HL Deb 05 August 1918 vol 31 cc465-89

LORD INCHCAPE rose to call attention to the present and prospective financial situation of the country; and to move for Papers. The noble Lord said: My Lords, it is not often that I venture to address your Lordships' House, and in the remarks that I am about to make I would ask your consideration for my imperfections. I am afraid that I must quote a good many figures, but in a speech on the present and future financial condition of the country figures are unavoidable, and I trust that I may have your Lordships' forbearance while I refer to them.

The Chancellor of the Exchequer presented a statement to the House of Commons on the 10th of last month giving the direct taxation in the shape of Estate Duty, Income Tax and Super Tax on unearned incomes ranging from £150 to £10,000 a year. In this statement the taxation on an income of £100,000 was also given, but I will leave that out of account, because although the taxation on £100,000 a year comes to as much as 12s. 6d. in the £ it probably concerns very few noble Lords, and if it did the reply might be "serves them right." I will deal with the more modest incomes. Including Estate Duty on an income of £700 a year, the taxation is 3s. 11d. in the £; on £4,000 a year, it is 7s. 9d. in the £; on £10,000, it is 9s. 7d. in the £. The last mentioned income is therefore reduced by taxation to practically £5,000 a year. A Judge drawing a salary of £5,000 is taxed at the rate of 7s. 2d. in the £, so that his actual salary is reduced to £3,212 a year. The lessened purchasing power of the sovereign compared with that it was when the Judges' salaries were fixed and when direct taxation was a negligible quantity now brings the Judges' real wage down to something in the neighbourhood of £1,800 a year. This is very undesirable. It means that we shall fail to get the best men for the Bench with all the concomitant disadvantages. There are many others in the same boat, such as Bishops and Civil Servants. There are also country squires in many cases saddled with large houses and dependants. The last class is being wiped out by the hundred. The case of many professional men and people with fixed incomes is also deplorable.

Then let me put the case of the man in business. His energies and his capital, his organisation, his brains, and his industry bring him in, say, £10,000 a year. The Income Tax and Super-Tax which he pays is 8s. 4d. in the £, and amounts to £4,187, so that his net income is £5,813. If before the war he made £10,000 a year and in 1918 his profits come to £12,000, out of the increase of £2,000 the Government takes £1,440 for Excess Profits Duty, and out of the £560 left to him he pays 8s. 4d. in the £, or £233 in taxation, so that for his energy and work in developing his business he gets £327 out of the £2,000—that is to say, £1,673 is taken by the Government, or the equivalent of almost 17s. in the £. There is not much in this to encourage men to scorn delight, live laborious days, and develop their business. It is no incentive to effort. In addition to the Income Tax, Super-Tax and Excess Profits Duty on the income of £12,000, which amount altogether to £5,839, he is liable to Estate Duty on his capital, which may be £100,000, and this the Chancellor in his statement put at an annual levy of £252 a year, so that the total taxation he pays on his £12,000 is £6,091, equivalent to something over 10s. in the£.

I was reading Mr. Gerard's book the other day "Face to Face with Kaiserism," and came across a passage which I will ask your Lordships' permission to read. Mr. Gerard says— A business man who is taxed too much on any profits that he makes will, like the Spaniard, invest his capital in Government Bonds. He will stop taking up new enterprises, because if he loses no one compensates him for his loss, while if he wins most of his profit is taken in taxes by the State. I think it will be admitted on all hands that Mr. Gerard's statement is an axiom.

None of your Lordships, no one of any account in the country, grudges any call that has to be made to defend ourselves against Germany. We mean to obtain a satisfactory and honourable conclusion. The nation is behind the Prime Minister and the Government in their determination to secure what Mr. Asquith has described as a clean and lasting peace. But we ought to consider the future, not in the interests of our own pockets, not with an eye to our own comfort, but for the security of the British Empire. We and those who come after us will have to bear the burden of the expense of this war. We and our children will do so without complaint, in the knowledge that the sacrifice was necessary.

Let us look ahead. The Government are of necessity borrowing enormously. They are spending their borrowings not in reproductive works, but in munitions which are being blown away every minute of the twenty-four hours. The Army and the Navy are being paid, the industrial population of the country for the most part is being paid by the Government, who find the means of paying them to the extent of 73 per cent. in borrowed money. This cannot be helped. When a country is at war money runs through its fingers like water. No Government, no Chancellor of the Exchequer, can afford to refuse the demands of those who stand between the country and defeat. As Mr. Balfour said three years ago, it is not the business of Admirals and Generals to study economy. Their business is to win battles. We could not possibly pay for this war out of revenue. We must borrow, but the aftermath has to be faced.

It is frequently argued that the financial condition of our enemies will be worse than our own, and in this I agree. The financial condition of our Allies, except one, will probably be as bad as ours, but neither of these propositions can afford us any comfort. They only mean that the whole world will take longer to recover.

In August, 1914, our deadweight debt was about £650,000,000. The Chancellor of the Exchequer estimated if the war continued that the National Debt in March next year would be £8;000,000,000. He calculated that at 31st March, 1919, the Allies might owe us £1,632,000,000, of which he proposed for the time being to reckon only one half as immediately re- coverable. Adding to this the obligations towards this country of the Dominions, and India's War contribution, he estimated that there would be £1,124,000,000 to be set off from the gross debt. This will leave the National Debt, if the war ends in March, 1919, at about £7,000,000,000, which may be reduced by about £1,000,000,000 from amounts due by our Allies and Dominions for goods and services, by arrears of Excess Profits Duty which will be outstanding at 31st March, 1919, and other assets. These other assets I gather include the standard ships which have not been sunk or shaken to pieces, national factories with their machinery suitable for munitions, national shipyards for what they will be worth, and some derelict aerodromes such as that at Loch Doon. We shall also have timber suitable for firewood when the buildings in St. James Park and elsewhere come to be demolished, together with that which envelops the statue of Charles the First in Trafalgar Square, to say nothing of the sand bags and corrugated iron which protect the statue, but I would not set much store by what we are likely to secure by the salvage or count on it going any long way to reduce the National Debt.

