FINANCE BILL. (Hansard, 2 July 1918)

§ LORD HYLTON
My Lords, for reasons familiar to your Lordships it is not usual to accompany the Motion for the Second Reading of the Finance Bill with a speech. I, therefore, merely beg to move that it be read a second time.

§ LORD EMMOTT
My Lords, I hope your Lordships will not think me presumptuous if I make a few observations on the Second Reading of this Bill. It was my fate in another place to preside through the long Committee Stage of the Finance Bill in 1909, and I cannot help thinking of the difference in regard to this year's measure, where a Bill making a much heavier demand upon the pockets of the people has received far less discussion and hardly any opposition at all. This, of course, is due to the entirely different circumstances of the moment. There is another personal (observation which, perhaps, I may make. It is that it may surprise your Lordships, or those of your Lordships who were members of the other House in 1909, that I, who had to listen to so many weary hours of debate on finance, should ever care to speak myself on any Finance Bill or even to hear a speech from any one else. I think it would be a pity, however, if it became a habit in your Lordships' House for the Finance Bill to be passed entirely sub silentio. There have been in the past great financial authorities who were members of 535 your Lordships' House, and if at present there is no member of the great financial weight, say, of the late Lord St. Aldwyn or the late Lord Goschen, there may be such members of this House in future, and I am sure both the House and the country will desire to hear them from time to time on the Finance Bill of the year.
May I at this point explain that I do not speak as an authority on finance. I have no pretensions in that direction. I do not intend to offer any criticism upon the Bill, and I only want to make this one observation with regard to it—that, considering the enormous liability to which this country is committed, I do not think the demands made upon us as individuals are at all too large. That being the case I, of course, shall not discuss any matter of detail. The point to which I wish to ask your Lordships' attention for a few minutes is a comparison between the provision which is being made in this country and in Germany respectively for the finance of the war and for finance after the war. I choose the United Kingdom and Germany for the comparison because they are the two strongest members financially of the two groups of Powers that have been fighting since the beginning of the war, and I think the comparison is worth making because its results on the whole, at a time when the military position does give rise to a good deal of anxiety, are satisfactory to this country and unsatisfactory to Germany. I often wish that His Majesty's Government would keep us better informed about German finance. The people of Germany are infinitely better informed about our finances than we are about theirs. Quite recently I saw it stated that a White Paper had been issued in that country, written by an expert in our finance, and I think the comparative superiority of the provisions that we have made for this war has been the subject of praise even in pan-German newspapers in that country.
I know the objections that our Treasury officials would raise against giving any figures about German finance. Our finance is honest; theirs is dishonest in this sense—that the figures are unreliable. For instance, they still take credit for their pre-war revenue, about £150,000,000 sterling in all. In that pre-war revenue there is an item of about £36,000,000 from Customs, but, owing to the blockade, the commodities that are going into Germany at the present 536 time are so small that no large revenue such as that can possibly be raised from Customs at present. In regard to Excise, which produced £32,000,000,the chief items were brandy, malt, and sugar. Far less of all these commodities is being consumed in Germany at the present time than was the case before the war; yet they are taking credit for receiving the same sums which they received in peace time. Of the rest, about £50,000,000 came from non-tax revenue, chiefly from the Post Office and railways, and from extraordinary revenue, including loans; and the amounts which it was necessary to spend out of the non-tax revenue on the organisations which gave that revenue absorbed almost the whole of the sums that were received. In addition to Germany crediting herself with the old peace time revenue when she does not receive it, she does not on the other side debit herself with the £70,000,000 that used to he paid in peace time for the upkeep of the Army and Navy. That item is eliminated from the account, and the acknowledged deficit for this year of £144,000,00 sterling is arrived at, therefore, by over-estimating her receipts and underestimating her expenditure. It is a fictitious figure and it does not represent the facts, which, apparently, the German Government dare not disclose to the German people.
