§ [SECOND READING.]
§ Order of the Day for the Second Reading read.
§ *VISCOUNT ST. ALDWYN
My Lords, early in the tenure of office of His Majesty's present advisers the minds of a good many stern economists among their followers who had been taught to believe in the gross extravagance of the Administrations of Lord Salisbury and Mr. Balfour must have been much cheered by the statement made by the Prime Minister that he considered that the Estimates for the Supply services, as they then stood, at £111,000,000, were quite excessive, and that he held it to be the first and paramount duty of the present Government to return to a more thrifty and economical administration. The effect of that announcement was seen last year by the reduction of these Estimates by something less than 1 per cent. This year I am sorry to say that the £111,000,000 has been exceeded by nearly £1,000,000. I do not complain of that. I allude to it solely for the purpose of expressing the hope that, now it that was been shown by the experience of the present Government that the charges of extravagance which they so freely launched in the days of their predecessors were wrong, these charges will not be repeated in the future.
What is the present position? We have Estimates for the Supply services of nearly £112,000,000, but that is by no means all. We have before us in the years that are immediately to come anticipations of large additions to those Estimates, not including any question of old-age pensions, but for the ordinary services of the country. Bills have been passed or are passing, such as the Irish 1399 Universities Bill or the Small Holdings Act, which must necessarily add to the expenditure. When the question of elementary education is settled, and I suppose all of us hope that a reasonable settlement of that question may be arrived at before long, a further large charge will undoubtedly be imposed on the Exchequer. Then there are other more important items of increased expenditure to which we may look forward, first in Army services. Unless the rumours which have been abroad within the last few weeks as to intended reductions in the Army are true, as I cannot imagine for a moment they are, and if the Territorial Army scheme is a success, very considerable additions must be made to the Army Estimates in the coming years on that account, especially in order to establish the Territorial Artillery. Then those who are acquainted with the needs of the services tell us that both in the Army and Navy, stores have been depleted in the last two years which will have to be replaced in future Years. Lastly, the new construction vote for the Navy for three years running has been reduced to a point which has been unknown for many years previously, with the certain result that if the promises of the Government with regard to the maintenance of our Navy in an effective state are realised the new construction vote must be increased in the years before us, probably by several millions.
In addition to those charges there are two important permanent naval works—the docks and harbour at Rosyth and the Portsmouth lock—for which a sum of no more than £100,000 is taken in the Estimates of the present year, but for the completion of which at least £4,500,000 will be needed. We have been told that the works at Rosyth are to take ten years. If the policy of spending money at Rosyth is sound, and I believe it to be necessary, there can be no question that these works to be brought to a conclusion at the earliest possible date. I believe at the present moment there is not a single naval dockyard on the whole east coast of this country capable of receiving a ship of the "Dreadnought" class. If by postponing the execution of this great work owing to their desire to keep down 1400 naval Estimates, that work should be found to be not ready in the event of a possible naval war in the North Sea, a responsibility will rest on the shoulders of the Government which I should be sorry to bear. Taking all these matters together, and remembering that the Government have set their faces against loans, I believe a sum of several millions must be added to the ordinary annual peace Estimates during the next few years.
That is not all. We have now before us the Old-Age Pensions Bill, which will impose a burden commencing at £7,500,000 or so, and extending to an amount which no man can foresee, upon the finances of the country. What has been the policy which the Government have pursued with a view to preparing for this great increase? We have been told by the Prime Minister that he budgeted not merely for one year, but that his Budgets form part of the whole of a great financial policy. Last year he gave up £3,500,000 of indirect taxation in the shape of coal duty and reduction of the tea duty. This year he follows that action up by giving up £3,500,000 of the sugar duty—£7,000,000 of indirect taxation given up in two years with these great liabilities before us.
I have never contended, and am not about to contend now, that either the coal duty or the sugar duty is free from objection. I defy any man to discover a tax against which no objections can be made. Least of all can that be said for the income-tax, the high rate of which is certain to have a direct effect upon the employment of the people and upon the condition of trade. But what I have contended is that, granting that there are objections to the coal tax and the sugar tax, just as there must be objections to every kind of tax, it would be absolutely impossible for any Chancellor of the Exchequer to raise the amount which those taxes have produced with less disturbance to the general trade and industry of the country, and with less injurious effects upon the masses of the people. I have no doubt that the repeal of the coal duty benefited the employers and workmen concerned in the production of coal. It did not benefit them to the 1401 extent that was anticipated, because I think the rise in the price of coal that took place last year was due not so much to the repeal of the coal duty as to the great expansion of trade on the Continent, which largely increased the demand for our coal, and consequently together with the repeal of the duty, had this effect upon the general consumers of coal in this country that, it materially added to the price which they had to pay for a necessary article of consumption. But the coal duty has gone.
The reduction of the sugar duty, so far as sugar is used as an article of manufacture, has certainly given relief to manufacturers. It may have given some relief, like the reduction of 1d. on tea, to the direct consumers. I do not believe that the reduction in either case gave much if any relief to the very poor classes among us who purchase both their tea and sugar in very small quantities indeed. The reduction of ¼d. a pound on sugar can be of no benefit to the poor person who buys no more than half a pound of sugar at a time. But what I contend with regard to both these duties is that neither of them pressed severely upon the masses of the people. That is clearly proved by the fact that the consumption both of tea and sugar, in spite of the duties upon them, has been considerably increasing, and the sugar duty in 1907 produced a larger sum than has ever been known before, while sugar was at what the Prime Minister described as a satisfactory price.