We shall thus be left with a net public obligation in March next Year, should the war continue till then, of probably £6,000,000,000, on which interest will have to be paid. This with a Sinking Fund will require something approaching £330,000,000 a year. Our expenditure for administration, interest and defence on a pre-war basis was £220,000,000, and our post-war expenditure including education will be very much more, and to this must be added pensions for many years. With a National Debt of something in the neighbourhood of £6,000,000,000 it would not be safe to assume if the war ends between now and March, 1919, that our annual expenditure will for a long time be less than £700,000,000—more than three times what it was before the war.

So far as carrying on the war is concerned, until we have secured a satisfactory peace money will not stop us. The Germans know just as well as we do how we stand financially, but they also know how they stand themselves. They must know that their mark for exchange purposes will only be worth a few pence, and that they will never obtain the indemnities on which they relied to pay for the war, They must realise that no German merchant ship can venture into the North Sea until peace is concluded. They must realise that economically they are effectually blockaded. They must be realising now that even if we fail—which we won't—to bring them to their knees on the land, we shall keep their heads under the water.

In the war that has now been going on for four years the Germans have introduced methods which have been unknown amongst either civilised or uncivilised nations for at any rate a thousand years. They have abandoned all chivalry, all idea of humanity. They were not out to fight armies or navies according to the convenances of war; they thought to overawe mankind by the murder of women and children and innocent unarmed merchant seamen. In this they have ignominiously failed.

We heard a good deal three years ago of the advantages of the system which prevailed in Germany, where no man could call his soul his own and every one was ruled with a rod of iron. When this war comes to an end I have a shrewd suspicion that the German people will see the mistake they have made. When they come to count the cost of this war—the dreadful sacrifice of life, the ruin that has overtaken their commerce, the debt with which they will be burdened—they will be disposed to ask themselves what was it all for what have they gained—to quote the words of Burke—by time "pride, cruelty, and madness of their rulers"? The answer, my Lords, will be—"Nothing, except the hatred of the world."

The inhabitants of these sea-girt islands, with their inheritance and long history of freedom, will in no circumstances, cost what it may, submit to conquest. This country and its Dependencies throughout the world until four years ago were open to all. England was a haven of refuge, a sanctuary for those in trouble, and the rights of citizenship were denied to none. We were too generous, too trustful. We did not appreciate German aims. We have had a rude awakening. After the brutalities they have committed on land and sea it will be many a long day before we admit Germans either to these Islands or to any of our possessions. The longer they go on the longer will they be ostracised by the civilised world.

We had difficulties recently with labour in munition works, difficulties which I believe arose from unfortunate misunderstandings. We have all had to make sacrifices and to do as we are told in the general interest. As an example, a company with which I am associated—the P. and 0.—has now only one ship running to India, China, or Australia; every other vessel has been withdrawn either for hospital purposes or armed cruisers, or to bring men, munitions, and food across the Atlantic; and the trade which the company has built up and occupied for the last fifty years or more has meantime had to be abandoned. Almost every other shipping company is in the same plight, and thousands of business firms are suffering similarly. I only mention this to illustrate that the employer as well as the employed has to make his sacrifice. But, my Lords, despite all domestic troubles, despite all sacrifices, the real heart of the nation is sound, and we are all prepared to stand up against this scourge of the world.

Looking from the window of my home in Scotland the other evening across the sea to Ailsa Craig, the Hills of Arran, and the Holy Isle with the sun setting behind Kintyre—a lovely scene—the words in which FitzEustace gave expression to his feelings when he gazed on the prospect from Blackford Hill towards the Ochill Mountains and across the Firth of Forth came into my mind, and I wondered whether the Kaiser had ever read Marmion. FitzEustace's heart, the poet said, was closely pent, and raising his bridle hand he cried, "Where's the coward that would not dare to fight for such a land?" These words breathe the spirit to-day, not of Scotland alone but of the whole British Empire and France, Italy, and Belgium.

How much longer it will be before Germany acknowledges that she cannot overcome the Allies and how much longer she will carry on this "wild beast" hopeless attempt to conquer the world we cannot tell. No one in this country anticipates that the war can possibly go on till 1921, but no one anticipated four years ago that it would be going on to-day. Everyone's calculations and prognostications have been falsified. I should correct myself here. I said no one anticipated that the war would go on for four years. I was wrong. One man did, the late Sir John Wolfe Barry, the distinguished engineer and thinker who died six months ago. I heard him say shortly after the war broke out, "Mark my words, this will be a seven years war." I hope he was wrong. I hope the enemy will have given in before August, 1921. But time passes quickly, and four years out of Sir John's estimate of seven have already gone by. The Americans, however, with their gallant men, their munitions, their money, and their moral influence had not come in when Sir John Wolfe Barry made his forecast.