I quite understand the reluctance that might be expressed by our officials in such circumstances as these to give a definite account of German finance. None the less, I think an authoritative digest of the figures, as far as they are known, would be of great interest and use in this country, as only very few individuals here have even an elementary knowledge of German finance. Our papers give only scattered excerpts, disconnected one with the other, and even from Government publications—which I have a chance of seeing and which are not generally available to the public—I found it impossible to get any connected account of their finances. Fortunately, I found an expert who was able to explain matters to me, and the results seem to me so interesting that I am venturing to bring some of them to your Lordships' notice to-night.
It will be remembered that the Chancellor of the Exchequer, in his Budget speech, in the very interesting and valuable reference which he made to German finance, stated that he estimated that the German 537 debt on March 31, 1919, would amount to £8,000,000,000 sterling. That is, of course, not only the funded debt but the unfunded debt, because there is always an unfunded debt in Germany of approximately £1,000,000,000 at any particular time unless it is immediately after a new loan. Interest at 5 per cent, and a sinking fund at one-half per cent. would amount to £440,000,000 per annum. He calculated that pensions after the war would cost Germany at least £150,000,000, and he thought a great deal more. He stated the normal pre-war expenditure at £130,000,000. In that, I think, he rather under-estimated than overestimated, but, if so, so much the better. These figures—£440,000,000, £150,000,000 and £130,000,000—add up to £720,000,000, which is the amount that Germany would have to meet if the war ended about March 31 next. The corresponding figure for this country, the Chancellor of the Exchequer stated, would be £650,000,000, made up of our pre-war expenditure of roughly £200,000,000, the extra amount to which we are committed for education and other items, the additional sum that will be required for pensions after the war and the interest and sinking fund on a net debt which he estimated would amount at the end of the current financial year to £6,856,000,000. These two figures, of £720,000,000 for Germany and £650,000,000 for this country, are fairly comparable. I think, on the whole, they are more in favour of Germany than of ourselves.
I am going to make three comparisons. The first comparison is the amount of permanent taxation that is being raised in Germany and in this country respectively to meet the sums which will have to be provided after this war is over. As regards this country, the whole of the £650,000,000 is provided in the Finance Bill of this year, with the taxes that have been levied before this year, and this is entirely independent of the sums raised from Excess Profits Tax and from the newly projected but not yet imposed Luxury Tax. The figure Germany has to provide is £720,000,000. Of that, so far as I can see, from permanent taxation she has only provided £342,000,000, made up of the £150,000,000 I have already referred to from pre-war revenue, a good deal of which is fictitious, £32,500,000 of new taxation imposed in 1916 (the first year in which she raised any war taxation), £40,000,000 of extra taxation raised in 538 1917, and £120,000,000 of new indirect taxation which she imposing this year. Therefore Germany has provided less than half of the amount from permanent taxation that will be required if the war came to a conclusion and she had to do no more borrowing, after March 31 next. We are providing the whole.
The second comparison I want to make is the provision for this year in Germany and in this country from taxation of all kinds, whether permanent or temporary. The acknowledged deficit in Germany, on the basis of the expenditure, is £144,000,000. That deficit is arrived at by over-estimating the receipts and under-estimating the expenditure, but I take it as stated for my purpose. To meet that deficit £120,000,000 of permanent taxation, new permanent taxation, is proposed in Germany for this year, but only half will accrue this year; and, in addition, certain war profit taxes. The net result is that Germany has budgeted for only £366,000,000, whilst we have budgeted for £842,000,000, and the taxes, which will produce £842,000,000 this year, will provide £888,000,000 in a full year. Again there emerges this difference, that Germany is not doing half what we are doing.
