THE FINANCIAL POSITION.

HL Deb 25 March 1919 vol 33 cc943-93

LORD FARINGDON rose to call attention to the financial condition of the country, and to move—

That the serious condition of the finances of the country calls for the exercise of the strictest economy in all directions.

The noble Lord said: My Lords, an apology is, I think, almost due to your Lordships for bringing forward a Resolution dealing with the country's finances so soon after the extremely useful discussion which has recently taken place in this House upon Lord Buckmaster's Resolution with regard to industrial unrest. The economic side of the position arising therefrom was debated at some length and with great ability, but only the fringe of the subject was touched upon as affecting the general financial situation, and I venture to think that it is advisable to consider without delay the serious circumstances in which the country stands.

In August last Lord Inchcape drew attention to this subject and remarked that we were living in a fool's paradise. He ventured to think that we should win through if proper financial principles were observed. It is because I believe that proper financial principles are being ignored, or not given sufficient attention, that I venture to address you to-day. The nation has been startled by a statement made quite recently by the Leader of the House of Commons that our expenditure, is still within £1,000,000 per day of the expenditure current while the war was in full swing, the figure then being in the neighbourhood of between £6,000,000 and £7,000,000 per day. This may be inevitable for the moment, the cost of demobilisation being, as we can all understand, very great; but it is not what was expected, and in many directions we think we see extravagances that could be avoided. Assuming, however, that what is now going on is inevitable, the necessity for taking stock of our financial situation is greater than ever, because the burden the nation is called upon to bear is fast becoming insupportable, and it is only by recognising facts at once and trying to provide remedies for them that disaster can be avoided. I am far from being a pessimist, and when Lord Inchcape's Motion was before the House I ventured to take a more optimistic view of the future than he did; but I am now disposed to think that his estimate of a Budget of £700,000,000 was nearer the mark than the more moderate sum that I suggested; indeed, the figures I shall have to refer to presently, particularly those which have already been mentioned by Lord Buckmaster arising out of the Consolidated Fund Bill, would make it appear that even that huge total of £700,000,000 may be far exceeded.

Nothing but absolutely necessary expenditure must be incurred, and a pruning process must inevitably take place, going to the very root of the bureaucratic evil from which we appear likely to suffer. The necessity for this is abundantly proved by the Estimates which have just been presented for the Civil Service and Revenue Departments for the year ending March next. The tremendous figure of £495,000,000 is put forward as against £88,000,000 in the pre-war year—an increase of no less than £407,000,000. It is true that the Estimate includes items that did not appear in 1913, such as the Ministry of Pensions£73,000,000, and Ministry of Labour £31,000,000, the former a direct result of the war and the latter closely connected with it; also loans to the Dominions and Allies £8,000,000; but excluding these three items we still have an increase of no less than £215,000,000 over the pre-war year for the maintenance of services that were either in existence in 1913 or are likely to a considerable extent to be of a continuing character.

May I take a few of the figures that are included in this increase of £215,000,000? Under the head of "Civil Services" there are three outstanding items—Education, £20,000,000; Bread Subsidy, £50.000,000; Rail-ways, £60,000,000—while under the head of "Revenue Departments" we have in respect of Customs and Excise, Inland Revenue, and Post Office, £20,000,000. No one expects that the education figure will decrease; indeed, it is moderately certain that it will move in the opposite direction. When the bread subsidy disappears its place will probably be taken, of necessity, by some other form of dole; and the railways must under any conditions involve the State in a considerable loss for years to come, whatever may be ultimately decided with regard to them.

The increase in the Revenue Departments—an increase, I think I mentioned just now, of £20,000,000—may, perhaps, be viewed with less misgiving, as it is reasonable to expect some increase in income in normal years from Customs and Excise and from the Post Office to balance this increased expenditure. I have only mentioned these outstanding items of new expenditure as I do not wish to weary your Lordships with a mass of figures, but I think that those I have quoted and the others appearing in the Estimates fully justify a demand for a close examination, and I fear that the continuing nature of a large part of these will be abundantly proved. The Financial Secretary to the Treasury, in submitting to the House of Commons this Vote which amounts to £495,000,000, gave explanations with regard to part of this increase, but his arguments, I think, convinced very few of his hearers, and Sir Donald Maclean voiced the belief of a large section when he stated that "we were heading straight for national bankruptcy."

Several NOBLE LORDS: Hear, hear.

LORD FARINGDON

If I thought that the seriousness of the position was sufficiently appreciated I should not be addressing your Lordships to-day, but the concluding remarks of the Financial Secretary to the Treasury would seem to imply that in his opinion that was not the case. He said— If a Government is extravagant, no Chancellor of the Exchequer and no Treasury is going to save it. The Government is dependent on the House of Commons. If a House of Commons does not attempt to hold a Government in check, that Government will go on spending money. My views of the functions of the Chancellor of the Exchequer differ considerably from those which were given expression to by the Financial Secretary, and many of the Chancellors of the Exchequer of the past must have turned in their graves at the enunciation of the principles here laid down. What would Mr. Gladstone or Sir Michael Hicks-Beach have said if they had been told that no Chancellor could stop expenditure of which he did not approve? The first duty of a Chancellor in peace time is definitely to refuse to sanction any outgoings that he does not think the nation can stand without injury to the whole community, and from what I know of the present Chancellor of the Exchequer I believe he is not likely to accept the rÔle that is indicated by his Financial Secretary.

Your Lordships' House has been deprived by the Parliament Act of much of the control that in the past it exercised over the nation's finances, but I nevertheless believe that the nation looks to this House to give a lead when it is apparent to all who have given thought to the subject that the country is on the brink of a precipice, and it is your Lordships' duty to do the utmost possible to check a mad rush to disaster. It is desirable that there should be placed before the country promptly a straightforward statement of our position in connection with continuing liabilities I am particularly anxious that we should not be understood to be asking for any secrets to be revealed at the present time with regard to the forthcoming Budget. It is the liabilities of a continuing nature that we are particularly interested in discussing at this time. We realise that the future must provide for an annual debt charge of something approaching, and possibly exceeding, £300,000,000 (as our National Debt on the first of this month amounted to £7,500,000,000), that our Army, Navy, and Air Force charges on a peace basis will not be less than in pre-war years, that Civil Service and Revenue Departments will require much larger figures, and fresh burdens are from day to day being piled up; and we want a stocktaking before it is too late.

Several NOBLE LORDS: Hear, hear.

LORD FARTNGDON

Valuable suggestions as to the best form that this stocktaking can take will, I trust, arise out of the discussion that I am now initiating. Various suggestions have been made as to a Royal Commission and Committees of various kinds, but I hope that as a result of the speeches that may follow my own some really valuable suggestions as to the best form in which the stock-taking, as I have called it, can be made, will be forthcoming.

Very few people realise what a permanent Budget amounting to three or four times the pre-war figures will mean in taxation. It will be said, "See how, with comparative ease, large revenues have been raised during the last few years." The answer is, of course, that those years have been altogether abnormal, both as regards payments and receipts; that directly we return to ordinary trade conditions the profits that enabled heavy burdens to be borne must cease, and the strain of taxation, upon whatever shoulders it may be placed in the first instance, must inevitably be borne by the community as a whole. "Heavily tax the rich man for the social needs of the great mass of the community" is a favourite doctrine with the proletariat. What is the result? The banker who has to provide the means for handling the commerce of the country, knowing that out of every sovereign he receives a considerable portion is to be taken from him by way of taxation, must charge more for the accommodation that he gives to the merchant. The merchant passes on this burden to the middle-man or tradesman, with something added probably on his own account; and the tradesman, who has had to pay higher prices for the commodities that he purchases and in all probability also increased rent, increased rates, and higher interest for the money he has to borrow to carry on his business, raises his prices to the consumer, and no doubt the very poorest suffer most.

It is therefore to my mind essential that there should be placed before all classes of the country a simple, clear, and definite statement of our financial position, showing that an annual burden of £600,000,000 to £800,000,000 will hamper our industries, prevent trade revival, and inevitably prevent a fall in price of the necessities of life. Heavy taxation must hamper our trade, as it will keep the foreigner from sending us, as in the past, his capital for safekeeping and investment. Heavy taxation will, as I have pointed out, react upon the price of the commodities that the poorest must purchase and make a constant demand for higher wages, and with those higher wages will come an ever-increasing inability to compete in the markets of the world. It is not, therefore, one class but the whole community that is interested in keeping down our national expenditure.

A number of the social schemes that have been brought forward are doubtless excellent in their way, but they should not be entertained until trade has been re-established and profits made. A section of the community to-day points to the large deposits in the Joint Stock Banks, and because they see growing figures assume that all is well. If increasing deposits were a measure of financial strength then Belgium, whose deposits have gone up by leaps and bounds, is suffering from a superfluity of riches, and Turkey, where there has been a rush to pay off debts, must be financially sound. We know that deposits are no safe index to a nation's wealth, and that plentiful currency in all the countries of the world accounts for a paper affluence which is not a real one. To-day Belgium, Turkey, and other countries cannot pay their way without help, the currency heaped up is only useful as an internal means of bargaining. Our own position is in some respects—in many respects—similar, and any amount of currency will not enable us to pay debts outside the United Kingdom, or purchase the raw materials that we require for our manufactures or the food stuffs for our people.

This brings me to the second point which I should like to touch upon. If we wish to buy from the foreigner what we want, we must sell to him something he requires, remembering that we have no longer to any large extent the power to draw commodities in respect of interest on moneys loaned abroad. To this end, it seems to me, merchant, manufacturer, and work- man should combine interests and work with a will, so that our exports may not dwindle but be largely increased. How this can be done is a problem as great as that of finding means for the reduction of expenditure, but it is a problem that must be solved. Workers in mines and factories are insisting upon higher wages, and in consequence we are no longer the cheapest market for many commodities. A persistence in these demands must cause a loss of foreign markets. Already we find some of our old customers for coal going to America, and some of our textile clients going to Japan and other countries; and there will be an ever-increasing loss of business if Labour and Capital do not unite to prevent it.