My Lords, we all wish that this horrible war could be brought to a satisfactory conclusion. The Allies are not out for power and aggrandisement; they are on the defensive for humanity and liberty and the peace of the world. The Germans, after years of preparation, as we now know, had in view the mastery of Europe and the subjugation of Belgium, France, and the British Empire. They must soon realize, if they do not already do so, that their aims will never fructify, and I hope before long they will come forward with proposals such as the Allies will be able to accept. Hostilities must continue until they do. We have no intention of being humbugged by a peace offensive which would end in Belgium, France, Russia, Rumania, and Serbia being left worse off than they were before the war.

I want to avoid any undue pessimism, and I will assume that the war will end in March, 1919, or even before then. The revenue required after that date, as I have said, will probably be something in the neighbourhood of £700,000,000. In 1918–19 a revenue of £800,000,000 has been budgeted for, but this includes £300,000,000 from Excess Profits Duty. It is recognised in all quarters that the Excess Profits Duty cannot continue after the war. It would kill all existing industry, and effectually prevent the starting of any new enterprise. The Chancellor hopes that an extra £75,000,000 may come in during 1919–20 if the war is then finished, from Income Tax at 5s. in the £ when the Excess Profits Duty is abolished, and that his new taxes will yield another £114,000,000. This will give £689,000,000 and may just pull us through, but it will be a narrow squeak.

Some say there is a large untapped reservoir in Import Duties. I will pass by that contentious subject with only a few remarks. Direct taxation has reached its limit. If it is further raised there is a great probability that the revenue from it will go down. In fact, it is not unlikely that the yield will decrease even at the present rate. Many people will have to draw upon their capital. The necessaries of life are already highly taxed. Toys, it is true, might be taxed, but. I would not trust much to the revenue from toys. A Luxury Tax is in contemplation, but I doubt if this will bring in much after the war. Unless raw material and food are taxed, there is no great scope for revenue by taxing imports. If raw material is taxed our great national industries will suffer in the world competition, our trade will dwindle, and the taxable income of the nation will diminish. The taxation of beer, spirits, and tobacco is now so high that further additions would probably decrease the revenue. Something might be got from wines, but it would amount to very little.

With our gigantic liabilities abroad the position in which we shall find ourselves in the matter of foreign exchanges will for a time be serious. Our internal currency is now paper; we have in circulation no less than £260,000,000 sterling of currency notes against which there is only a very small percentage of gold, the balance being secured on notes of hand of the Government. This looks an easy method of paying for the war, but the printing press helped to ruin Russia; and every other country which has adopted it with the object of tiding over financial straits has suffered severely. It means ever-depreciating currency and ever-rising prices. It will take years to redeem these notes and to get us back to the mainstay of our old international financial position—a real gold standard.

We are living for the moment. I am afraid, in a fool's paradise so far as the popular notion of prosperity is concerned. Paper money which is legal tender is abundant owing to the Government disbursements, and there would appear to be a widespread belief that because we have been able to find so much for the war we can go on finding money for all sorts of schemes when the war is over. My Lords, there is always a seeming prosperity when a country is borrowing and disbursing freely. We have seen it in the South American Republics, we saw it in Australia some years ago, we saw it in this country during the South African War. The depression comes when the borrowing and disbursing cease. We have lost something approaching 8,000,000 tons of British shipping by enemy action during the war. Many of our international trades are now occupied by others, trades that poured a large revenue into this country, which, if recovered at all, will not be recovered for years. There may be a short boom in trade after peace has been restored, but with the enormous loss of material wealth, the great increase in the indebtedness of all the belligerents except one, and with the crushing taxation which will have to be imposed by all but one to meet the debt charges, it is difficult to see how there can be any lasting international prosperity for many years to come. There is nothing to be gained by having poor neighbours. When the war is over it may be an uncommonly difficult matter to raise the revenue required to meet the expenditure. We had a long time of severe depression after the short boom which occurred following the battle of Waterloo. Our National Debt then was less than one-sixth of what it will be next year, and our population is only a little more than double what it was in 1816.

It is not necessary to elaborate the evils of bureaucracy. The whole community is agreed that the worst thing that could happen to this country would be to flood it with functionaries. We do not want to be bothered with trifling taxes, which will do little more than pay the cost of collection. We do not want the business side of the country to be carried on by the Government. The employers, as well as the employed, are heartily sick of the whole system; and though they loyally put up with it during the period of the war, they have no intention of tolerating it a day longer than is necessary. We do not want policemen stopping us at every turn. We do not want to have to be told how to conduct our own affairs. We want to get back to the freedon of life which we had before the war, that freedom for which we are fighting the Germans to-day. Every bureaucrat is a man taken away from the productive power of the country. Make no mistake—if any attempt is made by any Government to interfere with the liberties of the people, or to dragoon them after the German fashion, that Government will be ignominiously hurled from power. This country has made its way by individual effort and organisation; it would be fatal to smother them.

If there is to be any security for what the individual possesses, be he rich or be he comparatively poor, if anarchy is to be avoided, if law and order are to continue to prevail, if the social fabric is not to be demolished, if the credit of the British Government is to be maintained, and if we are to meet our obligations in the future as we have done in the past, if we are to deliver the goods, there is only one way open to us, there is only one way in which this country can get back to a sound financial position after the war. That way means that we must provide and maintain an adequate Sinking Fund for the Debt we have incurred. We must honourably meet our obligations as they fall due. We must get rid, as soon as possible, of the inflated paper currency which now floods the country, and to do these things we must spend less than our income. We must produce more and export more and consume less.