The Prime Minister described the sugar duty as vicious in principle, burdensome as to its incidence, and unequal as to its operation as between different classes. If it is vicious in principle His Majesty's Government would have carried out their principles by repealing it altogether instead of leaving half of it in existence. I contend that it is not vicious in principle. It is in accordance with the strictest canons of free trade. Nobody has ever denied that. No doubt it is a tax on food and a tax on raw material also, but sugar is mainly used as a raw material of manufacture by two classes in this country—the manufacturers of confectionery and the manufacturers of aerated waters. I pass by the brewers because 1402 they have no business, in the opinion of many persons, to use sugar at all. The two trades that I have named are the trades which complain of the sugar duty. Yet it is a remarkable fact that their trade expanded while the sugar duty was at the full amount. Therefore I should contend that it is not burdensome in its incidence.
But the Prime Minister said that it is unequal in its operation as between different classes. No doubt both with regard to tea and sugar the great masses of the people pay more to those duties than the comparatively richer classes. But that is the very object of taxation of that kind, unless it is taken for granted that the taxation of this country is to be confined to those who pay direct taxation and the ever-decreasing number of the working classes who consume alcohol and tobacco. That is a principle which I believe cannot be maintained as sound finance. It was all very well to talk of a free breakfast table when the expenditure of this country was small as compared with the enormous expenditure which we see nowadays, and when the income-tax was at 5d. in the £. A free breakfast table is a very different thing when we have income-tax in peace time at the rate of 1s. in the £, when our expenditure is already £111,000,000 for the Supply services, and is certain to be increased, and when we are about to impose, in the name of social reform, a largely increased burden on the taxpayers of this country. In these circumstances I contend that it is not sound finance to exempt altogether from taxation those members of the working classes—and they are many—who consume neither alcohol not tobacco, but that they ought to pay something to the great expenditure of the country, and especially to that kind of expenditure which is described as social reform.
It was by repealing taxation of this kind that His Majesty's Government thought fit to prepare for the increased expenditure which may be anticipated in the future. They have not suggested that they are about to increase taxation in any shape. What they have stated is that they will devote part of the sum which is now used for the redemption of Debt towards the cost of old-age pensions. 1403 I was not surprised at that suggestion from the Prime Minister, because a few weeks ago I observed that he taunted the Government of Lord Salisbury, in which I was Chancellor of the Exchequer, for annually raiding the Sinking Fund between 1896 and 1899, instead of devoting it to the formation of an old age pension fund.
If your Lordships will pardon me, that charge having been made, I should like to show that it is a grossly unfounded charge, and that it is even audacious on the part of Mr. Asquith. I will not dwell on the fact that during the years named the subject of old-age pensions had not been sufficiently examined to be ripe for being dealt with in any way; but I challenge the statement as an entire misrepresentation of what I did. Between 1895 and 1897 the Exchequer received a realised surplus in those three years of £10,250,000. That would, according to law, have been automatically devoted through the old Sinking Fund to the reduction of Debt. The Debt at that time was unpurchasable at its nominal value; if you wanted to buy Consols you would have had to pay £110 for £100 nominal value on an average during those three years. It appeared to me and I remember it appeared also to Lord Wolverhampton—that that would have been very great waste of public money. And, therefore, instead of devoting that £10,000,000 to the reduction of Debt during those years, what I did was to devote £9,000,000 of it to public works, which otherwise would have had to be provided for, under the precedent set by Lord Rosebery's Government in 1895, by borrowing for short terms of years. That proposal was approved by the House of Commons at the time. I think it was approved unanimously, and I am glad to see that view confirmed by the noble Lord opposite.
What were those works? They were the formation of docks and other important naval works at Devonport, Keyham, Gibraltar, and elsewhere, the building of barracks, urgently required at that time for the comfort and health of our soldiers and sailors, the provision of ranges and manœuvring grounds for the training of our Army—all matters that were urgent, 1404 because in days previous to the years to which I am referring they had been delayed until it was absolutely necessary, owing to the great increase in the size of ships and the increase in our Navy and Army, that a large expenditure should at once be incurred in that way. It had to be done. It could only have been done, either by loan or by the devoting of that realised surplus to that purpose, and that is what I did. And that is described as raiding the Sinking Fund! That is not all. Of the £9,000,000, £2,500,000 was devoted to the erection of great public buildings—South Kensington Museum, the Admiralty, and those great offices in Whitehall which I think are a credit to the country. And I am very glad to observe that in the Bill now before your Lordships Mr. Asquith has followed my example. In the ninth clause of this Bill it is proposed to raid the Sinking Fund to the extent of £600,000 for continuing that very range of buildings on which much of my £2,500,000 was expended. After this action on the part of Mr. Asquith I hope I shall hear no more of my sins of raiding the Sinking Fund for the very purpose for which he proposes to raid it now.
I turn to another point. The Prime Minister is specially proud—and I admit that it is a subject of pride to the country—of the amount of Debt which he hits paid off during the last three years. He claims to have paid off—and I dare say it is quite correct—£47,000,000 of Debt in three years. He claims also to have restored the credit of the country. I wish the credit of the country had been restored. What are the facts? I suppose that the price of Consols is a pretty good measure of the credit of the country. Consols were never so low during the Administrations of Lord Salisbury and Mr. Balfour as they were last year. The present price of Consols is actually lower than the lowest price which they touched in 1905—the last year before His Majesty's present Government came into office, the last year of those extravagant Administrations.
Of course, it would naturally stand to reason that a large reduction of Debt should increase the credit of the country. Why has it not done so? At the present 1405 moment, if His Majesty's Government wish to issue a comparatively small amount of 2¾ per cent. Irish land stock, they cannot get any more than 89½ for 100 of it, on their own showing. Why is not the credit of the country better after this reduction of Debt There are reasons for which His Majesty's Government are in no way responsible which have undoubtedly affected the question, but there is one reason for which they are responsible, which has affected the credit of the country materially. I am afraid one of the reasons why the price of Consols has not increased, but has rather fallen, since their administration began, is the support they have given to the attacks which so many of their supporters have made on property in every shape and form. Further, at the very moment that the Prime Minister prides himself on paying off £47,000,000 of Debt in three years, he is about to impose a new burden on the country, commencing with £7,500,000 to £8,000,000, ending nobody knows where—a charge equal, if noble Lords will consider it, in amount to what represents £250,000,000 of capital. These are reasons, for which His Majesty's Government are absolutely responsible, which have kept down the credit of the country and prevented Consols from rising in spite of the redemption of Debt.