One of the first things to be done is to demonstrate that high wages must mean to a country like our own, where so many foodstuffs have to be imported, high prices for the necessities of life. It is not so much the wage as what the wage will purchase that has to be considered. A second thing is to get employer and employed to work together for their mutual advantage. It may be that "capital" in the past has been spelt with too big a C, and "labour" with too small an L; if that is the case, conditions must be changed. In future, in the direction of our mining and manufacturing industries, Capital and Labour must be in co-partnership. The profits accruing must be shared. I have had some experience with workmen, and as a rule, indeed generally, I have found that they are not unreasonable. A minimum living wage is as essential to them as is a minimum rate of interest to Capital. When these two things have been secured, the surplus arising should be distributed in agreed proportions. Labour must in the future be taken into full confidence, be given representation upon industrial undertakings, and educated where education is deficient in the reasons which guide the manufacturer in his business; and the manufacturer should obtain in exchange full value by an increase in the energy of the worker, and an avoidance to a large extent of industrial strife.

If this state of things can be brought about, I am sanguine enough to believe that our coal exports, which amounted in 1913 to £50,700,000, can be maintained, and our exports of manufactured goods, which amounted in the same year to £411,000,000, be largely increased. This will do much to right the financial situation, but it is not enough. We cannot spend thousands of millions upon war, ignoring the day of reckoning. The prodigal may not have spent his substance in riotous living, he may have disposed of it in a way that eventually makes for profit, but in the meantime lie will have to put up with a very husky diet. Economy of the strictest order will have to be observed, both by the individual and the nation.

We have almost brought to a conclusion a just and righteous war. We have poured out our substance in its prosecution, and if we wisely shape our expenditure and avoid industrial strife we may find that a satisfactory investment for our children has been made. If, on the other hand, we ignore the necessity for self-denial, as individuals and as a nation, and fail to secure the co-operation between different classes which is imperative if our trade is to revive, we must inevitably go under; and there are not wanting many who would be glad of the opportunity of throwing their heels in the fact; of the dying lion.

There was an old political phrase that was very much to the fore in the days of my youth. It Was "Peace. Retrenchment, and Reform." The banner upon which that Was inscribed has no doubt been for a long time put away, and is extremely dusty, almost forgotten. I think it would be a good thing if it could be brought out from its retirement, and become the motto for to-day. Peace we ardently long for, and believe is near at hand; retrenchment is essential if the nation is to be saved from disaster; and reform in connection with industrial matters that lead to strife is also essential. But given attention to these three things, bad as I believe the position of the nation to be, I hope there is still time to put it again upon a safe and sound foundation.

Moved, That the serious condition of the finances of the country calls for the exercise of the strictest economy in all directions.—(Lord Faringdon.)

LORD DABERNON had the following Notice on the Paper—

To draw attention to the fall which has occurred in the standard of value, as expressed in money; and to move for Papers.

The noble Lord said: My Lords, I think the country is indebted to the noble Lord who has just spoken for the very clear, courageous, and unflinching statement of the financial position which he has brought before your Lordships. There are two points upon which I think opinion is largely unanimous—namely, the grave condition of affairs, and the necessity for the utmost economy and retrenchment. I will venture to say there is another point on which I believe the large majority of this House will be with the noble Lord, and that is that we look to the Chancellor of the Exchequer to act as a controlling influence. In all the great financial periods of history, either in this country or elsewhere, it is the Chancellor of the Exchequer who has acted as the brake upon the wheel. It is useless to look to a democratic Assembly to be as economical as present circumstances require unless guided by a wise mentor.

If I intervene in the debate to-day it is to draw your Lordships' urgent attention to another aspect of the question, to an element in the financial position which has been strangely neglected—I mean the currency. The noble Lord alluded to it in a passing manner. In my judgment it is the root, the governing factor, of the whole situation. The noble Lord spoke of the danger and difficulty of meeting an annual budget of £600,000,000 or £800,000,000. I agree that the sum is enormous, and that the burden is enormous; but what pounds are we speaking of? Are we speaking of £600,000,000 as they were in 1914, or £600,000,000 as they are in 1919? The two are totally different. One is less in value in commodities and in service. One is less than half of the value of the other. Or, again, looking at the future, do we speak of the pounds of 1920 or 1921? What are they to be? Are they to be similar in value and in commodities to the pounds of the pre-war period, or of similar value to the pounds of to-day, or of a different value to either? This question has to be faced; because unless you come to a determination on that subject you are merely talking in the air. In the one case the burden of debt which has been accumulated during the war is more than double what it would be in the other case. The truth is that we are building upon a shifting sand of currency. You may build as well as you like, but if the foundation is insecure the whole structure must come down.

In my judgment the discussions which have recently taken place are entirely vitiated by the false assumption that the pound sterling has a stable value. The value has fluctuated violently in the course of the last four years. It has fluctuated so violently that if the same forces remain at work it is absolutely futile to look to a stable value in the near future. I confess for those who think with me on this subject, and who regard this currency problem as one of urgent importance, that it is disappointing and disturbing to find that the factor of change of value has been entirely ignored in the discussions which have recently taken place. My belief is that the arrangements now being made between Capital and Labour can produce only temporary relief unless you provide adjusting machinery to bring the future into harmony with the changes of currency which will occur. The settlement you are making can only meet the requirements in one extremely improbable event—namely, the event that the standard of value will remain precisely at the same level at which it is to-day. If the fall in the value of money which has been going on for four years continues, the remuneration of Labour which you are fixing will prove to be too small. If, on the other hand, the value of money improves—goes back either to or towards the level of 1914—the concessions you have made will be recognised to be excessive. In the one case you have the certainty of further Labour trouble, further strikes, and further unrest. In the other event you have the certainty of trade paralysis, because your working costs will have gone up unduly.

I submit to your Lordships that there is no escape from that dilemma except the one of price values remaining precisely on their present level; and I need hardly point out that this eventuality is extremely improbable. I say, therefore, that until you have eliminated, or corrected, or provided adjusting machinery for, this new factor of disturbance, it is vain and futile to talk about good national finance. After all, national finance is a super-structure; the basis and foundation is good trade and good industry. Unless trade and industry are prosperous there is no good national finance. At the present moment, as the noble Lord has pointed out, the outlook is far from reassuring. Apart from other circumstances, the relations between Capital and Labour leave a great deal to be desired. What is the reason for that? I believe it is mainly the violent disloca- tion of prices which has occurred during the last four years. It is the common practice to talk about the rise in price of this or that commodity, the commodity in which the speaker happens to be interested; but when the rise affects, as it does to-day, every commodity with a free market—every commodity which is not controlled—the phenomenon with which you have to deal is not a rise in the price in an individual commodity but a fall in the standard of value. You have to adjust your whole system to that.

It is admitted, I think, that when a fall of this kind takes place there is a theoretical case for the revision of contracts based upon money, and there is a practical necessity to revise contracts where the contracting parties are not able to survive so great a dislocation—where their financial circumstances do not allow a sufficient margin. The change in the standard of value affects every class. It affects very largely fund-holders and landholders; it affects the Civil Service in a very marked degree; it also comes into the relations between the State and the taxpayer. And when the shifting of balance between money and commodities attains to present proportions it is absolutely impossible to hope that you can go on without adjustment. What I venture to put before your Lordships is this, that without advocating any particular solution, and without having the smallest desire to attribute blame to anything which was done in the past, the vast importance and influence of this factor must be taken into full account.

It is well known, of course, that there has been a progressive fall in the value of money for the last 700 years; but the fall in the last four years has enormously exceeded other falls. In fact, the fall is equal to that which took place from 1300 to 1700, a period of 400 years. It is fact, greater than the fall which occurred between 1700 and 1900, a period of 200 years. It is not too much to say that there is no period in history where a similar fall has occurred. The only times when anything approaching it has been seen were between 1600 and 1640, at the time of the discovery and the working of the great silver mines of Potosi; and again in the Napoleonic Wars; but on neither of those occasions did the dislocation at all come up to the dimensions of the dislocation of to-day. In I860 there were universal complaints of the enormous rise of prices. What had prices risen?—30 per cent, above the pre-war rate. But to-day prices are 130 per cent, above the level of 1914. It is vain to expect that this enormous factor of change can be left out of account. It is clear what has occurred. Before the war payments for personal services were subject to contracts, the remuneration being expressed in wages. Those wages were stipulated for and paid in currency. The currency in which they are paid is worth only 43 per cent, of what it was when the contract was entered into. You cannot be surprised if in these circumstances there is grave discontent. You cannot be surprised at Bolshevist tendencies being shown. I myself marvel that the disturbance has not been greater and did not come sooner.

You may reply that in a large number of trades an adjustment has been made; that wages, or allowances, have been agreed to which to some extent compensate the rise in the value of food and other commodities. But even here, although I think that is a step in the right direction, the process is not satisfactory, because you have done this to meet an individual case in a temporary manner. There has been no attempt to meet it permanently, or to invent a sliding scale which will prevent the difficulty which you are endeavouring to remedy from recurring in the course of a few months or of a few years. And the settlement is also, I think, unsatisfactory in that nominal increases are granted and it they were real increases of remuneration, which they are not, but the mere adjustment to a new condition. There is this still further cause of unsoundness in the procedure—that the correctness of what you are doing, and the permanence of what you are doing, is dependent entirely upon prices remaining precisely as they are, and there is but a small chance of that occurring.

I venture to believe that a great deal of what is termed political unrest, or social unrest, which is occurring not only in this country but throughout the civilised world, is due and can be traced to this enormous dislocation of prices and values. Through the whole range of social disturbance I hardly see anything which is not more or less powerfully connected with that cause, except perhaps influenza. Certainly Bolshevism is very largely due to high prices, and high prices proceed n the main from currency causes. I hope that your Lordships will not consider the subject as too dry or too abstruse for detailed discussion. Whether it is dry or not, or whether it is abstruse or not, I am convinced of this—that the problem has got to be faced, has got to be talked right out, and a sound conclusion arrived at. Any diagnosis of the financial position which ignores this factor is necessarily false and essentially erroneous, and any proposed remedy for industrial unrest based upon a false diagnosis will not give the country either the prosperity or the stability which is required, and without which any reform of finance, any sound financial system, is absolutely impossible.