To accomplish all this it will be necessary to go through a period—I am afraid a prolonged period—of self-denial and strenuous work. We have added nothing to our wealth as a nation for the last four years. On the other hand, we have lost a great deal in the destruction of ships and other property. Our power of production by the loss and injury of hundreds of thousands of the best men in the country, men from nineteen to thirty-five, will be seriously reduced while years of industrial training have been lost to hundreds of thousands of those who will survive. Despite every effort that we may make, it will take the best part of a generation to get us back to where we were in August 1914, even if the war ends within the next six months, and industry and economy far beyond anything we have hitherto displayed will undoubtedly be required.

In view of the huge Debt which will be round our necks, a Debt which is a floating mortgage on the community, as the State has no wealth apart from its inhabitants, I suggest to your Lordships that we should look the future fairly in the face, and consider very carefully before we commit ourselves to schemes, however good, however desirable they may appear to be, schemes which may involve us in considerable expenditure and which will further add to or prevent us from reducing our indebtedness. There seems to be an idea in many quarters that now is the time to secure the millennium, and that the war has proved that the nation has a bottomless purse. Before embarking on a new enterprise a business man, if he is wise, invariably makes a financial forecast to ascertain whether he can find the wherewithal to meet his prospective engagements.

We are all in sympathy with the idea to make this a better world for every one, but I suggest that any real improvement in the condition of the individual must mainly rest with himself. There is a good deal of nonsense talked about equal opportunity for all. In this democratic country, with a Constitutional Monarch who sets a noble example to his people, the highest positions either in the Services or elsewhere are open to all. Were the case otherwise I would not have the privilege of addressing your Lordships' House to-day. In this country the son of a Duke or the son of a millionaire has no more chance of coming to the front than the son of a seaman; probably in fact, human nature being what it is, he has a good deal less. To attempt to bring every one to an equality and to keep them there is like what a child does when he cries for the moon.

Perhaps it may be thought that I take a gloomy view of the future. I do not. I am comforted by a story that I remember hearing the late Lord Goschen relate when he was First Lord of the Admiralty. He had received a letter from the captain of a British man-of-war on a distant station reporting on an inspection he had made of a vessel of another Power. The letter described her great superiority over his own ship, and went into every detail. Lord Goschen said he felt extremely uneasy as he read the letter till he turned over to the last page where the writer said. "Despite of all this, I could take her in half an hour." That, my Lords, describes the British race, not only of to-day, but of the future. We shall win through.

I feel some misgiving, however, as to whether those who are contemplating and suggesting great national projects after the war have a due sense of financial responsibility. Before we allow ourselves to be committed to expenditure outside that entailed by the war I think a very careful inquiry should be instituted. There is no doubt this country possesses great recuperative capacity. We have improved our methods of production during the war, and we have learnt a good deal. There are difficulties, however, in front of us when the adjustment comes to be made, when the inflated currency disappears, and when prices came back more or less to their normal. It will then be no easy matter to get people to realise that money, after all, is only a measure of value, and that it is the real wage that counts. If we are to maintain the position we have hitherto held, Capital and Labour must work hand in hand and recognise that they are interdependent. Capital must understand that it is powerless without labour, and Labour must realise that without capital and business organisation there will be no work for the workers and chaos will eventuate. There have been differences between Capital and Labour ever since the world began and they will occur till the end of time, but the differences will, I hope, be surmounted by the good sense, not only of the employed, but of the employers.

Statesmanship, if guided by proper financial principles, with the aid of the wealth, the skill, the industry, the energy, the courage, the perseverance and the law-abiding disposition of the people, the honesty of the Government, and the resources of the country, will see us through. We shall be able to continue to pay 20s. in the £, and we shall eventually get back to prosperity; but when the war is over, if we go on piling up further debt, if we get into financial difficulties, if we are forced into anything in the shape of a national moratorium, confiscation, or repudiation, we shall be done. Let us avoid, as far as possible, increasing our liabilities in pounds sterling when the pound is worth only something like ten shillings, bearing in mind that when our commitments for the most part come to be discharged the pound will be worth double that figure.

In former days the Treasury was permitted to keep a tight hand on public expenditure. I am old fashioned enough to think that this was not a bad thing for the country. It enabled the community as a whole to accumulate the wealth and credit without which we would have been unable to withstand the present brutal attack on humanity. In recent years there has been a disposition to carry through projects irrespective of cost. It will be far more necessary after the war than it was in the previous history of the country to economise in our expenditure. I hope the methods of former days may be reestablished. Financial considerations must have due weight if national credit is to be maintained and if collapse or something worse is to be averted. If I may be allowed to do so, I would like to thank the noble Earl, the Leader of the House, for his courtesy in affording me this opportunity to lay my views before your Lordships. I beg to move.


My Lords, I will not occupy the House for very many minutes, because the debate is to be a very short one. I merely rise because I want to put one consideration before the Government. We have heard a good deal of late months of the question of a levy upon capital. I do not propose myself to go into the question of whether that is a practicable or an impracticable measure, but it has got to the point where I think it ought to be considered after the war. Mr. Bonar Law brought it to the point of practical politics when speaking to the Trades Unions Parliamentary Committee last year, when he distinctly said it would be a matter for consideration after the war whether it was desirable and advisable. As I have said, I do not propose to discuss whether it is practicable or not. Difficulties will occur. At the same time, after what we have heard from the noble Lord about the vast debt that will be upon us at the end of the financial year—and I am not at all sure that he is not a few hundred millions short of what it will be, because I think he omitted to put in the whole of the National Debt before the start of the war—the position is alarming enough.