I now come to the way in which this redemption of Debt has been effected, and I think some little attention should be given to that, because, although I entirely congratulate His Majesty's Government on having made it, yet we ought, to consider how it has been done. Now, Out of these £47,000,000, £13,500,000 have been found by the realised surplus of the three years. What is that realised surplus due to? It is due to the fact that the Chancellor of the Exchequer of the day has under-estimated the yield of his taxation and overestimated his expenditure. When I was Chancellor of the Exchequer I always carefully guarded myself against taking any credit whatever for a realised surplus. To my mind it is rather discreditable than otherwise, because it shows that the Chancellor of the Exchequer's calculations on one, if not both sides have been wrong. Well, £13,500,000 have been found by the realised surplus. Then the process has been made more easy 1406 by the price at which the Debt has been redeemed. It has been possible during these three years to redeem Consols at a discount varying from 20 per cent, to 1.2 per cent.
Lastly, the bulk of the money which is devoted to this purpose has come through the New Sinking Fund out of the Fixed Debt charge of the country. That unquestionably is a matter for which the Prime Minister as Chancellor of the Exchequer may take credit. He has kept that Fixed Debt charge at the amount of £28,000,000. He even raised it last year to £29,500,000, and that has no doubt tended largely to this reduction of Debt. Now it is suggested, that that amount should be reduced next year. The Prime Minister said that the New Sinking Fund would next April amount to as much as £9,785,000, and out of that sum a certain portion might be sot free in order to go as far as it could, towards providing for old-age pensions. I, for one, should have no quarrel in principle with such a proposition, and I observed the other day that Lord Welby, speaking on the Old-Age Pensions Bill, took a similar view. But when, in 1899, I pointed out, as Chancellor of the Exchequer, to the House of Commons of that day, that owing to the approaching reduction of the interest on the Debt, and falling in of terminable annuities, the New Sinking Fund would very shortly amount to a sum much larger than that to which it had ever amounted before, and, therefore, that it was advisable to do precisely what the Prime Minister suggests now—namely, to, reduce the fixed Debt charge—why, I was denounced up hill and down dale by the leading Members of the Opposition of that day, including, I am quite sure, Lord Wolverhampton, whom I now see opposite.
I think I was right, and I think if Mr. Lloyd-George, as Chancellor of the Exchequer, should decide to take a similar course next year that he will be right also. But I have two things to say. In the first place, the deadweight Debt, as it is called, will next April be £70,000,000 more than it was at the time to which I was alluding—in 1899; and, secondly, if the fixed Debt charge is reduced, I think that anything that is gained by that reduction ought in accordance 1407 with all precedents to be devoted to the relief of taxation. What has enabled the Chancellor of the Exchequer to devote so large an amount out of the Fixed Debt charge to reduction of Debt during the last three years? It is just this, that he has maintained the income tax at a shilling in the £. If the income-tax had stood at 8d. in the £ during those three years, the rate at which it stood before the South African War, the Exchequer would have received £30,000,000 less in income-tax in, the three years than it actually did. Therefore, what has happened is this, that the £47,000,000 of Debt has been mainly redeemed out of the extra 4d. on the income-tax and out of the realised surplus of the three years.
But, my Lords, there is no prospect that if the Fixed Debt charge be reduced next year, the sum by which it is reduced will be devoted to the reduction of the income-tax. We know very well that it is to be devoted to old-age pensions. I venture to say that that is not sound finance, considering the source from which it comes. Considering the great reductions that have taken place in the last two years in indirect taxation—no less than £7,000,000—it is not finance that in my belief would have been sanctioned by any of the predecessors of the present Government. What does it mean? You are imposing in the name of social reform an enormous new burden on the country for the benefit of the masses of the people. You are proposing to pay for it, so far as we know at present, solely at the expense of that small class on whom direct taxation falls. That is the proposal, so far as we know it. Perhaps I am anticipating rather the Budget. of next year, but I hope I am not, unduly detaining your Lordships in doing so, because it does seem to me that these questions deserve the attention and consideration of the country, even before that Budget is proposed.
Let me give two reasons why the income-tax should not be retained at 1s. in the £. The first reason is that it is a very heavy tax indeed upon a certain class of the community. In my belief, with an income-tax of 1s. in the £, persons who receive unearned incomes of between 1408 £700 and £1,500 a year are about the most heavily taxed persons in the community at the present moment. Secondly, a point which I have over and over again endeavoured to impress upon the country is this, that to retain the income-tax at 1s. in the £ in time of peace is wrongfully to deplete what should be your resource in time of war. When the South African war broke out, the income-tax was 8d. in the £. The income-tax is now 1s. in the £. If war should unfortunately break out tomorrow, the country would be the poorer for war expenditure than it was in 1899 by no less than £10,000,000 a year, because 4d. in the £ of income-tax has already been appropriated to peace expenditure. I will not labour that point, but I will say this, that, looking to the hints that have been thrown out that some further contribution is to be derived from payers of direct taxation towards the cost of old-age pensions, it does appear to me to be a matter which now more than ever before, deserves to be considered by the country at large. What is the position? Here, in the name of social reform, you are actually imposing a burden, the extent of which in the future nobody could foresee, upon the taxpayers of the country. So far as we know at present it is practically to be paid for solely by the payers of direct taxation, while indirect taxation has been reduced by £7,000,000 in two years. Why did the Prime Minister reduce the sugar duty this year? He said it was because he did not need it for the expenditure of the Year. That was not the view he took of the circumstances in his Budget of 1907. In his Budget of 1907 the Prime Minister deliberately levied £1,500,000 more than he required for the expenditure of the year on the ground of the burden about to he imposed on the country by the institution of old-age pensions. He devoted that sum very properly last year to the repayment of the Debt and this year it goes towards old-age pensions. If the Prime Minister had followed this year the wise and sound financial policy he adopted last year in making provision for the future burden which he knew was imminent he would have continued the sugar tax and would have devoted £3,500,000 this year towards additional repayment of the Debt 1409 and have had £3,500,000 in hand next year as a most important contribution towards the cost of old-age pensions. Had this been done it would have been not only in accordance with financial prudence but with justice in the allocation of taxation, because I cannot conceive a tax that could be more appropriately used to bear a part of the burden of old-age pensions than the sugar duty. But no; financial prudence and justice have been thrown aside; they have given way to the party political exigencies of the moment and to the clamour of the supporters of the Government in the House of Commons for a part repeal, at any rate, of the sugar duty, and this is done precisely at the moment when we are imposing this great burden on the country without knowing how it will eventually be met.