VISCOUNT PEEL

My Lords, the noble Lord, Lord Faringdon, has introduced it subject of the gravest and also the widest importance, and of course we all recognise that on a subject of this kind he speaks with wide experience and authority. Nevertheless, I thought that he used—or shall I say quoted with approval—certain phrases which go rather beyond the situation at the present time. He spoke of "dangers of national bankruptey," and "approaching the brink of a precipice"—phrases which certainly do not represent in any way the view of His Majesty's Government of the financial situation.

But before I deal with some of the wider aspects of the subject—the general financial aspects which have been alluded to by my noble friend—I should like to say a word or two on the point raised by Lord D'Abernon on the question of the devaluation of money, or the £sterling, as I think he put it. It is, of course, impossible to deny that very grave social disturbances are likely to arise from any sudden disturbance of the relation between goods and the currency. My noble friend referred to historical instances where this had taken place, and I think he declared that the rise in price, or the consequent de-valuation of the currency, during the last four years exceeded that which took place between 1700 and 1900. There have been, of course, very notable instances of this sudden fluctuation in price. Two notable instances have been mentioned, one after the Black Death in 1349, and the other after the fresh discoveries of silver in the sixteenth century, and, as the noble Lord said, the consequences of those are known to all. They upset the basis on which contracts are made and upset the calculations of landowners and others who are taking payments in fixed amounts of money. As a rule these movements are slow, either upwards or downwards, and perhaps are only drawn to our notice by writers and economists; but so rapid has been the rise during the last few years that it has been brought home to every householder and every woman. Every woman realises that the money she has now purchases only a little more than half what it did four years ago. Where these changes are rapid there is, as my noble friend said, great danger of social ferment and social discontent.

I think, however, we should be very careful as to the precise nature of the figures used. My noble friend used the figure, in describing the rise, of 130 per cent., and perhaps I ought to point out that that only represents the purchasing power as regards food prices. It does not include, and is not intended to include, other items like rent and clothes and other matters, and if all the other prices affecting working class expenditure are taken into account the figure will be very much more like 120 than 130. At the same time the increase is very high. There is another fact bearing upon this social unrest which is worth noting, and this was examined very carefully by Lord Summer's Committee, which reported last year, and that is how far the burden has actually been felt—that is to say, how far expenditure has actually risen to the same extent as retail prices. That Committee found that expenditure had risen in a less degree, partly owing to the curtailment of supplies, and partly because of the substitution of commodities for the particular commodities on which these figures are based. That may be an unfortunate circumstance, but it is worth weighing when considering the percentage by which commodities have risen.

Unfortunately, looking forward with great hopefulness to the future, it seems a long time before there is much chance of these prices falling within 50 per cent, of what they were before the war. There are, however, some points of hopefulness and some signs of the dropping of these food prices, which are so closely connected with social unrest. Lord Sumner's Committee estimated that the average weekly expenditure of a family of the working class was in 1914 24s. 11d. and in 1918 47s. 3d., a rise of between 80 and 90 per cent. Up to just about the end of March it is estimated that the fall in necessary food prices would make a difference of something like 1s. 10d. in that expenditure, and before the end of May it is hoped by further falling in prices that the reduction will be something like 4s. per week.

My noble friend is familiar with, and I need only allude very shortly to, the remedies applied to this state of things anyhow during the last period of the war, when the fixing of prices for certain commodities took place and when certain rises were made in wages to meet a difficulty from the other side. Of course, the rise in wages, as my noble friend suggested, has not been even all through, and there has been really no machinery for equalising throughout all the trades that rise in wages to meet the increased cost of living. My noble friend knows that in some countries Price Commissions existed for the purpose of controlling prices, but I do not think the experience of the recent election gives much hope that it would be considered advantageous or in the public interest to maintain this control of prices here. But there is at the present moment—and I think it is a discount which one must make use of in considering what these figures mean—no one Department in this country which deals with the figures of the rise of prices on all commodities as a whole. Certain commodities may be estimated by one Department and some by another.

The Committee on National Expenditure, which went very closely into this matter, considered that the basis on which these Board of Trade figures were made was, I will not say antiquated, but to some extent out of date, and that a further examination was necessary in order that a proper figure might be obtained by which a comparison could be established between the cost of living at the present time and before the outbreak of war. My noble friend also discussed the question of the rise of prices. Of course, a very large number of causes may account for the rise in prices. There are so many that it is very difficult to select between them. There is the vast shortage of supplies owing to the diversion of material and labour for war purposes, the shortage of shipping, adverse exchanges arising from adverse trade balances, and there is also the question, which has been much commented on, of the possible depreciation of the currency through the issue of Treasury Notes. I understand I that my noble friend did not lay very much stress upon that.

That question has been very carefully examined both by Lord Cunliffe's Committee and the Committee on National Expenditure. Both I think, come very clearly to the conclusion that the issue of Currency Notes was merely the consequence and not the cause of the system by which the war was financed; that the real trouble was the inflation of credit rather than the inflation of currency; that it was impossible to finance the war either I wholly from taxation or even from the savings of the people, and that, therefore, you had to have these vast creations of credit transferred to the Joint Stork banks, making these large deposits of which my noble friend complained; and that—in order that this purchasing power might find vent so that contractors and others might have sufficient currency to pay higher prices and wages for the amount of work done on their contracts—it was absolutely necessary that these Treasury Notes should be issued, although, as my noble friend knows, the extent to which these Currency Notes could be used was very severely limited. These Notes were only issued, of course, to the banks in return for debits or securities that were deposited.

Therefore, I think we can satisfactorily say that whatever was the cause of this increase in prices it was not due. as some authorities have suggested, to any depreciation of the currency itself, but rather to the question of the necessary inflation of credit. I think it is worth observing also—because it does bear very much on the general financial situation of which my noble friend has just spoken—that this country has taken the lead in the extent to which it has attempted to finance the war out of taxation. The taxation per head of the population has risen from £3 10^s. at the beginning of the war to nearly £17 now. That is a rise of nearly five times. I think, perhaps, it would be rather interesting, too, if I alluded to the distribution of this taxation as between indirect and direct taxation, and compare that of one or two years before the war with the situation now. In 1903–4 the indirect taxation was 50.7, while the direct taxation was 49.3, showing an almost even balance between the two. At that time the amount of tax revenue per head of the population was £3. Then, in the year 1913–14, the indirect taxation was 42.5 and the direct taxation 57.5, and at that time the amount of tax per head of the population was £3 10s.

Coming then to the year 1918–19 the comparative figures are very interesting. First excluding the excess profits from the calculation the indirect taxation is 30.21 and the direct taxation is 69.79, showing a vast increase. That works out at £10 5s. 2d. per head of the population taking the population at 47,000,000. If you exclude excess profits, which no doubt you ought to do, you get a still further remarkable result. The indirect taxation is 18.63 and the direct taxation 81.37, and the total amount of revenue per head of the population is £16 12s. 10d. There have been no suggestions, of course, that currency has in any way depreciated through the methods employed in other countries. There has been no suggestion that the Treasury Note has depreciated as against coin. The most that Lord Cunliffe's Committee suggested was that possibly it might have depreciated to some extent in terms of bullion, and we know the value set by manufacturers and others upon bullion at the present time. I think the point is worth establishing—that the rise in prices has been due to shortage, to enormous waste in the war and kindred causes of that kind, and not to any depreciation of the currency itself.

Although it may be said that, from the point of view of the working classes, it does not make very much difference to them what the cause is so long as the purchasing power of their money has gone down, yet it does make an immense difference as regards the remedies; because, of course, if there had been this depreciation of currency, some such method as is advocated by Lord Cunliffe's Committee for the withdrawal of Treasury Notes and the reduction of currency—though, of course, advised on a very different ground, namely, that of restoring the position of the Bank of England in control of foreign exchanges—might be adopted to set the matter right. But if it is due to this general rise in prices caused by shortage, an absolute deficiency of material, and waste of war, then the situation is much more difficult and really much more complex, and one is rather apt to get into that vicious circle when a rise in prices in one trade at once sets going a rise in prices in another trade, and at the end nobody is very much better off.

My noble friend made an interesting suggestion, that there should be a Committee, or some Board, which should be constantly examining the relation between wages and prices, that they should ascertain when there was this devaluation (I use his word in preference to depreciation, which has another significance in regard to currency), and that wages should be raised accordingly. This, of course, has to some extent been done in some industries, and the suggestion is that it should be applied generally over the whole country. It is a very valuable and an interesting suggestion, but it is open, I think, to the same objection as profit sharing—namely, that it was all very well so long as there are profits to share, but when profits began to fail there may be again some fear of social disturbance. The same criticism would therefore be applicable to my noble friend's suggestion, as at the present time prices are beginning to fall, and it is hoped they will fall; therefore this Committee or Board would have a tendency to diminish the amount of wages in agreement with the fall in prices rather than to increase wages. Nobody knows better than my noble friend that what the working classes want is not so much to maintain some relation between the goods they can purchase and the value of money as an actual increase in the standard of life itself: and that I will not be met by my noble friend's suggestion.

I should like to say one word about the criticisms made by Lord Faringdon upon the Estimates and upon general expenditure. My noble friend, of course, did not fall into the error, which a great number of persons do, of treating the war as over. From a financial point of view no doubt by far the most serious period of the war is the aftermath; and the years that follow the war. Moreover, the very fact of peace, and the activities of peace, bring with it a large increase of expenditure which was not necessary during the war, but which is a direct consequence of the cessation of the war, and the efforts made in the war. There are, for instance, a very laree number of what may be called "terminal charges" which must be met. and in estimating the value of the statements of Lord Faringdon I think we ought to keep very clearly in our minds where the possibility for economy comes in, and where there is any possibility of economy. These sums have to be paid. We have to face them as best we may, and consider rather not whether they ought to be paid but how they should be paid.