The advantage that one can see in a levy on capital would be that at one sweep you get rid of a very large amount of the increase of debt, and that I think would undoubtedly have a good effect in improving the prospects of trade, and also in finding capital for the carrying on of trade, for capital is going to be extremely scarce after the war. Another very important point is this. You are certain to have after the war, with this vast amount of debt round our necks, a call for the conscription of wealth. That call undoubtedly will come. What I suggest very respectfully to the Government is that it would really be advisable to appoint either a Committee or a Commission to explore the whole question of a levy upon capital. That body would come to the conclusion, either that it was practicable and advisable—in which case you would have a scheme already laid out and you would have no hurried legislation—or that it was impracticable, and you would be able to point out to those who are anxious to have conscription of wealth that the matter has been investigated and shown to be im- possible. I should not have ventured to make these suggestions had it not been that Mr. Bonar Law himself has looked upon such a levy as a possibility after the war. I merely rise now, as this part of the session is coming to an end, to ask the Government whether it would not be desirable in the interests of all to appoint a Committee or a Commission to go into the whole question of a levy on capital.


My Lords, no member of your Lordships' House could more thoroughly appreciate than I do the striking review of the financial situation which has been placed before your Lordships by the noble Lord opposite. The position he has disclosed is undoubtedly an appalling one, and may well, I think, fill us with dismay; but it is a position which has to be faced. It is not the first time that we have had difficult situations to deal with in this country, and there has never been any hesitation to meet them with courage. We shall have to do in the future—the immediate future, I hope—what we have done in the past. The balance sheet of the nation, as presented by Lord Inchcape, would seem to show this—a debit of £8,000,000,000, and on the credit side, £2,000,000,000 that may or may not be collected, leaving a balance of £6,000,000,000, against which, it seems to me, the only tangible asset will be good-will.

We admit that there are times when a balance sheet may contain the item of good-will, but it is an item that should be made upon a balance sheet for a limited period only. Therefore, the nation will have to consider the sinking fund that will have to be applied for a period of years to extinguish that item of good-will. If the debit balance is to remain at £6,000,000,000, it follows that all these various schemes involving huge expenditure must be ruthlessly set on one side. Your Lordships have recently considered—indeed, are at the present time considering—a Bill that will involve an annual expenditure of a very large amount. It is true that it is proposed that the greater part of the expenditure shall fall upon the rates, but, whether upon rates or taxes, after all it is money that has to come out of practically the same pocket. These many millions in connection with the Education Bill have to be met. I believe that education, the expenditure in connection with it, is a most excellent investment, but to borrow money in order to make an investment I have never found to be a sound mode of procedure.

If the Education Bill were the only Bill that we are likely to have brought before us at an early date perhaps one might hardly allude to it, but there are other schemes. We hear of housing schemes. In connection with the housing schemes alone I have heard mentioned the figure of £200,000,000. The Local Government Board and other Departments have also before them schemes involving huge expenditure, and, in addition to that, we have to face schemes that will emanate from the Reconstruction Committee. It has been my privilege, or my duty, either to sit upon or to give evidence before a number of these Committees, and there is one general idea that seems to pervade all of them. That is that the Government will have to assist in this direction, the Government will have to give assistance in that direction, and if all these things should materialise it will not be a debt of £6,000,000,000 that we shall have to face but something very much larger.

That, I think, is a reason which should cause your Lordships and the nation to pause before they entertain, for one moment, a number of enterprises that will be placed before them, some of them very genuine and very desirable but not capable of being considered at a time when the nation has to face a huge debt after the greatest war the world has known. I think the noble Lord alluded to the fact that in 1816, after twenty-two years of the French War, the nation left off with a debt of something like £1,000,000,000. I think that amount would include the annuities capitalised. We shall leave off with a debt of six times that amount, but there is one favourable feature in connection with our expenditure of which we must not lose sight. I think it is only due to those who have had the engineering of finance on the tremendous scale that has been constantly before us, that it should be recognised that, whereas in the time of Pitt in 1798 £200 of Consols and an annuity of 4s. 11d. for sixty-two years was given in respect of every £100 that was paid into the Treasury, our position is much more satisfactory than that.

Par value, or something approaching it, has been found for nearly every £100. The receipts on one side correspond very nearly to the expenditure on the other side. That is in our favour. But if these schemes come to the fore the position of this country will be, I think, almost hopeless. It is true that our wealth is great, but it is only by conserving that wealth, and making the very best use of it, that the situation which we shall have to face—even supposing the war is over next spring—can possibly be faced. But I should not like myself to have to face that situation if I thought that the figures which have been referred to as to the annual sums to be raised—mentioned by Lord Inchcape—were likely to be realised.

I cannot believe myself that a Budget of £700,000,000 per annum is possible. We shall leave off with a debt, we will say, of £6,000,000,000, but it is reasonable to expect that it will be possible to fund that debt upon, we will say, a 4 per cent. basis at an early date, and if that should be so, and a sinking fund of ½ per cent. is attached to that 4 per cent.—a total charge of 4½ per cent. the whole debt of £6,000,000,000 would be disposed of in the course of fifty-six years. A debt of £6,000,000,000 at 4½ per cent. interest would involve an annual expenditure large in amount, but only £270,000,000. If to that is added the nation's ordinary prewar expenditure, which was £190,000,000—the figure quoted by Lord Inchcape—and the interest on this debt, and another £40,000,000 or £50,000,000 for pensions and other things that will have to be faced, we get altogether a probable expenditure of £510,000,000 per annum. That sum is enormous, but it is possible, I believe, for this rich country to face it. In the year 1815, or 1816, a penny in the £ income Tax produced £600,000. A penny in the £ to-day, or next year, I think can be relied upon producing about £3,500,000; this gives some idea of the increase in wealth of the nation during the past century. If that should be so, of course it does simplify the position to some extent. But there is only one thing that will prevent the nation recovering, and that will be any attempt to penalise wealth.