I have heard this described as a popular Budget. I suppose it is a popular Budget, because, no doubt, it has met with little opposition in the House of Commons and in the country. I can only say that in my opinion it is a Budget fraught with evil omen for the future. It seems to me utterly devoid of any financial foresight; it seems to ignore any equitable distribution of our burdens among the different classes of the population, and to disregard what is even more important, the absolute necessity of maintaining unimpaired in time of peace our principal resource for what may be vital needs in time of war.
§ LORD ST. DAVIDS
My Lords, the noble Viscount, Viscount St. Aldwyn, had said the present Government accused the late Government of extravagance but had not been very much better themselves. He has said that the present Government in their first year reduced the Budget by £1,000,000, and in the present year have slightly increased it, but it ought to be borne in mind that the present Government have adopted the principle that public work, such as barracks and docks, should be done, when they are done, out of the revenue of the year, whilst the Government of which the noble Viscount was a Member, in addition to the monies raised by taxation which they spent every year, spent further sums, almost every year of their life, in public works which, though 1410 they have been said to constitute a capital charge, meant, many of them, the spending of money on wasteful objects. They ought really, I think, to have been paid for out of the revenue of the year. That, I think, is the policy of the present Government, and for which the noble Viscount ought to have given them some credit. Then the noble Viscount has said that the farthing a pound off sugar will be very little relief to the very poor classes, because they buy their sugar half-a-pound at a time. That may possibly be the case, but I have very vividly before my mind that just after the announcement of this reduction in the price of sugar I was taken on a motoring tour across the country, and I was struck immensely by the number of notices which I saw in the village shops to the effect that because of the Budget the price of sugar was reduced. We must remember that although there may be those who buy their sugar half-a-pound at a time, most of the village people throughout the country go into the towns shopping on Saturdays and buy considerably more than half-a-pound of sugar at a time. They very often buy several pounds, and those people in almost every case have got the benefit of the reduction from the very day it was made. The noble Viscount has said that the sugar tax was said by Mr. Asquith to be vicious in principle, and that yet the Government have only taken off half of it. The Government have a good deal to do, and the fact that although in office only two and-a-half years they have taken off half a tax is considerably to their credit, whilst the noble Viscount would not probably have given them any additional praise if they had taken off the whole of it. The noble Viscount went on to say that taking off taxes from coal and tea and sugar was, in his opinion, unsound finance. I am very interested to hear it, but it is very vividly before my mind that there is a great propaganda going on in the country in favour of what is called tariff reform, and what the tariff reformers are saying from one end of the country to the other is that they propose to take off the taxes of tea and sugar the moment they have the power. The noble Viscount himself may not hold that view, but it must 1411 be in his knowledge that his own colleagues and members of his political party are advocating every day on public platforms that taxes shall be put on corn and other articles of consumption in Order that taxes may be taken off tea and sugar.
The noble Viscount went on to say that the credit of the country had not improved under the present Government. He gauged the credit by the price of Consols, and he told us that in his Judgment the price of Consols had failed to rise, partly because of the old-age pensions scheme, and partly because of general attacks on property by supporters of the Government. But I think we ought to recognise that there is no party in this country, not even the extremest socialistic party, that has ever proposed any attack on public credit. We have never had in this country any party wild enough to say that the public debt should be repudiated or the interest on it reduced. Whatever attacks we have had we have never had attacks on public credit. I should like to remind the noble Viscount that there are other causes for the low price of Consols. One of them is, undoubtedly, the fact that we have had very good years of trade and that when trade is good it is a commonplace that money goes from the banks into trade and that there are not big sums to be invested by the banks and by capitalists in Consols as temporary investments. There is also the fact that in the last few years we have had nearly all commodities at a much higher price than the average. That means that a big merchant who, perhaps, all his life has been in the habit of borrowing from his bank, say, £100,000, merely because the prices of commodities in which he deals are higher, will, on the same volume of trade, have to borrow £120,000 or £130,000, instead of £100,000. That is one of the main reasons why Consols have been low. There is another reason, and one for which the party opposite is entirely responsible, and that is the law under which trustees in this country are allowed to invest in Colonial stocks. I do not think we felt the full effect of that on the price of Consols when it was done, because trustees are very lethargic bodies, and when holding Consols or 1412 anything else are very slow to move out of those securities and to go into something else. But we now have the Colonies borrowing money and coming to the British public to do it. Canada the other day issued a loan at par paying 3¾ per cent., and the Cape of Good Hope quite recently issued a loan at par paying 4 per cent. When trustees are allowed by law to go into securities that pay 3¾ per cent. or 4 per cent. is it not likely that they will cease putting very much money in Consols which, will pay much less? That was, undoubtedly, one of the causes of the low period; a cause we are only just beginning to realise and a cause for which the noble Viscount and his friends are entirely responsible. I should like to see some Government repeal that law altogether. I would not compel those who have made Colonial investments to go out of them, but I do not think trustees should be allowed to make such investments in the future unless, of course, provisions to that effect are made in their trust deeds.