For instance, all the officers and men discharged from the fighting forces have to be paid considerable sums as war gratuities. Then there are all the running contracts which have to be brought to an end, and for which large sums have to be paid which would probably Lave been spread over a considerable number of months, or years, it the war had continued. There is the discharge of innumerable workers from the munition works who, again, have to be given considerable sums as a provision against unemployment. Then there is a whole hoist of matters—questions of reconstruction, postponed during the war but which have gained weight and momentum during the war. They have to be dealt with when peace is in sight. There are all those questions of the increase of debt charges, increased expenditure owing to the rise in prices, which takes several forms—one is increased wages to soldiers and sailors, police and Government employees, which have been, I think, generally assented to—and the increased cost of supplies and food to prisons, asylums, and other institutions. Any hope that we may be able to revert in these matters to large economies, even with the best will in the world, I am afraid is rather futile. In spite of these necessary expenses, expenditure has, since the Armistice, very largely gone down. My noble friend said that the expenditure now was only £1,000,000 less per day than during the war, but the figures I am provided with show that it is now less by £2.000,000 per day, or a reduction of 30 per cent.

LORD BUCKMASTER

What is the present expenditure per day?

VISCOUNT PEEL

I have not the exact figure, but I can get it. I am of course in this difficulty, and I hope your Lordships will sympathise with me, that the Budget statement will soon be made and I am not in a position to anticipate, by immemorial custom, any of these figures and statements which will be in cluded in the Budget. It also prevents me from going in some detail into the question of recurring expenditure and non-recurring expenditure. Let me take the figure of £1,500,000,000—the expenditure for 1920, which has been so much discussed in the Press. If you take that figure and compare it with the estimated expenditure for the previous year, which was £2,976,000,000, you get on that figure alone a reduction of nearly 50 per cent.

Let me make one or two observations upon the Estimates, on which my noble friend commented rather severely. There is, of course, the Army Estimates of £440,000,000 gross, and £287,000,000 net, after the Appropriations in Aid; the Navy Estimates of £149,000.000 and £200,000.000; and the Air Force Estimates of £56.000.000. The consideration which I have mentioned, that the war is not yet over, that peace is not signed, and that there are these vast terminal charges, must apply to all these Estimates, and they must by no means be taken as Estimates that are likely to recur in the future years, or even next year. All these Estimates are largely provisional, and, as it has been stated, may be subject to large revision and reduction daring the coming year. My noble friend fell foul of the Civil Service Estimates and the large amount of £495,634,000. He quite realised that you must not compare the Estimates for this year with the Estimates for last year, because so much of the cost was financed by Votes on Account, but I do not think he did full justice to the extent to which these Votes on Account piled up the expenditure on these Civil Service Estimates. I take one or two examples from the Estimates themselves. The Estimate for old-age pensions in 1919–1920 is £17,892,000, as against £12,085,000 in 1918–1919, and this figure of £12,000,000 odd is exclusive of £6,046,000 which was the extra 2s. 6d. borne, in that year on the Vote of Credit. If those two Estimates were fairly compared there would oven be shown a slight, though a very slight, reduction in the extent of the Estimate. I need not remind your Lordships that because all these figures are now involved under one head instead of being divided into two it makes no difference whatever to the general expenditure of the country.

If you add the Votes on Account and the Estimates for the previous year together, and compare them with the Civil Service Estimates for this year, you get I think a rather more hopeful figure than the one alluded to by my noble friend. The Civil Service Estimates plus the Civil Vote of Credit charges amounted to £740,289,000 for the previous year, while for this year the figure is £495,000,000, showing a decrease on the whole of £244,664,000, which it will be admitted, is a substantial decrease. Again, these figures must be subject to large reductions in the future, and even possibly to some extent this year. There are a very large number of exceptional charges in the Estimates for 1920. My noble friend alluded to one of them—loans to Allies and Dominions, amounting to £87,000,000. Then there is the bread subsidy of £50.000,000. and a number of other figures that I need not mention. There is a very large figure for the Ministry of Labour for unemployment benefit, largely of course arising out of the war. That figure is something like £25.000.000. There is another very large figure included in these Estimates for pensions to disabled soldiers, amounting to something like £73,000,000. Some of these figures are recurrent, and some are non-recurrent, and some of the non-recurrent figures are very large indeed.

I do not wish to put forward any of these observations regarding the Estimates as suggesting that large economics may not be effected, or that the position is not very serious. Every one will echo the statement of my noble friend that the severest economy is absolutely necessary, but I think a great deal more is necessary than mere economy. We lay too much stress sometimes on the negative virtues—on the virtues of abstinence and self-denial—and not enough on the more active and more attractive virtues. In this case we want to call attention not so much to the necessity for economy, and not so much to the necessity for paying off floating debt and reducing expenditure, as to the need for further activities for the production of wealth on a large scale. That is far more important than the negative question of economies.

Financially, I think that it is not too much to say that the worst period of the war is the period after the war. We are all, I think, so debauched by the facile way in which these vast sums of money have been raised on loan during the war that we are inclined to think that that happy state of things can go on longer. We have been apt to mistake the machinery of wealth for wealth itself. It is no doubt a very hard demand to make upon our people that after they have gone through the tremendous struggles of the war they should make still greater efforts in order to build up again the national wealth. Yet that is the plain lesson which is to be drawn from the financial situation. We have to work, not as hard as, but far harder than, we did before the war. Let us therefore brace ourselves as a nation to the task of creating wealth before we quarrel among ourselves as to the important question of its distribution. I should like to say, on behalf of the Government, that as regards the Resolution itself they will place no opposition in the way of my noble friend.

VISCOUNT HALDANE

My Lords, I admit at once that it is with a certain sense of disappointment that I have listened to the speech of the noble Viscount. I miss in it an injunction to the one thing needful. The noble Viscount passed in a very interesting review, in the first part of his speech, what was said by Lord D'Abernon. I was impressed by what Lord D'Abernon said as to the close connection of the state of things that we have to-day with the state of things which, at least to some extent, is mirrored in the currency. It is no doubt true that in this country the issue of paper money has operated to a very small extent upon prices relatively to what has happened in other countries.

But if you want to see how these things can operate look at other countries. Look at Russia to-day. Look at the effect of paper currency upon prices there. Look at the enormous prices that have to be paid even for the necessities of life, yet paid in paper which has so depreciated that its purchasing power is very little indeed. Why is that? Because of the recklessness of the Government in issuing paper money. That has not been the case here. There has been a great deal of care here, but there has been something which is a parallel to these things. Lord D'Abernon said truly that what was bad in paper money was not that it should be paper money, or that it should be depreciated currency, but that it should not be a steadily depreciated currency—that is to say, a currency which fluctuates in value. This it is, as he pointed out, which is so disastrous.

These things have their parallel in the excessive use of credit. If there is one thing which I think has led to the financial misfortunes that have followed this war it has been largely the same reckless use of credit. I am far from reproaching the Government for having borrowed. They could not but borrow, and they have borrowed much less than other countries. It is very much to the credit of the nation that it has paid its way to the extent even that in has. and the noble Viscount was well justified in drawing attention to the fact that the taxation which has been imposed was a very extensive taxation. Still we have been borrowing much more recklessly than we should, and we are borrowing to-day much more recklessly than we should do. One reads morning after morning of some new undertaking which has to be paid for out of credit. This morning it is new buildings that are to be built out in the country for housing Civil Servants. Yesterday it was Chepstow. The day before that it was Slough. Constantly the evidence is forthcoming that there has been no adequate financial cheek upon the way in which the credit of the country has been used. That is almost inevitable in the course of a great war. During a great war you are struggling for your life, and it is only a secondary consideration what becomes of your finances. But that does not relieve you of the necessity of looking ahead and doing all you can to get your finances under some control.

I think that one the great features of this war has been the difference between the Civil Servant and the business man. The Civil Servant, admirable in matters connected with finance but not trained to carry on the businesses which the necessities and the scale of -the war entailed; the business man, on the other hand, excellent at organising new things swiftly, promptly, efficiently, but, when it is not his own finance that is in question, apt to regard the resources of the Government as a sort of bottomless purse into Which he may put his hand. The result is that no doubt there has been a most enormously extravagant expenditure. The worst of that is that it gets into the heads of the people that the purse, is bottomless. A good deal of the trouble which we are having at the present time, I quite agree, is due to this, that the working classes see that money apparently is to be had for the asking, that everybody can get it, and therefore they begin to be less careful than they would otherwise be in their estimates of what is due to themselves for the labour that they render; and—more than that—what Lord D'Abernon laid stress upon, the fluctuations in the value of money and in the value of credit—because it comes to the same thing—the fluctuations which take place without adequate stability give a sense to the Working classes that whenever prices are high they will continue high, and that they must estimate on that basis in the future.

All this brings one back to what I have spoken of as the one thing needful, and that is to get back to t. cash basis; and to a cash basis we cannot get back mini the terms of peace are settled, and until the terms of peace are so settled that we know where we stand and what we shall have to provide for in the future. Now, I know that the Government are doing their very best to settle the terms of peace, and I only wish that there had not been in the world so much of the cry of "VaeVictis" in the past as has made the settlement of those terms of peace far more difficult than it would otherwise have been, and has given rise to the sort of thing which one reads of just now, which points to war not being at an end, and to the possibility of even fresh war breaking out after the terms of peace have been settled. By all means let the Government concentrate themselves as the very first duty on settling the terms of peace as precisely and adequately as possible. This is the indispensable preliminary to your cash basis. Then, when you have done that, there is something more you have to do, and that, you must do even in anticipation of the terms of peace, looking ahead.