No greater mistake can possibly be made than to talk about either the conscription of capital or of making the rich man, the very rich man they say, pay more than his proper share of the nation's burden. And for this reason. Directly you attempt to throw upon a limited number of shoulders the burden, you make the rich man look abroad to see where he can possibly place his capital instead of in his own country. That is not unpatriotic; it is natural that it should be the case. We shall want all our capital at home. It will be absolutely essential if we are to bring back the country to the old position it was in. If we are to increase imports, and increase exports particularly, we must have the largest amount of capital available, and the richer the man the more he can help in that movement. Any attempt, on the other hand, to interfere with the sanctity of capital, any attempt to neglect or avoid obligations that have been made, will lead to one inevitable result. We have seen it, and we can learn the lesson from every quarter; and the Bolsheviks have helped us there. They have destroyed wealth and repudiated obligations; and what is the result? The population is starving. I hope that this fact will be realised by the people of this country, and that the idea of penalising capital will be for ever dismissed.

I do not think that the situation is quite as gloomy as might have been inferred from the noble Lord's remarks. If a Budget can be made on the basis of £500,000,000 it will be a tremendous burden to be borne, but it can be borne if the nation puts its shoulder to the wheel raid determines to make good the position which the war will leave it to bear. Given that, I think we shall manage, always provided great attention is given that no kind of expenditure, under any circumstances, should be dealt with until the position alters entirely. I agree that capital and labour must combine to reestablish our world trade position, and as I have said taxation must be equitably distributed. There should be no penalising of wealth, which is as essential now as ever for trade and that the necessities of life may return as speedily as possible to the ordinary price level. If these things are done, and trade liberated at the earliest possible moment from the galling restrictions that now harrass it, there is a reasonable probability of this country emerging from its difficulties and resuming the place it occupied in pre-war time. I am glad indeed that Lord Inchcape has drawn attention to this matter. I conceive it possible, although the task is difficult, to again place this country in the position it previously occupied. With a view of closer studying all the issues I welcome the noble Lord's request for the production of Papers.


My Lords, I cannot pretend to speak with the same authority on matters of high finance as the noble Lords who have just addressed your Lordships. I am sure we have heard their speeches with great interest. It is not my intention to examine whether Lord Inchcape or Lord Faringdon was right—the one said £700,000,000 per year would be required, and the other £500,000,000. I shall not attempt to decide between them, but I wish to say that I think Lord Faringdon was a little bit too optimistic in his view of the situation. I am venturing to make a few observations—I will keep my eye on the clock as there is, apparently, a bargain on the matter—not because I have any pretentions to speak with authority on finance, but because I have seen so much of the evils of control (much of which has been necessary) in regard to trade, and the deleterious effect of restrictions upon our trade. In these circumstances I have followed with close attention the interesting analysis we heard from Lord Inchcape. I must say that in my own opinion his picture was not at all overdrawn.

If bad trade follows this war it is quite clear that the gross income of many people will be smaller than it has been in the past. It is perfectly certain, whether bad trade follows or not, that there will be for an indefinite period such a heavy load of taxation that net incomes will be greatly reduced. Prices will remain high for a long time, and under these conditions it is, of course, perfectly clear that the old margin of saving in this country will be no longer possible. It was calculated before the war that £400,000,000 per year was saved in this country out of annual income. No such saving can possibly exist after this war, and it will be probably difficult for us as a nation to make both ends meet. That is the case if the war ends soon; but if the war is prolonged, these conditions will be infinitely worse. Some people I know take a more optimistic view. They say, After all in this country our losses have not been so very great. They say a few hundred millions of iron and steel, propellants and explosives have been blown to atoms in an irrecoverable way. They acknowledge that we have lost a great many ships, but they say that whilst we have borrowed money largely we have also lent money largely and on balance there is not such a great change, and that we still have means of a quick recuperation. I am not at all prepared to accept unlimited consolation from these prognostications.

The worst of the things we have lost is human lives. Not only have we lost so many of those who are nearest and dearest to us, but the nation has also lost its most efficient. This has been the most tremendous and exhausting war in history, and a far greater effort has been called for by this country in this war than in the Napoleonic Wars. Our trade actually increased in bulk to a large extent during the Napoleonic Wars; it has enormously decreased during this war so far as bulk goes. The daily life of this country was not affected at all in the same way during the Napoleonic War as it has been during this war. It is impossible to imagine any novelist, writing a series of novels during this war, describing contemporary life which should be so peaceful in atmosphere as the novels of Jane Austen written during the Napoleonic War. Of course, one great reason is that our military effort has been so enormously greater. Wellington had under him at Waterloo less than two modern Infantry divisions of British troops, and less than five modern Infantry divisions counting all the troops under his command; whereas we are told that, during the recent fighting in France, Germany has used considerably over seventy divisions between Soissons and the Massiges Ridge.