The noble Viscount went on to say that a reduced fixed debt charge whenever made ought, as a matter of principle, always to benefit the taxpayer. That may be so, but, after all, there is not such an enormous difference in the minds of some of us between a taxpayer and a ratepayer. If a reduction in the fixed debt charge of this country is to be used for old-age pensions we must remember that as the old-age pensions scheme becomes operative it must tend to keep down rates by taking these poor old people off the rates. The noble Viscount wound up by saying that he thought it was a serious matter that the income-tax was no longer available as a war tax. He pointed out that it is being kept at Is. in the £, instead of 8d. where it used to stand, and that that means that £10,000,000 a year out of the income-tax being used for the ordinary purposes of the year, it cannot, therefore, be put on as a special war tax. That, no doubt, is so, but in the last two years by reducing taxes on coal, on tea, and on sugar, the Government have given up at any rate, £7,000,000. If a big war should unhappily come upon us it would be necessary to put on some taxes, and for myself 1413 I cannot help thinking that it should be well understood that taxes would have to be put on that everybody would feel. It would tend to reduce the war fever if everybody knew that a wai was going to be a serious burden. I do not see why the Government should not be able to reply that if they have not got available the £10,000,000 that could be raised from income in time of war they have these £7,000,000, at any rate, which they could raise on taxes on tea, sugar and coal.
My Lords, I did not come to the House with any intention of speaking on this Bill, but I should like to say a few words, more especially in connection with the partial repeal of the sugar duty. The noble Lord who has just spoken took credit on behalf of the Government for a reduction of taxation. I should like to hear that question discussed twelve months or two years hence, when we know what further taxation is going to be imposed. For my own part, speaking as a free trader, I want to say that it would be a very great mistake to suppose that all free traders welcome the reduction of the sugar duty. It is not, of course, that we like the sugar duty. We are very glad to see it reduced; but many of us certainly think the moment for reducing it was singularly inopportune, for the very good reason that the country could not afford it. The noble Viscount has dealt at length with some of the fresh charges which are about to come upon the country. There is, in the first place, the altogether uncertain charge for old-age pensions. In connection with that subject I wish for one moment to diverge and to say that I altogether repudiate the charges made—not, indeed, in this House, but outside—that those of your Lordships who thought it your duty to oppose, in some measure, the old-age pensions scheme of the Government are not animated by any sympathy with the poorer classes or do not think old-age pensions of some description desirable. It is not by any means a pleasant thing to take all the odium and misrepresentation which naturally accompany opposition to a law which presumably is popular. It is certainly, as far as I am concerned, only a very strict sense of duty that has induced me to do so.
1414 Old-age pensions are to cost we do not know what. The noble Viscount said £7,500,000. I think the lowest estimate given by the Chancellor of the Exchequer is £6,500,000; whilst in 1910, unless the Government's scheme undergoes some amendment, there will be an additional £3,500,000 sterling. Then there is for education an altogether unknown sum; the question of unemployment will have to be dealt with; there is a perfectly unknown sum to be expended for increasing the Navy, the amount of which does not altogether depend upon us, but upon what is done by other nations; and then there are the numerous charges arising at every moment. This afternoon we have heard a suggestion made that Imperial taxation should bear the cost of remaking all the roads of the country; and I think I have rarely heard any debate in this House in which there has not been made a proposal which, if accepted, would not add to the burden of taxation.
What have we on the other side—the assets? First, the very problematical reform of Poor Law administration which, let us hope, will produce a saving, but of which we know nothing at present. In the second place there is the Sinking Fund. I quite agree that £10,000,000 a year is an excessive sum and that the amount devoted to the extinction of debt might very well be diminished. The noble Lord opposite did not say by how much he thought it would be safe to diminish it, but I suppose no Chancellor of the Exchequer would dream of reducing it by more than one-half, and, for my part, I think that sum would be excessive. That gives us only £5,000,000; and certainly, when we look at all these fresh charges which are coming upon us, which at the lowest estimate, I should say, will amount in a couple of years to £15,000,000, or more probably to £20,000,000, we are not very much advanced by getting £5,000,000 out of the Sinking Fund. I have been engaged in this sort of financial work all my life, and I have learned that it is very nearly impossible for any one who has to deal with the finances of a country to be popular if he wishes to do his duty. I cannot help thinking that there is a rather strained desire at the Treasury 1415 now, not to look at the facts or arithmetic but rather to look at what would be most popular in the country at the moment. I really regret that on every occasion I have to speak on this subject, I pose rather in the attitude of a male Cassandra, but all I can say is, whatever the noble Lords opposite may think, the financial future of the country inspires me with the very gravest misgivings.
§ *LORD FABER
My Lords, the discussion on the Finance Bill in this House is more or less academic, but at the same time it seems to be an interesting question. There are three subjects as regards the Budget that stand out from among the rest, namely, the Sinking Fund, the pensions scheme, and the reduction of the sugar-tax. As regards the Sinking Fund, there can be no doubt that a Sinking Fund of £15,000,000 is a very fine and good one indeed. In my view it adds great strength to the Budget generally; it adds also prestige to Consols and has been of enormous benefit in adding to the stability of the stock markets. After all, the Chancellor of the Exchequer regards the Sinking Fund as doing for the nation what any prudent man would do in business—helping to put by certain money as reserves. As regards old-age pensions I do not think anyone wanted for the moment to prevent old men who have served the State well, so far as they could, getting pensions. The whole argument really was whether the pension should be contributory or not. I was astonished when we were told that contributory pensions were impossible, and I think that assertion was founded on the dictum of Mr. Chamberlain. Now how can that be so when we only have to look at what is going on in Germany to find that contributory pensions there are working very well and have answered? Is it that in the prosperous state of this country we have become too lazy to try and work out for ourselves the possibilities of this case, or is it that in the avalanche of public business the human machine has given way and is not able to do the necessary work to keep up with legislation, and that as a result we have been too much inclined to say that a thing is not possible, because we have not time to attend to it properly? This Old-Age Pensions Bill, with all 1416 its far-reaching effects and complicated clauses, which ought to have been the work of nearly a whole session, has been put off, almost to the end of the session, and then three-quarters of it has been guillotined without discussion in the other House.