The noble Viscount spoke, for example, of the Army Estimates. Well, the Army Estimates are £440,000,000. There are, of course, Appropriations in Aid on the other side of the account, but these do not detract from the fact that that is the expenditure, and it is partly necessitated by the keeping up of the Army for the purpose of securing the peace settlement when it comes. If I had been in the House of Commons the other day I should certainly have voted for the Bill of Air. Churchill, the War Minister, when he proposed to carry on the system of compulsion under which tins Army has been raised for a little longer in order to liquidate the situation. I should have voted for it because no other way is possible. You must keep up an Army in order to bring your terms of peace to an effective conclusion. But I think I should have had something to say about the vain hopes which were held out as to the abolition of compulsion at the Election, and the bitter disappointment which was the result to many people.

However, that is not all. We look forward to a state of things in which we shall return, as Lord Faringdon said, to a defence system on something like the scale which we had before the war. Here are the Army Estimates of £440,000,000. I should have liked to hear the Government say definitely, "What we contemplate is to return to the state of things before the war or something equivalent to it." The Army Estimates before the war were £30,000,000. How are you going to get down from £440,000,000 to £30,000,000? You can do it by saying what sort of an Army you are having, and for what purposes you are having it. But I see nothing either in the arrangements of the Army or of the Navy or of the Air Force, as announced by the Government, which give me that definite stand as to what we are to look forward to, the definite purpose which is to be attained, which is the key, and the only key, to economy in the future. Until you say what you want your Army for, what you want your Navy for, and what you want your Air Force for you cannot get things down. And although I quite agree until the peace is established and its terms firmly settled you cannot say that finally, it is yet essential that you should say it beforehand and define the standard to which you mean to work. I will tell your Lordships why. Because until you do you will never get that large class of experts who have been engaged in providing the necessities of the Services to take seriously the duty which will come to them after the war, or to make a beginning. The longer you put off accustoming their minds to the fact that the Government has got a definite plan which it is going to drive through, as with an axe, the more imperfect will be the attainment of what you set before yourselves in the way of economies.

It is there that I think the Government have been most to blame. Ministers go on talking as though we were continuing quite easily in the present condition of things, with the ideals and objects which we have inherited from the period of the war. But until you say definitely what is to be the government of this country after the war, and until you lay down, not in vague platonic declarations, such as we had from the noble Viscount this afternoon, but in definite terms as the standard to which you are to work, then you will never get the beginning of that real return to a cash basis which is the one thing that can save you from the path down which you are passing at the present time. I wish to see something of the spirit of Glad-stonian finance once more. One sees very little of the man with the axe, who says "this cannot be."

In what the noble Lord, Lord Faringdon, said in one part of his speech he gave us a very interesting and highly instructive picture of the financial conditions. He dealt, not with the Military and Naval and Air Estimates, which in my opinion are the most relevant for his purposes, but with the. Civil Services. I think he stated that the Civil Service Estimates for the year were £495,000,000, and that there was an increase of £215,000,000 upon the old condition of things. Now Lord Faringdon did admit that there were one or two items of increase which he did not expect to get rid of—for example, education. I am afraid there are a great many more items than the noble Lord spoke of that we are not likely to see decrease. Everything that goes to production, if this country is to come through, it has got to produce much more largely than it has done hitherto, and much more effectively. That implies money spent on research, money spent on spreading knowledge, and also spent on preparing the future generation to bear the burden which will have to come upon it.

And more than that. Although it is perfectly true, as has often been pointed out, that even if you divided up the wealth of the rich among the poor you would add very little for the benefit of those poor men, still the burden of our expenditure does go a considerable way in improving the conditions under which the poor live. Nothing has come out which, I think, has made a greater impression on the public mind than the evidence given before the recent Coal Mines Commission as to the conditions under which large portions of the mining population live. And I think the country is behind the miners in saying that that must cease. But if you ask the railway men or the policemen you will find that they tell you if you talk to them "We want a little more money, not for luxuries but because we recognise more and more the need of educating our children, and we want to give them a better chance than we have had ourselves." And right through the working classes you find not merely the cry for more money, of which we have heard, something this afternoon, but you find that there is a real recognition—a recognition which is backed up by the national feeling—that the conditions which separate the rich and poor should be less marked and divergent than they have been hitherto.

If that is so, then there are one or two things We have to try to make clear. No industry should be carried on by the State, or under the State's supervision, which cannot pay its way; which cannot produce for itself. Its production should be such as to be able to make ends meet within that industry; and I think that is not beyond our capacity if we take the Working classes freely into our confidence, and if We let them see that the interest which we put first is that of the community and the consumer, and that no particular class is preferred to another class. That implies the spread of knowledge, the spread of interest in the. means of production, and the encouragement to produce; and it involves a good deal more money going under these heads than has gone hitherto. Therefore I am not able to agree with Lord Faringdon when he said that, good as many of these things are, they ought to wait until we reach the state of things in which these industries had recovered themselves and trade was upon the footing where prices Were the same as they were before. We cannot wait. These things to Which I have alluded are the most urgent We have to deal with. If you think it is distressing that at a time like this there should be such agitations as have brought is to the verge of a national strike all I have to say is that if you contrast the conditions of this country with the condition of such countries as Russia, or even as Germany, you may be thankful that things have assumed that form.

With what Lord Faringdon said about What I call the cash basis I am in entire agreement; but in the other part, where he seemed to argue as though mere economy, a mere cutting down of expendituse, was a duty imperative and paramount in itself, without looking to circumstances, there I am unable to follow. As I have said, I am sure We have reached a point Where if the foundations of Government are to remain secure, if We are not to be faced with agitations which will burst out when we least expect them, We have to do our best to put these matters on a different footing. It is a different kind of national standard with which We have now to deal. The War has brought us into a new period. It is not that the movement of to-day is a new one; on the contrary it was there before the War. When I was a member of the Government in 1912–13 I had to come in contact with Labour agitations on a very large scale which Were at that time very threatening, and I was struck by the largeness of the ideal which Was in the minds of those who Were pursuing that agitation. It was very much what We have to-day only in a less acute form; but it was there all the same. To-day it is true that it is on a very much fuller scale, and if I mistake not it will turn out presently that these new notions have taken possession of the minds of a very large section of the community, and, however little We like it, we shall have to recognise that our Working class are looking forward with new aspirations.

I am not one of those who take a gloomy view of the situation. I believe that if you take the working classes into your confidence and get them to give you their confidence you will find that they have very much the same aspirations as we ourselves have. They know what is meant by the problem of production, and they also know what is meant by the problem of justice between man and man. They are ready to deal with you if you will deal with them. I think the Government are to be congratulated on the way in which, by recognising this in the course of the recent dispute, they have averted what threatened to be a most, serious condition of affairs. But it is by proceeding in that spirit and in that spirit only that we can be secure for the future. We have a most formidable financial position to face. It may be that the national expenditure will go to something like £800,000,000. I do not know; I should be sorry to give a certain prediction on the point. But even if it does, if we take the great national situation seriously—as seriously as we took the war—pre pared to go into it and to make sacrifices, we shall find that the nation has the strength and the grit which will enable it to deal with that question too; and if it deals with it successfully it will leave behind it a more contented and more stable nation than we see at the present time.

LORD FABER

My Lords, the future seems to me to be so obscure that it is dangerous to prophesy, and certainly futile to dogmatise. I should like to allude this evening, first of all. if you will permit me, very shortly to the Government's position as we seem to know it; and, secondly, to certain problems of some magnitude in which we in this House are all interested, and which it is sometimes well to look at from an outside view and sometimes well to talk about among ourselves.

Now to take the position of the national finance as sketched in the House of Commons dining the last few weeks. I begin by saying that I entirely agree with one of the speakers when he said he thought this coming year—the year that begins on April 1 next—should be taken as a war year and not as an ordinary year. How can it be anything else but a war year? Here we have Armies all Over the world, a Fleet on the seas doing the blockade—we have innumerable forces everywhere. It would be rather futile. I think, to budget for a peace year under those conditions. The expenditure is still very high; but if we look back to what it was at the beginning of this year which ends on March 31 we shall see—as was said from the Government Bench to-night—how much better off we are now than we were then. This time last year we budgetted for no less than £3,000,000,000 for the expenditure during this year. We spent in this year only £2,600,000,000—£400,000,000 less. Now this year we are budgeting for £1,500,000,000" as against £2,600,000,000 of last year. That is a falling off of £1,100,000,000—we shall be better off in that respect by £1.100,000,000—and out of the Budget, including the Excess Profits Tax, we expect to get I suppose some £900,000,000. That will leave a deficit of £600,000,000 to find from somewhere. Where can we find some of these millions? There are the immense realisations going on now in war stock belonging to the Government, of all kinds and sorts, and I hope it will proceed faster and faster as the year continues. There are debts due from other nations to ourselves; and there is also, I hope, the first instalment to come from Germany of that debt which is apparently to be protracted and to last for perhaps thirty, and perhaps fifty years.

Your Lordships will be surprised at what I am now going to say. I think that on the whole I should not put on any further taxation during this coming year. I should see where we are. If you put on new taxation—of course, it is difficult always to understand new taxation—it upsets the nation; and if this is a war year, at the end of this year we may be in a position to do without these extra taxes at all. Therefore I think it would be unwise to put on new taxes for this year. I must be understood to mean this year only. Another year, when the war is really over, we shall have to get a taxation to meet our liabilities, never mind how big that taxation may be. We must not go behind that; it must be only for this one year. The Excess Profits Tax is an interesting tax, and I think, perhaps, it should be reduced from 80 per cent, to 60 per cent. Because the young men going into business now dare not face this Excess Profits Tax, and it keeps them out of business. There again the Excess Profits Tax is a fair war tax, and a tax upon profits which would not have been made unless the war had been brought about. I happen to know a little bit about the Excess Profits Tax, because I have been on the Board of Referees ever since the beginning of the war. It will be interesting to give o, concrete instance of how that taxation works out; it did not come before me on the Board of Referees, but it is a private case which came before me a short time ago, and it shows the inner working of the tax. A man in business in the City in 1913 had a bad year and made only £5,000. The year 1913 is the datum year, your Lordships will remember, on which excess profits depend. In the four succeeding years he made £150,000 a year. What is the position of this man? He gets his £5,000 subtracted, and that leaves £145.000. The trader gets one-fifth of that—namely, £29,000. Add £29,000 to the £5,000 to which he is entitled and the trader gets £34,000 out of the £150,000. Therefore the Government get £116,000 a year out of that one trader. Your Lordships may say that that seems a hard case, and looking at it in one way it does seem Laid, but when I come to analyse it I find that this man only made £20,000 a year profit before the war, and so was not deprived of anything, although for the Government he made £116,000 a year. That case shows the working of the Excess Profits Tax.