The reason I mention the Napoleonic War is this. In the first place it is the only war at all comparable to this, and in the second place, then as now, there was an anticipation of a boom in trade after the war. But what happened to that boom in trade? If any noble Lord will look at the Annual Register for 1816 he will find what happened. I have no time to go into the matter in detail, but here is a short extract which gives the actual case in a nutshell. It reads— That the first year after the restoration of general peace should have been characterised in this country as that of a more widely extended distress than its annals can for a long period exhibit, must doubtless have occasioned as much surprise as disappointment in the greater part of the nation. That extract deals with 1816. Three years later, the year 1819, was perhaps one of the darkest economic years in the whole history of this country.

It is true that the period following the Napoleonic Wars is not necessarily analagous to the period that will follow this war. There is,[...] it is true, at the present time a relative decrease in the amount of gold got out of our mines, but in the Napoleonic Wars there was not only a relative decrease of the precious metals then used for currency, but there was an actual decrease during the twenty years that followed the Napoleonic Wars, and that of course led to what I may call, for the purpose of what I am showing now, a fictitious fall in prices in addition to the natural fall in prices from the high prices of the war. Most of the distress from 1815 to 1840 was agricultural rather than commercial and industrial, partly of course due to the fact of rents having been so much raised during the Napoleonic Wars—there has, I am glad to say, been no similar great rise of rents during this war—and partly to the somewhat insane Corn Law of that time.

After this war there will indubitably be a great demand for goods, but there will also be a period of adjustment of prices downwards, and falling prices are always the cause of friction and trouble to the manufacturer. Whether the demand for goods will be sufficient to counteract the depressing effect of a fall in prices, or vice versa, I will not attempt to predict, but I do venture to utter a word of caution against the facile optimism that exists far too widely in reference to what is likely to happen after this war. I agree with Lord Inchcape that we shall have to cut out financial coat according to our financial cloth. Let us, if we can, find money to spend on what is necessary and what will repay us. I must say that I consider that more money must be spent, if we can find it, on education; and in regard to housing, I would venture to suggest to my noble friend opposite that if we do not have better housing conditions in this country our people will be very liable to emigrate in shoals after this war is over. I am not sure that expenditure on housing will not be absolutely essential after the war. These are general considerations. I see that the time is up. I should have liked to make one or two specific suggestions—


Hear, hear.


—in regard to one or two things that we can practically do for trade after the war. If I may go on for a very few minutes, I will.


Hear, hear.


I have said, my Lords, that my official duties have brought me into touch with the governing and control of industry during this war; indeed, it has been my fate to be one of the agents of the restriction of exports so far as that applied to prohibited goods. Such restriction has been absolutely inevitable, chiefly on account of the danger and necessity for conserving supplies at home, and partly on account of the blockade of the Central Powers. But whatever the reason and whatever the necessity has been, facts are facts, and consequences will be what they will be. We have lost much trade, some irretrievably. A great deal of the trade has been lost inevitably. I do not think that it could have been avoided. But some has, in my opinion, been lost unnecessarily. Without, however, dwelling unduly on the past, the question is, What can we do in regard to the future? One great vital consideration after this war will be our export trade, and it is to this that I should like to invite your Lordships' attention.

There is before the House in another place a Bill, the Imports and Exports Bill, which contemplates a continuance of control in regard to imports and exports after the war is over. That Bill in my opinion is vitally and essentially necessary. Otherwise this country might be depleted immediately after the war of essential foodstuffs, and of essential raw materials for industry and other things. It also embraces, and must embrace, manufactured goods. Germany is at the present time taking all the post-war contracts she can possibly get hold of, and, with the well-known unscrupulousness of many of her traders, she makes a succession of promises as to delivery many of which she may be quite unable to fulfil. I am told that there are fears that the operation of this Bill will prevent our competing in regard to some post-war contracts, and I hope that His Majesty's Government will make it clear that they intend to remove all restrictions on the export of manufactured goods as soon as possible after the conclusion of war; indeed, I should like to say more.

Whenever the time comes that the war is over, I hope that His Majesty's Government, whatever that Government may be, will not sacrifice our export trade, a trade absolutely vital to our economic future, to the cries of interested people at home who will want restriction merely because through restriction they think that they can buy cheaper. I have been asked on many occasions during the course of this war to refuse to grant applications for the export of goods in order that by keeping them in this country the prices might be lowered. Naturally I will not give particulars, but I have often been asked, and by some Departments of His Majesty's Government, to do such a thing. All I can say is, if that is going to be done after the war it will be a very serious thing. Even at some loss to ourselves it will be better to keep our export trade going to the utmost possible extent.

As soon as this war is over there will be a new range of prices, affected by the increase of wages. Whether wages here in this country have risen more than in other countries that we shall have to compete with after the war, I do not quite know. If they have, there will be increased competition. During this war, quite properly, quite legitimately, America and Japan have naturally cut into our trade a good deal, and neutral countries, particularly those near Germany, are now manufacturing many goods that we used to supply, because we have not been willing to send them. Our embargoes on export, indeed, to some of those countries, have not infrequently allowed Germany to secure trade that we might have got.

I had other suggestions to make, but there is only one I put forward in conclusion. I do not know, but it may be that I am not wise in saying it; I may be putting my hand into a hornet's nest. The point from which I am now speaking is the point of view of the necessity of concentrating on what is vital and of leaving as far as possible for subsequent consideration matters of dispute in regard to questions that cannot be settled immediately after this war is over; and as an instance of a question of that kind I would put forward the question of tariffs. I am aware that many noble Lords will not agree with me in regard to this matter; I am aware that others will think that what I am suggesting, even if they agree with me, is a counsel of perfection; in other words, that it will be impossible to avoid controversy on this matter.