I come to the third test, and that is the total extra taxation raised from the beginning of the war to the present time in Germany and in this country. Count von Roedern stated in his Budget speech that Germany had proposed a burden of taxation, including this year, since the beginning of the war, of £200,000,000 from indirect taxation—I need not trouble your Lordships with the details—and £375,000,000 from direct taxation; and of this the details are a little interesting. He stated that £275,000,000 had been provided by a Capital Increment. Tax which was levied in Germany. The capital levy imposed in 1913, a storm signal of which comparatively little notice was taken in this country, provided £50,000,000, which he took credit for in the £375,000,000, because it had actually been paid since the war began. There was an additional Property Tax of £20,000,000, and a new War Profits Tax, proposed this year, of £30,000,000. That makes up the £375,000,000. In addition to the figure of £200,000,000 indirect taxation, and £375,000,000 direct taxation, there is a sum of £100,000,000 for which he claimed credit, raised by the Federal States and Communes. It is, of course, the fact that a good deal of the expenditure which is 539 borne by Imperial funds in this country is borne by the Federal States in Germany, and it is quite fair to add that sum of £100,000,000. These figures —£200,000,000, £375,000,000, and £100,000,000—bring Germany's contribution which will have been raised by March 31, 1919, towards the cost of the war and other purposes by extra taxation since the war began up to £675,000,000. The figure we have raised, or shall have raised by the same time, is £1,686,000,000. I take that figure from the Chancellor of the Exchequer's Budget speech, and again I point out that Germany is doing less than half what we have done. In each year we have provided something towards the capital cost of the war, besides paying interest on our debts. Germany has paid interest to some extent out of loans, and has provided nothing towards the cost of the war. Thus by three different tests—the permanent taxation which will presumably last until after the war, the total taxation raised this year, and the total raised during the war—Germany has not made half the provision we have.
I should like to say one or two words about the proposals for new taxation this year. The taxes are not finally through the Reichstag, but they have been examined by Committees and have assumed probably very much their final shape. It is a curious fact that the Reichstag has immensely greater power over finance than the House of Commons in this country. It is impossible for any member of the House of Commons to propose any increase in taxation, but the Reichstag increases as well as decreases taxes proposed by the Government quite freely. So far as I can discover, the Reichstag parties will renounce the demand they were inclined to make for a regular Imperial Income Tax. They will renounce it at the persuasion of the Government, because such a claim would bring the Imperial authorities into direct conflict with the Federal States. Indirect taxes will be granted without diminution of revenue, but subject to increases and decreases in detail; and the Government have promised, in addition a War Profits Tax. A non-recurrent levy on property will also be imposed. Some of the new indirect taxes are interesting because they show the same fault of over-estimating what is likely to be produced by them. The Beer Duty, it is said, will produce an extra £17,000,000, but that figure is based on peace time consumption. I am credibly informed that the 540 amount of beer being consumed in Germany is something like one-tenth of the pre-war consumption, and therefore they cannot obtain during the war the £17,000,000 which they have budgeted for, or anything like it. In the same way the new spirit monopoly, it is stated, will produce £32,500,000, but as very little spirit is being used for drinking purposes, and nearly all of it is going for munition purposes, the spirit monopoly will not produce anything like £32,500,000.
A similar over-estimate is made in regard to the new duties on tea, coffee, cocoa, and chocolate, for hardly any of these commodities are going to Germany at the present time; yet they assume that these new taxes will produce £3,750,000, which is quite impossible. These proposals are all part of the dishonest make-believe finance which still takes credit for peace time receipts in regard to new and old taxes.
This question of German finance is not a matter which is merely intellectually interesting. The nations of the world, for the most part, are at present living on their capital. It is true that the capital is holding out much longer than might have been expected, but the day of reckoning must come, and I confess that for this country, if this war lasts much longer, I look forward to the day of reckoning with a good deal of apprehension. I do not want it to be supposed, from what I am saying, that I am satisfied as to what our position is going to be when the war is over as regards finance. I do not want to strike too optimistic a note. What I am dealing with is the relative position of Germany and ourselves, and whilst, if the war goes on much longer, I shall regard our financial position with a good deal of apprehension I should, if I were a German, regard the future of Germany with absolute terror.