Now I approach the subject of the conscription of capital. That was mentioned once or twice tome weeks ago but nothing came of it, and I do not expect that anything will come of it. But has it ever occurred to your Lordships that if the Income Tax is put up much more we may be conscripting our own capital. Let me put this case to you. To-day with Income Tax and Super-Tax and local taxation we are paying, I suppose, some 12s. in the £, and that leaves us 8s. in the£. Suppose that next year—it is not unlikely, because we have got to find the money—another 3s is put on the Income Tax. Then we shall have to find 15s in the £, and we shall only have 5s. left to live on. How many of us can live on that? we shall have to spend capital, and therefore I think that in tins true sense we shall be conscripting our oval capital. Therefore, although the Government should not conscript it en bloc, we may have to do so, one by one, when the time comes.

Going into that subject a little bit further, it is very interesting to see what happened in. France. A few days ago the Finance Minister mentioned the fact that they were considering a tax on capital. What was the result? At that moment the French exchange made it possible to buy a sovereign in this country for 25.90, being about the par of exchange usually. Directly these remarks were made in the French Parliament re capital conscription the exchange bounded largely, and you could no longer buy a sovereign for 25.90, but had to give 26 and the following day 26.50 and the day after 27 francs for the £. That looks as if the men in France who had money were rather inclined to buy sterling and get their money out of the country, lest it be affected by capital taxation. I do not say that that was so, but your Lordships must judge for yourselves whether the announcement of the Finance Minister had anything to do with it.

Then I come to another subject which interests us all, and that is the subject of investments. In 1904 the investment market, the gilt-edged market, had reached its highest point. Consols were at a point which they had never reached before—namely. 112. From then until this very day there has been a down-grade market all the way. Investment stocks have gone down more than 100 per cent. In 1913 the fall was very heavy indeed. Consols were then 75, they are now 58. Bank of England stock were then 240. they are now 116; Metropolitan Water Board, stock wore 81, and are now 63; and Corporation to London 2½ per cent. stock were 75, and are now 54. There are two classes of investors in this country. What ought those two classes to learn from this great fall which has been going on in investments? Because the sooner we try to learn these things the better. In those years, until 1913, it was not possible for the ordinary investor to find what we call short-dated stock. If you can get short-dated stock you do not meet with the same depreciation as ordinary gilt-edged stock which is never repayable.

We will divide, as I have said, investors into two classes. I will take the banks and fire insurances as the business investors. The banker may be called upon at any moment to pay across the counter all or any of the large sums of money which have been paid into his bank The fire insurance offices, again, may, owing to there being many fires, also have to pay across the counter in another sense. It is very evident to me, therefore, that the business investors, such as the banks and insurance offices, should put all their money into short-dated gilt-edged stocks and not long-dated ones, and then if they are called upon suddenly to pay money across the counter they can sell their investments without making a loss. If that had been done long ago We should have saved many millions of money. The private investor has a chance, for the first time, of buying gilt-edged securities which run for a short time and cannot depreciate. Ought he not to be satisfied with those short-dated stocks which will not go up or down? Had he not better take at least half of his money and put it in short-dated gilt-edged stocks, and keep the other, if you please, in long-dated gilt-edged stocks that will perhaps go up or down? I think these things are worth considering by all of us, as to the wisest course to pursue with regard to investments in the future.

Now I come to the railway position. This interests us very much, because probably we are all shareholders. The best class of investor in this country has got into rails, and I am told by a competent authority that at least 50 per cent. of the railway stock is held by small people with less than £500 in each holding. The Government have taken over the railways, and I gather from what happened in the House of Commons the other day when Sir Eric Geddes was speaking that they are going to respect the treaties of 1844 and 1871 made between the Governments of those days and the railways, to the effect that if the railways Were bought out certain fair terms Would be given to the railway shareholders. I have never heard a Word against that anywhere in the country.

I think every one is convinced that the railways have done exceedingly well during the war. The working man certainly does not want to do them any harm. He wants to pay a fair price to the railways. That is all that the shareholder asks and that he is entitled to have. The work they did was very fine indeed. A very large railway company, perhaps the largest, with which I am connected, sent 33,000 out of 85,000 men to the war. They sent 500 of their best engines, nearly 10.000 trucks, and 1,000 lines of permanent way. I am giving you particulars of only one railway. No wonder that Sir Eric Geddes in his speech in the House of Commons alluded to the "dead hand" that appeared to be on the railways now. He did not look at it in the right light. He thought it represented want of initiation on the part of the railway companies. It is nothing of the sort. They have taken our material away and under present conditions we cannot get more of it. If you care to let the railways alone and provide the material and give them back what they have supplied to the nation during the war, they will go ahead quite sufficiently.

It is an interesting feature that the capital of the railways altogether is about £1,200,000,000, and speaking in round figures they are paid nearly 5 per cent., or £60,000,000. The Government have not been able to earn that £60,000,000, though I am going to tell you how that can be looked at in another way. They have not earned the £60,000,000 dividend that we used to pay, and it has cost about £30,000,000 in addition. Some £90,000,000 goes that way. On the other hand, I find from a railway expert to whom I appealed—one who has kept the accounts very closely for the railways—that if the Government had been an ordinary person that ordinary person, for the services rendered to him by the railways, would have paid no less than £112,700,000. So that the Government have done very much better than the £60,000,000 a year loss would indicate. They have not done particularly well, but it is only fair to say that they have worked the railways at a net loss of £30.000,000 and not of £90,000,000.

Wages have gone up very much indeed, as we all know, and everything connected with the railways. That would very easily account for the £30,000,000. Fares are up by 50 per cent., but, funnily enough, freight rates have not been touched at all. The argument appears to be, in this as in many other things, that if you put up the freight rates you make everything very much dearer, that you make our exports much dearer and you cut us out or the markets across the seas. That may or may not be right. I think there is a good deal in it, but at the same time I suppose I have the commercial mind sufficiently to dislike even a Government trading at a big loss. I think the Government should look round and give up trading at a loss. On the whole, I think I am in favour of Sir Eric Geddes' plan. I think the railways would be much better under one umbrella than they have been fighting with one another in the past. There is a great deal of money still to be saved in the working of railways, and, although I know very little about the mechanical side of the subject, I was rather impressed by his idea of running these great, big, slashing engines that we use on the railways in the North by electric power. That might be an enormous saving. I am given to understand that heat and power save most through gas, secondly, by electricity and thirdly, by burning coal. Coal comes last. Using it in its raw state is worse than using it either for electricity or gas. Gas is best, but you cannot use that for running engines.

Now I come to a problem which is very similar—the coal problem. Here are these miners working, I suppose, at from £1 a day to 16^s. a day. They work shorter hours and accordingly turn out much less coal. That is a question for foreign markets. We shall wake up some day—you may wake up to-morrow, and if there was nothing but trade to be considered you would wake up to-morrow—and find American coal in London in your own furnaces at 25 per cent. cheaper than you can put it there from our collieries. That is a possibility; it is a probability if we go on like this. Miners must understand that they depend, as we all do, on their diligence and hard work. They must turn out more stuff and turn it out regularly, and not upset the whole of England and the whole world by these immense strikes time after time with no finality in them. It is borne in upon me more every day that the nation with the cheapest labour and plenty of it will be hereafter the most powerful nation in the world. The only two watchwords for us in this country and for every one of us it seems to me are "Work" and "Save." You cannot say "Work" without "Save." Work, of course, is better than doing nothing at all, much better, but at the same time you should combine the two. I thank your Lordships for having listened to a rather discursive talk, but I thought it would interest you that I should speak about matters in which we as private people are interested, and therefore I ventured to intrude upon your time.

LORD BUCKMASTER

My Lords, the subject which is covered by the Motion of Lord Faringdon is very stimulating and suggestive, and it is not surprising that it caused the debate to proceed along lines that are not strictly and accurately covered by the words of the Motion. In the few words for which I ask your Lordships' indulgence I will do my best to confine myself closely and strictly to the actual terms of the Motion which is before your consideration.

Let me say at once that, while I listened with great anxiety to the speech of the noble Viscount who answered for the Government, I heard it with the most profound disappointment. I did so for this reason, that he met the grave and careful statement of the noble Lord, Lord Faringdon, with no answer, excepting the easy optimistic statement that the Government did not really think things were as bad as Lord Faringdon had suggested they might be. If debates of this kind possess any value, that value is due to the fact that opinions may be put to the test of argument, and that figures and facts may be used on each side in order that the value of various contin- gencies may be properly tested. Not one single word that I could find was uttered by the noble Viscount that gave any substance whatever to the expression of confident opinion which he said the Government held as to the future of our finances.