Now let me anticipate certain objections. What I am going to suggest will not interfere with tariff for revenue purposes; neither will it interfere with granting what is known as Imperial Preference applied to duties already in existence or to new duties which are put on for the purpose of revenue; nor will it interfere necessarily with the protection of essential industries. The protection of these industries is common ground, but in my opinion immediately after the war that protection is rightly to be carried out rather by the Imports and Exports Bill than by tariffs. I am not speaking from the standpoint of a Free Trader at this moment, although I have no hesitation in saying that I am a Free Trader and desire to see as few Import Duties as possible after this war. But there are positive reasons why I deprecate any hurry in regard to this question. One reason is this. Without our financial help during this war, I do not think it would have been possible for the Allies to hold on until America came in. I admit that it is an arguable point, but I am not at all clear in my own mind that we could have rendered the financial help we have done had our system before the war been other than a Free Trade system. But I admit that that point is arguable.

Another point is not arguable. Our shipping and shipbuilding could never have attained the proportions they did except under a Free Trade system, and if there is one thing which has been more vital to the success of the Allies, and is more vital still even now when America is in, it has been the enormous proportions of our merchant marine. If it had not been for the great proportions of our merchant marine it would have been impossible to carry on this war. I say positively that our shipping and shipbuilding were to a large extent due to our Free Trade system, and I prove it in this way—that Germany, in regard to the material for shipbuilding, adopted a Free Trade system, and Germany was the only country that was really catching us up in regard to shipping and shipbuilding.

My Lords, I have said frankly that I do speak myself from the point of view of a Free Trader; but, on the other hand, were I a Protectionist, I should equally say the same thing, because I am convinced that the question of tariffs cannot be properly settled, the matter being so complicated, immediately after this war is over. In the first place, I do not think it will be possible to tax food for a long time, because the price of food will be so high; and the same applies, of course, to raw material. But what I look at this is this principally: if we are going to depart from our present system as regards tariffs, then we must have what is called in these days a scientific tariff, a tariff suited to our economic idiosyncrasies. We could not have the tariffs of Russia or Spain or Austria without great damage to ourselves; and looking at other countries, it is quite clear that Germany, with a lower tariff, went ahead of France, with a higher tariff, before this war; and therefore the question of what the tariff is to be, if there is to be one, does represent an extraordinarily difficult and complicated question which cannot be settled during the war in any satisfactory way. I am convinced that it would be a good thing to put that matter altogether on one side for some years after the war. I do earnestly press that view, because I feel that it will divide this country very seriously if the question has to be fought out during the war, and might even divide it so much as to interfere seriously with the prosecution of the war. On this point I know that I cannot expect general agreement, but I have ventured to express a very sincere opinion, which I leave with your Lordships for your consideration.


Your Lordships will, I think, expect me, without protracting the discussion, to express in a sentence—for it shall be little more—our sentiments of gratitude to the noble Lords who, with such businesslike conciseness of expression and with such high authority, have addressed us during the last hour and a quarter. Your Lordships will, I think, feel that the departure from ordinary procedure in interpolating this hour and a quarter of discussion has been thoroughly justified by the results. In the debates on the Parliament Act I recall very well that the most extreme exponents of the theory that your Lordships' House, in the discharge of your constitutional functions, were not at liberty to alter or amend Finance Bills never took the view that great advantage might not from time to time result from financial discussions in your Lordships' House. It was recognised that great authorities of exceptional experience commonly have a seat upon these benches; and those views then entertained, and, I believe universally shared, have I think found abundant justification this afternoon.

Your Lordships have listened to expressions of opinions from noble Lords who as ship-owners, bankers, and merchants have an experience and authority denied to most of us; and their views were followed by the noble Lord who has just resumed his seat, who speaks as a financial administrator of very exceptional authority, who always addresses us, if I may say so, with extreme candour and courage, and who never touches a subject in debate that he does not adorn. Your Lordships have listened to views expressed by all these high authorities on the questions of currency, of taxation, of tariffs, of individual enterprise, of post-war liabilities, and of reconstruction problems. I noted that the three questions which seemed to excite the warmest approval from these benches were these. First, there was a strong denunciation of excessive Government interference as soon as the war is over; secondly, there was a deprecation—a most wise and legitimate deprecation—of any projects, should they be at any time put forward, for the penalisation or the confiscation of capital; and, thirdly, there was a warning against the adoption of too ambitious a programme after the war.

My Lords, it is in the latter respect only that I am afraid that any warnings that may be given to us now, and to which we may in theory assent, are likely to be swept aside, when the time comes, by the inevitable tide of events. I cannot help feeling that when the war is over the pressure put upon us—upon any Government; it may not be this one—not merely to repair the ravages of war but to rebuild a shattered world will be almost overwhelming, and that no counsels of prudence which may be offered now will deter the Government of the time from following what really, as it turns out, will not be a course of extravagance, but one, in the national interest, of absolute necessity. However, that is a personal opinion to which I only give expression in passing. On behalf of His Majesty's Government I thank the noble Lords for the advice and the warnings which they have given us.

I will pass on the suggestion of my noble friend Lord Ashton—about a Committee or Commission to inquire into the subject to which he referred—to the Chancellor of the Exchequer; and I, for one, shall look forward, when we meet again in the autumn, to a resumption of the exceedingly interesting discussion we have had this afternoon.