Then there is the policy of the reduction of the sugar tax. Of course, that may be considered wholly and solely in the light of the next Budget. We do not expect, we cannot expect the Chancellor of the Exchequer to tell us what his Budget will be, what taxes he proposes to put on, but I think we have a right to ask this—that when a Chancellor of the Exchequer budgets for the coming year he should be able to feel the pulse of the market at the time. He should be able to know whether it is likely that his Budget figures will come out too high or too low. When the Chancellor of the Exchequer took off the sugar duty last April, he knew quite well that there had been a great depression in America, that trade was very bad there, and that trade in Germany also had been bad, whilst he also knew that trade was falling off in this country. But the Chancellor of the Exchequer budgeted on too prosperous lines. As a matter of fact we are face to face with a deficit of no small amount. I do not think we need be surprised if next year from £7,000,000 to £8,000,000, has to be provided for old-age pensions. Then let us take £3,000,000 for the Navy. If the figures continue to go as badly as now as regards next year's Budget, there will be a deficit of several millions. Therefore I think we have a right to demand that when any Chancellor of the Exchequer takes off a big tax like the sugar duty, he should prudently consider whether his Budget figures will come up to the mark. In this case unless the three-quarters of the year that is left goes very much better than the first quarter, there will be a deficit of several millions. How we are to find anything from £15,000,000 to £20,000,000 I know not. If we make a raid on the Sinking Fund, we can only get from £5,000,000 to £6,000,000, and in any case I venture to think that either an attack on the Sinking Fund, or the raising of the income-tax would be very much more 1417 harmful than to have left the sugar-tax as it was.
As regards the Sinking Fund we must admit it has been touched by the party to which we belong. Lord Goschen, in 1887 or 1889, dealt with it, and I believe the noble Viscount, Viscount St. Aldwyn, in 1899, but of course, on the latter occasion we were at the beginning of a big war and it was obviously useless to raise very large loans on the one hand and keep up a big Sinking Fund on the other. But directly the war was over we put the Sinking Fund at as high a point as it has ever touched If we attack the Sinking Fund now, it will have the effect of putting Consols still lower. A further point for consideration is that if the Government attack the Sinking Fund, they will knock down gilt-edged stocks, and if the Government has to raise money for the Irish loan and Exchequer Bills, they will be face to face with having to pay very much more for their money owing to the effect of the Sinking Fund reduction on gilt-edged stock. I agree that Consols are low because more money has been used in trade, but that was some few months ago. I agree also that the unconsidered utterances of the Chancellor of the Exchequer outside the House, and the considered utterances of the President of the Board of Trade in the House, have had a very disturbing effect upon men's minds, and. I think part of the fall in the Funds must be directly attributed to that. Finance is on far too narrow a basis; that is the truth of the matter, and the basis of taxation will probably have to be altered. When we had the interesting discussion on the Second Reading of the Old-Age Pensions Bill in this House, the noble Lord, Lord Cromer, touched on very interesting subjects, and there were two matters of which I took considerable note. The noble Lord said he thought that if this nation took up the question of tariff reform it might cause friction with important nations on the Continent; that friction in business would result, and that that would be bad for us. If the noble Lord is right in thinking that tariff reform would hurt this country, why does he suppose that our competitors in business on the Continent would take umbrage at our doing something which, as business 1418 men, would hurt us? On the other hand, I should think the nations of the Continent would be glad if we were to take a course that is harmful. The noble Earl made another remark that interested me. He said that so far as he could gather, tariff reformers were those who wanted to tax people—who thought that by taxing people they would make the country prosperous.
What I said was that that argument was occasionally put forward by tariff reformers. Many tariff reformers no doubt repudiated it.
§ *LORD FABER
I have never heard tariff reformers say that. What they do say is quite a different thing. They say not that to tax people will make the country prosperous, but that to tax other people will make the country prosperous. That seems to me to be rather a different state of things. There is one other question which is rather interesting but of a more technical character. How did the Government spend the £15,000,000 in reduction of Debt this year, and did they spend that £15,000,000 in the best way? The noble Viscount, Viscount St. Aldwyn, said that they spent about £600,000 on the buildings close to us. Besides that, they spent £4,000,000 on the purchase of Exchequer bonds and Treasury Bills. For those Exchequer bonds and Treasury Bills they gave par. The Exchequer bonds that the Government bought are short-dated bonds due on the average in 1911, and therefore the Chancellor of the Exchequer gave as much in buying them at par as he would ever have to do. The Treasury Bill is also a short-dated loan, repayable at par, and therefore the Government obviously gave as much as they could ever be called upon to give for the Treasury Bill. And then they gave £6,000,000 for a certain amount of War Loan, for which they gave very nearly par—£99 12s. 0d. per cent. But here again the War Loan is short-dated. It is repayable at par in 1910, and therefore the Government again gave as much as they could ever have been called upon to give for the War Loan. Thus, of £14,500,000 they used £10,000,000 in buying short-dated stuff for which they gave the highest 1419 possible prices. The other £4,500,000 they invested, quite rightly, in Consols, which they started to buy at the lowest price on record—81½. That was a very good buy. The highest price to which Consols went up was 87½, and the average of their purchase was 85. My contention is that there was a very large scope for a rise in Consols, that the Government had £15,000,000 to deal with, and that it would have been very much better and wiser finance to have put more in Consols, and less in the stuff for which they gave the very highest possible prices. They would have saved money by a transaction of that sort. It would have been wise also to remember that, after all, Consols are the bell-wether of the market. If you support them, the effect on all stock is very marked, whereas to buy short-dated stocks has no effect whatever. The Sinking Fund is of very great importance. It supported the Consols market at a very critical time last year, and so far as I can gather it would have been rather better to have applied more of the Sinking Fund to the purchase of Consols.