Let me ask your Lordships to consider for a few moments the financial position as it appears to me, and there is no reason whatever to put any smooth and easy interpretation upon ugly and indisputable facts. They are better stated and faced than covered over and avoided. If we go back to the year 1913, the year before the war, we go back to a period when British trade may have been said to be at the height of its activity. I do not say it is the best trade year we have ever known, but it was a good trade year. England at that moment was the indisputable centre of the money market of the world, and exchanges were in her favour all over the world. At the same time I imagine there was hardly a single country to which she was a debtor The exports and imports of the country were immense, her national wealth was vast, and was increasing. During that year the actual amount of taxable in come in this country was about £750.000,000. That is a figure which is capable of being checked. You have merely to take the Income Tax, estimate how much a penny in the £ will produce, and you get your result automatically. It was about £750,000,000, and it represented somewhere about 40 per cent., or 35 per cent., of the total national income. It is a very important figure, because the total national income being roughly £2,000.000,000—that is the entire receipts of the whole country, wages as well as interest on capital, and profits on industries—it represents all that was received in the course of all activities in one of our trading years, and £750,000,000 represents the residue of that which is the basis out of which you could extract your Income Tax. That is a very important figure, as it is exactly one half of the Estimates for the present year. I quite agree as to what has been said about changes in the value of money, and I will deal with that in a moment, but at least we can bear in mind that the present Estimates propose as our expenditure twice the total taxable income of this country before the war.

That is not all. These figures are capable of being examined in another way. Out of that £750,000,000 the Income Tax payer has got to live, and if you reduce down every man to a living wage of £3 a Week or £160 a year—it is not a very excessive sum, though it does appear to be just half the amount the Government have been paying for unskilled labour at the Chepstow dockyard—and accept it as a reasonable sum, you will then find the net residue of income which is the only source available for the purposes of obtaining payment of your annual expenses. That will reduce your £750,000,000 to £500,000.000. Therefore, if you take as the standard and sample year the year before the war, you find that £500.000.000 was the amount of money in the pockets of your Income Tax payers out of Which you had to levy the expenses of the State, and the residue represents the money they had for their own expenses and what may be brought over for national savings. It may be that these figures may be subject to this slight modification—that the Income Tax, as we all know, is never perfectly exact, and that the £750,000,000 may not represent all the income that ought to have paid Income Tax. You may increase it by £50,000,000 as representing evasion, tricks, fraud, and dishonesty, and if you do that you will add another £50,000,000 to the £500,000,000, making £550,000,000 as the annual amount of money our trade produced before the War to carry on our national expanses and provide for the savings and comfortable living of the Income Tax payer. It is an interesting figure, for it is one-third of the amount that is provided for our present Estimates, and—this is by far the most important criticism of all—it represents almost exactly the Civil Estimates for this year. You therefore find that the total income of the country before the war would be just sufficient to provide, for your Civil Estimates without paying a single farthing of the interest on debt, and without providing a single sixpence for naval, military, and air forces.

There is a further examination which we have to make, and it is this. What was our total national Wealth before the war? Again these things are difficult to estimate, and they are largely, I admit, a question of guess-work. But the people who guess most intelligently put it from £15,000,000,000 to £19,000,000,000; and £7,000,000,000 of that has gone. Not only has £7,000,000,000 gone but, as Lord Faber has pointed out in his most interesting observations, you have the greater part depreciated by 50 per cent. There is something more than that. Of the money you have taken you have taken the liquid working capital of the nation, and the residue that is left represents nothing like the same balance that you would find by merely taking seven from fifteen or nineteen and saying you have £8,000.000,000 left. You have not. It would be difficult to say the exact sum, but if there Were £5,000,000,000 free capital available after this War, taken at the standard of currency measured before the War, that would be all that there is. These are formidable considerations.

And now the war having passed by, what position do we find ourselves in with regard to earning the money that is to pay the interest on the debt, and keep the proper expenses of the nation supplied? The first thing we find is this, and it is a very important thing to my mind, that whereas the income of people here is on the whole much as it was, the character of the income has completely changed. Let me explain what I mean. I do not know the exact amount—probably Lord Faber would know—but I should think that £100,000,000 a year came to this country representing the interest on investments in the United States. Whatever it may be, I do not pin myself to the figure; it was a large and substantial sum.

LORD FABER

More than that.

LORD BUCKMASTER

I am pleased indeed that with my usual desire not to overstate my case I have understated it. It was more than £100,000,000. It was wealth that came into this country and could be used, and was used here, for the purpose of developing our own domestic industries and carrying on our trade. The men who received that £100,000,000 receive to-day £100,000,000; but from what? That asset, which was a national asset, has gone and in its place is a national debt. There stands to-day a national obligation, a debtor account, as between the State and the individual, and it is out of the profits of this nation that the State has got to provide that £100,000,000 which before the war came to us from overseas. This seems to me to be a formidable fact when you are considering what is the position of this country to-day and how it is going to provide the expenses which the Government say have to be met. It was stated by Lord D'Abernon that we have got our basis all wrong because our money value has depreciated. I agree. Supposing that you take the figure that he suggested, and said that it had depreciated by 10s. in the £, and you therefore took the normal income of the country before the war and doubled it. You still would not get anything like enough to carry on the government of this country at the present extravagant rate. I find myself unable to understand how in the face of facts and considerations like these the noble Viscount who was put up to answer the criticism on the part of Lord Faringdon and Lord D'Abernon can have said, "Oh, the Government does not really think the thing is as bad as you say it is," and pass away to another matter.

There is something that is even more grave than what I have stated—facts we all know. The only possible way in which we can meet the position is to revive and stimulate our domestic industries. And what do we find? Do we see any sign of their revivification and their re-stimulation? The papers tell us day after day that in every trade centre things are as bad as they can be, and the business men attribute it to the fact that they do not know where they stand with regard to the future, that Government control has so embarrassed them, that the system, as it stands even now with its limited restriction in the case of imports and trade licences, creates difficulties, and that they have not the courage to take in hand big orders because they do not know that if they fix them on to-day's prices what may happen in six weeks' time. That is a matter I submit which it is vital for the Government to take in hand. Cannot they get rid of these trade restrictions? The noble Viscount said some people fall into the error of imagining that there is peace, and he went on to explain that it would not matter if we were to fall into such an error, as the expense after peace, as far as I understand, was to be greater than before the war.

What we say is this. In point of fact hostilities ended on November 11, and, though peace is not yet declared, we find ourselves quite unable to see how the declaration of peaca can, per se, produce any reduction in the expenditure we see going on. We are not at all satisfied with the statements that have been made on behalf of the Government that there are a number of matters connected with the big Departments in which contracts have to continue, and that this has involved abnormal expenditure. If that be true—and I have no doubt it is true—and if it be the real explanation of a considerable part of this expenditure, all I can say is that the Government are gravely to blame; because no big spending Department ought to have entered into large forward contracts for the supply of materials or of goods of any kind while the war was on without making a great provision in case of the declaration of peace. The only way in which honest finance could ever have been met would have been to take that course.

Nobody supposed the war was going on for ever, and peace had to come, and if big contracts were going to be made six months or nine months ahead—and they were made, four, five, and six months ahead—and no steps were going to be taken to secure you against a claim for damages if you did not continue to take the things which the cessation of hostilities had made absolutely valueless, all I can say if a graver neglect to the nation than that it is very difficult indeed to find. For the rest the explanation that was given by the noble Viscount of our Civil Estimates alone—and I have not touched the others—left me no confidence whatever that we were going to be faced with any material reduction in the coming years. But if a reduction is going to take place it must be something far more than a reduction on one or two of the large items that he mentioned. It has to be a reduction that will reduce our total estimates down to a figure that we can pay, and at the same time live. The danger that I see is this. There are a number of people in this country at the present time who are distinctly interested in Government extravagance.

Several NOBLE LORDS: Hear, hear.

LORD BUCKMASTER

Those are not the only people who are profiting by it. There are other people who realise quite well that if the Government can only be driven on to further and further extravagance they will achieve their aim, and their aim is the complete destruction of the present capitalistic basis of society and the substitution of something else. We should make a great mistake if we did not know that those ideas are in the minds of some of the more extreme and unreason- able men who are responsible for some of our difficulties. I know they are there, and if the Government continue as they have done in the past to spend without regard, as far as I can see, to the question of payment, they will play into the hands of these men.

There is one way, and to ray mind one way alone, by which the present position can be met. Lord Faringdon stated that suggestions might be made, and I make a very humble one. It is this. There should be a Committee appointed of the most capable men that you can find, and they should tell you, having regard to the whole position, what is the total maximum amount that this country can pay for all the expense of Government and continue to survive? When that figure is fixed Estimates should be forced within its compass. It is wrong to begin by letting each Department estimate for what it wants. You must find out what the nation can afford, and let the Departments measure their payments according to that necessity.

Several NOBLE LORDS

Hear, hear.

LORD BUCKMASTER

The next thing is this. The Government, I submit respectfully, must cease borrowing. The mischief of depreciation is at the bottom of the trouble that we have had with regard to the price of commodities and with regard to labour. These difficulties are all due to this excessive borrowing, and, though it was one of the things that may have been incident to the war, it should be stopped and should be stopped now. The reason is clear. We know what happens. An account was given recently by the noble Lord, Lord Hylton, of the amount of Treasury Bills that are outstanding. They wore £967,000,000. That figure was given again to-day in The Times newspaper. What do those Treasury Bills represent? As I understand it they represent this. The Government, wanting money and not being prepared to float a loan or to issue further bonds, go to the Bank of England and issue Treasury Bills to the Bank of England, and get credits in their books against which they can draw. Treasury bills are then held by the Bank of England as security for this overdraft. Of course, strictly speaking, it is no security at all, but it is a convenient negotiable document, and the liability of the Government for the over draft is just the same. The result is there is a Treasury bill which may be used in commercial circles, and may soon have to be met. As soon as you have got this credit you begin to make the extra payments that have to be made by reason of your increased expenses. How do you meet it? It is the simplest thing in the world. You call in the printing press, and print the money to meet it, and by this means you get your currency inflated from time to time, and it cannot fail to be otherwise. If you want to restore your currency on a sound foundation borrowing must be stopped, and, I submit, above all, this method of borrowing by going down to the Bank of England and getting overdrafts and giving Treasury bills as security for the same.

