition to the direct taxation of the country, which would balance the reductions he had made in the income-tax, and he found it in the changes which he proposes to make in the death duties. Your Lordships know what those changes are. In the higher values a certain amount is added to the rate per cent., and the new principle of super-tax is introduced on the death duties on amounts which exceed £1,000,000. That, in my view, is a very sound principle. It was said, I think by my noble friend Lord Avebury, and certainly by Lord Faber, that the effect of that; would be to discourage men from saving. For the last fifty years that has been said in regard to the death duties. But what has happened? The accumulated income of the country has grown year by year by leaps and bounds; and I see no reason to believe that this process will be stopped or retarded by the new taxation.

There were various matters on which the noble Viscount touched into which I do not think I need enter. The noble Viscount went slightly into a defence of his own financial policy. I have not the least wish to enter into any hostile criticism of the financial policy of the noble Viscount. I believe him to be a great financier, I believe him to be animated by very sound principles, and I was very glad to hear from him words which implied that on the great question of free trade he adhered firmly to the views which he had previously expressed upon that subject. The noble Viscount said that the policy of His Majesty's present Government was a free trade policy. The noble Viscount never said a truer thing in his life. It is a free trade policy and it will remain a free trade policy, for we have been placed in the position which we now occupy as the result of a general election which turned, as I believe, and as I always shall believe, on the issue between free trade and protection more than on any other question that was placed before the country at the time. I have to thank my noble friend Lord Eversley for what he said in support of the policy and action of His Majesty's Government. I was very glad that my noble friend reminded the House of what had been done by His Majesty's Government in the matter of the reduction of expenditure. I think that in that respect the noble Viscount was not quite fair to us, and I was very glad that my noble friend, a perfectly independent Member of your Lordships' House, reminded you of the course which the Government had taken. We did come into office on the principles of economy, and by those principles we intend to abide. But we have always said, and I repeat it to-night, that while we are in favour of a reduction of expenditure, we hold strongly to the view that there must be no reduction of expenditure which would endanger the safety of the country.

I think the noble Viscount admitted that he was in accord with the step which the Government have taken in abolishing the system of loans for works. No doubt it has thrown and will throw for a certain time, but not more than a certain time, an amount of extra expenditure upon the annual Votes which tells unfavourably when that matter is not considered, but the principle was unsound. It was a principle, as my noble friend at the Table, Lord Eversley, has shown, which had very evil effects in weakening the responsibility felt by those who have to deal with matters of this kind, and its abolition, I am confident, will place those matters on a sounder footing, Lord Avebury made some complaint about pensions being counted as earned income. Surely they are earned incomes. They have been earned in the past and are the result of services which have been rendered.


I did not complain of that. I thought that reasonable. What I said was that I did not see the logic of drawing a distinction between a pension, which is really deferred pay, and savings which might lead to the same result.


I have stated the view which my right hon. friend has taken of that question. There was another point to which my noble friend adverted, upon which I should like to say a word. It is a technical point, and, of course, I am not acquainted with it myself, but I will tell the noble Lord what I am instructed is the view of the Government in respect to it. The noble Lord objected to the clause in the Bill which proposes the repeal of Section 6 of the Revenue Act of 1865. That was a concession made at that time, and I am instructed to say that the concession was found in practice to work very unfairly as between different taxpayers and between individual taxpayers and the Revenue, and its repeal was strongly recommended by a Committee presided over by the late Lord Ritchie. Therefore we have the authority of that Committee for the alteration which we propose to make in that respect. I thank your Lordships for the attention you have been good enough to give me. The subject lies outside my ordinary line of business, and I only hope that I have been able to afford to the noble Viscount at least a portion of the information which he desired.

On Question, Bill read 2a: Committee negatived; and Bill to be read 3a Tomorrow.