*THE SECRETARY OF STATE FOR THE COLONIES (The Earl of CKEWE)
I am sorry to rise at so late an hour, but I need not detain your Lordships at any very great length. I may, perhaps, be allowed to remark in passing, when we are told of the congestion of business towards the close of the session, I have observed that during the last fortnight of it, which is normally and naturally the busiest, quite half of our time has been taken up by debating very interesting Bills in the names of private Members, all of which, as far as I know, might perfectly well have been dealt with at some other time of the year. I propose to say a few words on this debate. It has always been the custom in this House for the Peer who occupied the position of Leader to speak on this subject. Had it not been for that I should have been very glad to leave the matter to my noble friend Lord Wolverhampton, who speaks with far more practical experience than I do. It is always customary also on these occasions not to make anything in the nature of a Budget speech, and those 1420 noble Lords who have taken part in the-debate have not entered in any degree into the intricacies of the Finance Bill, such as they are, but have rather dealt with large principles. I am relieved, therefore, from minor points in the Finance Bill. Had I been obliged to mention them I should have been glad to draw some attention to the interesting change which has been made in handing over what used to be called the assessed taxes to the collection of the county councils. That, I believe, will be a useful and practical change, and the manner in which it is to be carried out will, as we hope, throw no extra financial burden on those bodies, and will be altogether to their advantage.
On the general question, the main indictment, I think, of the noble Viscount opposite, who, of course, speaks-with such great authority, is that we have carried too far the change in, the ratio raised by indirect taxation, in this country as compared with direct taxation. It is perfectly true that we have done so. That ratio five or six years ago was, I think, in the proportion of upwards of 52, and it is now as low as 46 9. Well, we make no apology for that. We believe that the proportion of the le-venue of the country, which is, even now, raised by indirect taxation, is, at any rate, quite as high as it ought to be. It is argued by noble Lords opposite—it was argued again to-night by the noble Viscount opposite—that, by keeping the income-tax at its present rate, you are really making the country poorer in the sense that you are diminishing the opportunities of employment. If that is to be taken as an absolute canon it would involve the proposition, which I am not at all disposed to admit, that all the income derived by the largest payers of income-tax is productively employed. Unfortunately we know that that is by no means the case, and, therefore, so far as that proposition is true at all it has to be taken with very considerable qualifications.
The noble Viscount spoke all through his speech of an income-tax at Is. But the income-tax at Is. is paid by only some 20 per cent. of those who pay income-tax. It is, I have no doubt, or at least I hope, paid by all Members of 1421 your Lordships House on that scale, but as a matter of fact, it is only paid by 200,000 persons, of the whole body of income-tax payers. I think it is a familiar fact that about 9½d. is the average rate of income-tax which is paid in this country. The noble Viscount says that the case is very hard on those whose incomes range from £700 to £1,500 a year. There used to be a story of a very rich man who said he supposed that everybody got £700 a year, but we know that there are a large number who pay income-tax on less than that. But, so far as the observation of the noble Viscount goes, it points, possibly, if you will have it so, to a further scale of abatement, but it does not point itself to a reduction of the Is. income-tax on large incomes. And it is only fair to point out that we have made an important difference as between earned and unearned income, which, we believe, will prove a very great relief to the poorer class of income-tax payers in this country.
On the general question of the revenue and the credit of the country, it must be borne in mind that the national wealth, happily, goes on increasing. What the actual national wealth is, I believe nobody knows. Most of the estimates that are made of the national revenue are, as I believe, pure guess-work. But there are figures for the United Kingdom of the gross income from all classes of profits which are brought under the view of the Inland Revenue and which show a very remarkable and progressive increase. Those figures have gone on rising from £704,700,000 in 1896–7 to £925,184,000 in the year 1905–6. And the other criteria of the national wealth cannot be held to be unsatisfactory. The taxation per head of the country is now estimated at £2 17s., which, of course, is some shillings less than it was three or four years ago. Taking the whole position of taxation as shown by statistics, I think it must be admitted that the capacity of the country to bear that taxation is distinctly greater than it was. On the point of the reduction of Debt, I am not competent to deal with the technical point raised as to whether it was wiser for the Chancellor of the Exchequer to reduce the Debt by paying off a considerable proportion 1422 of Exchequer bonds and bills, instead of devoting the whole sum available to paying off Consols. But I imagine it was the desire of my right hon. friend to deal to some extent with the floating debt; at any rate I fancy it is a point upon which financial authorities might well differ. The noble Viscount somewhat depreciated the work of the present Administration in the reduction of Debt. Still, the fact remains—of course I know it is subject to many examples and qualifications—that during the ten years in which the late Governments were in office they—without any mention of the war loans, which were little short of £160,000,000—paid off the National Debt at the rate of £2,200,000 a year, while since we have been in office we have paid off at the rate of £13,300,000 a year. That is subject to a number of qualifications, no doubt. The noble Viscount mentioned the £9,000,000 which he devoted to current expenditure in the form of necessary works. That was, no doubt, a proper allocation to make, but we think that, when large sums like that come to be spent all at once, they are not always likely to be very wisely or economically spent. We have to bear in mind also the line we have taken up of paying our way as we go in the matter of naval and military works. One reason which has undoubtedly actuated us in so doing is that we believe that it leads to very real and substantial economy. On the other hand we are very much impressed by the remarkably rapid obsolescence of many of these so-called permanent works. It is a deplorable thing to have to go on paying off a loan for a so-called work which, is admitted by everyone to be absolutely useless, a position in which we find ourselves in regard to some of the works authorised and undertaken by our predecessors.