This is a pan-German war. Welt Macht oder Niedergang is the phrase that made the war. That is the spirit of the war, and which keeps it going to-day, and one difficulty of ending this war is that the pan-German's day is over unless Germany obtains indemnities as well as territory. There were some people in Germany a year ago, and there were some people in this country, who said that Germany would win this war if she did not lose it, and they used the Seven Years War as an analogy. But there is one great difference between the Seven Years War and this. There was no debt, I believe, at 541 the end of the Seven Years War, and there will be an enormous debt at the end of this. But it is not the pan-Germans who made that remark in Germany. The pan-German is a simple minded mortal who presses his conviction with something of the crude dogmatism and absolute cocksureness which is assumed, if I may say so without offence, by the Morning Post in this country. But the Pan-German has been consistent. He has said all along that Germany will be ruined if she does not get indemnities, and I unity say incidentally that some well-informed neutrals who are friends of the Entente and not of Germany have expressed the same opinion to me. But the most extreme pacifist of whom I have ever heard in this country has never suggested that Germany should get indemnities at the end of this war, and I hope that we may take it as a certainty that she will get nothing of the kind. If she does not, then she must raise, in addition to what she is now raising, some £300,000,000 to £400,000,000 per annum of taxation, and to judge by our experience and by her recent efforts she must get the bulk of that £300,000,000 or £400,000,000 from direct taxation, and she will have to get it at a time when war profits will have ceased, and when the world is slowly recuperating after the most devastating and costly and wasteful] war that has ever been fought.
What are the inevitable results of that? The inevitable results are, I think, friction between the Federal States and the Imperial Government. The Federal States have always claimed the monopoly of the Income Tax in Germany, and the Income Tax in one form or another—you may put it under a different name if you like—is the chief and the best and most fruitful source of direct taxation. If there is serious trouble between the Imperial authorities and the Federal States in Germany, that must have a fissiparous tendency. There is a second result. If this large sum must be raised chiefly by direct taxation, the Junkers and the capitalists who are chiefly responsible for this war will have to pay for it. In so far as there is a difficulty in raising the necessary revenue to pay for this war, Germany is less likely to be able to prepare for the next. The cost of future wars must be enormous, and Germany, it seems to me, is marching into bankruptcy now. It will take an immense effort to set her on her legs financially after this war. In these circumstances she is less likely to desire to prepare for new wars, and less 542 likely to be able to prepare for a new war even if she does desire it. I trust that the "will to war" will be a wasting asset after this war is over.
There is one further corollary which it is not unfair to make. If Germany receives no indemnities, it is clear that the longer the war lasts the more her people will be called upon to pay. These huge extra sums will have to be paid, and when it becomes apparent to Germany that she will receive no indemnities, and that the people who made the war will have to pay for it., then we may see a change of spirit. That conviction would no doubt come most quickly from military factors, and at the present moment, of course, the military factors are not such as to discredit the extreme pan-German view. With that observation, my Lords. I leave the question with the expression of the hope that the military prospects will change for the better before long.
I have stated the case as it appears to me. I do not know how far my arguments will appeal to His Majesty's Government, who have much more complete information on these matters than I possess, but if they have appealed, I venture to suggest (not as a matter for immediate reply, for I have no desire to raise a debate to-night) that such arguments, stated as they would be far better than I have stated them by a statesman whose voice is powerful enough to reach Germany, would not be without use in that country if they came at the right moment. This may not be, probably is not, the psychological moment for anything of the kind. A year ago, I think, arguments on this line would have been given heed to in Germany if spoken by our most prominent men, and the time may come again when they will be useful once more. I trust, if that time does come, His Majesty's Government will not hesitate to use them.

§ LORD HYLTON
My Lords, before the Question is put by the noble and learned Lord on the Woolsack, I think the House will wish that the noble Lord, Lord Emmott, should be thanked for the very interesting speech which he has just delivered. The information that he has imparted to the House is based upon statistics which are not very easy for the ordinary man in the street to obtain in this country, but I have checked all the figures 543 which the noble Lord has given with the information that has been provided for me by the Treasury for that purpose, and I believe that I am justified in saving, from the information in the possession of the Treasury, that the whole of the figures which Lord Emmott has given to your Lordships are absolutely accurate so far as it is possible to obtain accuracy in such matters. Your Lordships know that, unfortunately, our speeches in this House are very often passed over by the newspapers with very little regard indeed, but I most earnestly hope that the Press will take notice in a fuller way than they are often accustomed to do of the observations that have fallen from Lord Emmott this evening. I can assure noble Lords that it will be my first duty to put before the Treasury his suggestion that if possible some further use may be made of the speech which he has delivered this evening in order to spread abroad the very remarkable facts and figures which he has given to your Lordships.