As to the question of the credit of the country, I do not think it is quite reasonable to take the price of Consols as the single criterion of the state of the national credit. Taken alone, I do not think it can be said to be a criterion. You are bound at the same time to look at the prices of kindred stocks in other parts of the world and to the state of credit of other nations. My 1423 noble friend behind me (Lord St. Davids) drew attention to what I believe is by far the most active cause in the continued depreciation of Consols—I mean the opening of Colonial stocks to trustees. I do not agree with him, I need hardly say, in the position I hold, that we should withdraw from the position, but I very much doubt whether at the time that was done, in a rather light-hearted way, it was realised what very serious effects it would have on the money market. Nowadays the proportion of trust funds invested in Consols is extraordinarily small. In regard to marriage settlements, it is almost invariably the rule to invest in other stocks. That, of course, is due to the great variety of other stocks which can be relied upon to produce a somewhat larger interest. Then we are told that we have driven Consols down still further by our old-age pensions scheme. On 6th May Consols stood at 85½; to-day they are just 87. It would be unreasonable, I think, either on one side or the other, to ascribe fluctuations of that kind to any fear of our great financial measures.
Then as to the various reductions of taxes. We have been criticised for having taken off the coal duty. Coal is one of the subjects which the noble Viscount would have continued to tax. I do not enter into the controversy as to whether the Party of the noble Viscount opposite had pledged themselves to take off the coal duty at the first opportunity, although there have been statements to that effect which have not been contradicted. But I think it cannot be doubted—and I am quite sure that my noble friend Lord Faber, who knows very well the trade of the northeast ports, will agree that the coal tax was a very serious hindrance to that trade. It is quite true it did not affect the Welsh high-class coal in the same way, because those coal-owners have somewhat of what is called a "seller's monopoly," and therefore I can quite believe that in that case, at any rate, a part of the tax was paid by the foreigner. But it was certainly not paid by the foreigner so far as the Yorkshire and Midland coal was concerned, and its repeal was recognised there as a great relief, not merely to the coal trade, but 1424 to the kindred trades. Then as regards tea and sugar, especially the latter. It is true we have given up £3,400,000 by the reduction of the sugar tax. My right hon. friend the Chancellor of the Exchequer believes that by the method he has employed in rather more than halving the tax he has succeeded in reaching the consumer as a rule. Those who buy infinitesimal quantities of sugar can hardly be reached by any means, but so far as the general consumer is concerned, my right hon. friend believes that he has reached him.
Then there is the question of the effect on trade. The noble Viscount said the confectionery and mineral water trades might have benefited. But those are two enormous trades; they employ a vast amount of labour, and surely it was worth while, if we could, to relieve them. I suppose that what the noble Viscount would have done is that, instead of taking off the sugar tax, he would have taken something off the income-tax, so far as it affects those who pay Is., on the ground that that would have added to his possible war chest. I confess I was impressed by the argument of my noble friend Lord St. Davids when he said that when you come to the question of raising an indefinite number of millions, it is apparently as easy to reimpose your indirect taxation as it is to reimpose your direct taxation.
§ *THE EARL OF CREWE
Not to produce the same amount. I agree that you cannot be sure of imposing the same amount, but assuming that the noble Viscount had only taken off the equivalent in income-tax, I confess I do not see that the one would be more difficult than the other. I am, of course, assuming that a large sum has to be raised. I am not, of course, on the point of the advantage of the one course or the other, but it does not seem to be reasonable to assume that in one case the money is always there at command, and that in the other it is absolutely and irretrievably gone.
1425 I do not wish to enter at this hour into the old-age pensions controversy so far as it is a controversy. Still less do I desire to allude to the two points connected with tariff reform to which the noble Lord referred in allusion to what was said the other night by Lord Cromer. On this question of old-age pensions anything that is said must necessarily be absolutely uninteresting. It is impossible for any member of the Government to attempt to anticipate the Budget of next year. I was very glad to hear the noble Viscount say that he did not consider that course contrary to sound canons of finance. But I think it was a mistake to suppose that that is the only source from which, if necessary, some further increase of the national income could be derived. When noble Lords opposite, quite apart from that, talk of the continually increasing burden of old-age pensions, it is important to know what they mean. So far as the burden increases by the natural growth of the population, we hope it will be more than met by its automatic growth of revenue. But if noble Lords opposite mean the lowering of the age or the increasing of the amount, that is another matter., and a matter in which the Chancellor of the Exchequer of the day will have to face the public, and will have to explain what his means permit of his doing. I do not propose to go into the question of the cost of the defensive services, because, although, of course, it is a subject which in a general view of national finance could not possibly be passed over, yet it is one which does not arise in immediate connection with this Bill. But with regard to what the noble Viscount said about the Construction Vote having fallen, the Vote must, of course, depend upon the needs of the year. There could be no more absolutely foolish, or uneconomical policy than to build more warships than you want at the moment. The modern warship fades almost like a flower after you have plucked it. From the moment it is sent on its trial trip it begins to verge upon becoming obsolete, and, therefore, to build more ships of a particular type than you require at the moment is one of the worst possible economies, because in relation to the programme of other nations it places you at this disadvantage—that 1426 although your paper strength may be equal or superior to that of another Power in the proportion you consider sufficient, yet their ships may be just a little newer and a little better than yours. Therefore, the Construction Vote ought to be most carefully watched with the object of always being ahead, not only in numbers, but also in novelty of type. I do not think I have anything to add further. I confess some of the statements which have been made outside this House as to the damage that we have done to national credit have been very unfair and most grossly exaggerated. We believe that we shall be able to go on paying our way so far as the defensive services are concerned, and we do believe that we shall be able, without any dramatic, or, still more, any melodramatic increase of taxation, to carry through this great scheme of benefit for the aged, of which we are very proud indeed to be the authors.
§ On Question, Bill read 2a; Committee negatived, and Bill to be read 3a to-morrow.