We are all of us deeply, intimately concerned in this question, because we believe—those, I know, with whom I have the pleasure to sit, and whose opinions I have the privilege to share—that at this moment the question of how we are going to regulate our finances at home is just as important for this country as it was last year to know how we were going to conquer our enemies abroad. And we believe that in both cases the future of the country depends upon the successful solution of the problem. I regret greatly that things have been done by the Government which I think must permanently impair our credit at home. I think they will find it increasingly difficult to borrow money owing to acts for which they themselves are responsible. I saw myself upon the walls in one of the suburbs large notices issued in January, "War Bonds withdrawn on January 28." There was no qualification, no reserve; people were being urged and stimulated to buy War Bonds upon the faith of a promise made by the Government that they were going to be withdrawn on January 28. On January 28 they were withdrawn, and within a fortnight they were, re-issued in conditions almost indistinguishable from the conditions attaching to the ones that had been withdrawn. The next time that that notice is put upon the walls, is it very likely that the people will believe it?

I think it is a grievous and a lamentable, thing that the Government have been compelled in some of their courses to adopt the less reputable methods of commercial activity, and to advertise as facts things that will not bear strict investigation. They have, I think, done something more, they have stimulated the minds of people with hopes that can never be realised, and they have flattered their ears with promises that will never be fulfilled. Until the mischief of that is done away with we shall have industrial trouble at home. and. whatever peace we may make abroad, our peace will be ineffectual unless that trouble can be overcome.

THE SECRETARY OF STATE FOB THE COLONIES (VISCOUNT MILNER)

My Lords, I was rather led to believe that other speakers were wishing to address the House, and in that case I should have been glad to reserve the observations which I may make on this subject to a time when I should have had a little more opportunity of examining closely the important speech which has just been delivered. It is not an easy speech to criticise at a moment's notice, but nevertheless I feel that it is open to answer in many respects, and that an answer is called for.

I should like to say in the first place, if the noble Lord will forgive my saying it with regard to the tone of that speech, that when he went on piling up figures of the indebtedness of the country—all of which was the direct consequence of the war—he could hardly be thinking or desiring to make that a reproach to the Government. The debt was incurred by the same methods and for absolutely the same purposes by successive Governments, and, whoever had been in power to-day, not only would that Government have had to bear the burden of the expenses of the war but they would have found, as we find, that it is perfectly impossible, do what we will, in the present condition of the world to get rapidly and at once from enormous war expenditure to anything like normal peace expenditure. There has been a storm such as has never been in the history of mankind agitating the waters of the world, and though the storm may have passed—I hope it has entirely passed—the breakers which it has raised will continue to roll against the shores for months and months after the wind has subsided. That is inevitable.

I think the noble Lord was under the impression that the Government regarded lightly the financial position in which the country finds itself. I can assure him that there could not be a greater mistake than that. We are perfectly alive, every one of us, to the gravity of the situation; but on the other hard it is not going to help us to get over our difficulties to exaggerate them and to represent to all the world that this country is in a state far worse, far more desperate, than is really the case. Ann also, while it is no doubt dangerous to treat too lightly the financial difficulties in which we find ourselves, it is equally mischievous and unpatriotic to make out the position of this country worse than it is.

I believe that the picture which the noble Lord has drawn—I am sure he has done it in all sincerity—is an extremely exaggerated one, but when I say that I must beg the House not to consider that I say it with any view of depreciating the necessity for the greatest care and for all reasonable economy at a time when undoubtedly the national finances are severely strained. I cannot follow the noble Lord through all his figures, but there are one or two that really are of such a surprising character that I should like to call attention to them. He seems to think that the amount of our National Debt is an absolute deduction from the total wealth of the country.

THE MARQUESS OF SALISBURY

Of course, it is.

VISCOUNT MILNER

The noble Marquess says, "Of course, it is." I entirely dispute that position. The contention is that the country Was Worth, taking it broadly, between £15,000,000.000 and £19,000,000,000 when the war began, that it has contracted a debt of £8,000,000,000, and therefore, assuming that there was no change in the value of money, Great Britain and Ireland would be worth about half to-day what they Were worth four and a half years ago.

LORD BUCKMASTER

I put that at £7,000,000,000.

VISCOUNT MILNER

Does anybody really believe that? Does anybody really believe that the true valuation of the country would show a reduction of something like 40 per cent, to 50 per cent, as compared with the true valuation when the war began? I believe it is a complete fallacy.

LORD CLIFFORD OF CHUDLEIGH

I believe it is £90,000,000,000.

Several NOBLE LORDS

Order, order!

VISCOUNT MILNER

The real loss must be represented by something tangible. Is it the land of the country plus its factories which are less valuable than they were? The factories are actually much more valuable; the machinery is more valuable. There is a certain amount of depreciation in regard to some things—the railways and rolling-stock; but I doubt if the total loss in this country itself amounts to £1,000,000,000. I am not certain that there is any loss at all, and that the set-off in improved machinery and factories may not outweigh it. Of that, however, I cannot speak positively. But to say that the depreciation in the value of this country as a going concern is anything like £6,000,000,000, because £6,000,000,000 had changed hands in this country from one set of people to another set, is to my mind a complete, radical fallacy. I will grant the noble Lord this—namely, that there is one undoubted and heavy and very serious loss, the foreign investments with which we have had to part. That is a dead loss. But the debt which has been created in this country is not a dead loss at all in the sense that those foreign investments are a dead loss. The effect of the creation of a debt in this country is principally the transfer of a certain amount of income from one set of hands to another set—a very serious matter indeed.

LORD BUCKMASTER

Surely the difference is this, is it not, that industry-is now charged with the annual outgoing on the debt of £350,000,000 and it was not charged with it before?

VISCOUNT MILKER

That is perfectly true. But there is not a depreciation in the value of the country as a going concern to the extent—well, we had, perhaps, better not pursue the subject. But I maintain that the real loss which the country has sustained by the war is the loss of its foreign investments plus any damage the plant of this country may have sustained during the war, and that it cannot in any way be measured by the figure of our National Debt. The growth of the National Debt is undoubtedly a very serious factor; it is an enormous embarrassment to the Government; it is a tremendous displacement of the national wealth and resources; but it is not, in so far as it is held in this country, a reduction of our real wealth. That is the point I wish to make.

VISCOUNT MIDLETON

May I ask the noble Viscount whether he includes the enormous sums spent in America and elsewhere abroad which have gone out of English hands?

VISCOUNT MILNER

Yes, of course we have spent on war a great deal of money which we would otherwise have spent for the purposes of peace. To that extent we have all been the poorer. But the noble Lord seems to forget that a, very large amount was being defrayed out of taxation. However, I will not pursue that subject any further, and I do not wish to overstate things.

The point I wish to make is this, that we are exaggerating the diminution of the capital value of this country; and the importance of this is that, as I believe, our effective capital—that is to say, our productive power—is not nearly so seriously diminished as the noble Lord represents. There is a way out for us by means of increased production, and it is the only way out to reduce the burden which the war has put upon us. If I am wrong in the view I take of the effect of the war upon the national resources, I think the result would be an enormous decrease in the national income. I do not think the noble Lord himself contends that there is a decrease in the national income, though he says the amount of income available for taxation is hardly sufficient to meet it. I would again point out to him that what this means is—and it is a very serious thing indeed for a very large class of the people—that there is an immense transfer of wealth from one set of the community to another. I think, however, that as the old Income Tax-paying class becomes poorer (as it is undoubtedly becoming poorer), there are obviously other classes which are increasing in wealth and passing within the range of the taxable. I do not think there can be any question that the total taxable income of the country is as great if indeed it is not greater than it was before the war. Even if it is not greater to-day, the moment industry returns to its normal, or, as I hope, to increased activity, the taxable capacity will materially increase.

I do not want in the least to give the impression that the problem of how the Government is to meet its liabilities is not, as the noble Lord truly said, perhaps the greatest problem We have to deal with to-day. It Would certainly be if we could feel that the peace of the World was fully established. Feeling, as I do, chat we are still far from certain and well-established order in the world, I think we are justified in at least one of our Estimates, and that is the Estimate for the purposes of national defence. It shows an immense reduction of the Estimate of last year, and an immense reduction on what I believe anybody a year ago would have estimated to be our national expenses, but it is still immensely heavy. I do not think it would have been possible reasonably to have further reduced that expenditure. The other great item which is within the control of the Government is the item for Civil services, because of course the interest on the debt accumulated by successive Governments for the pursuit of a single national end is beyond our control. The only Estimates we can control are the Estimates for defence and for Civil services. So far as the Estimates for the Army, Navy, and Flying Corps are concerned they are governed by those considerations to which I have just referred. I hope we have not taken too sanguine a view of what might be required in that respect. I am perfectly certain that we, should not have been justified in taking a more optimistic view, or in reducing more rapidly than we have done the defensive powers of the country. I am absolutely convinced of that, and I only hope that the day may not come when we may feel that we have reduced them too rapidly.

There remain, of course, the large items of Civil Service expenditure to which such constant reference has been made to-day. I did not notice the exact words, but I think the noble Lord used expressions implying that there was no indication of the items on which We thought that expenditure could be reduced. But surely the noble Lord has not looked at the details of the Estimate. Possibly this Paper has not been circulated—

LORD BUCKMASTER

I have seen a copy of it.

VISCOUNT MILNER

The biggest figures here are obviously figures belonging to the transitional period in which we are. The largest figures are for loans to the Dominions and Allies, £87,000,000, and obviously that is a figure which in time of peace will entirely disappear. Then the bread subsidy figures at £50,000,000. I do not suppose anybody anticipates that in a year of peace there would be any bread subsidy at all. I do not wish to go over all these items, but I think I can easily show that in the first year of peace the reduction in Civil Service estimates is bound to be something like 50 per cent., and even more. A year ago we were thinking that this year might probably still be a year of war. That is an answer among other things to the criticism made by the noble Lord, that we should have foreseen the possible early termination of the war contracts. The war did, fortunately for all of us, come to a somewhat unexpected conclusion. I do not believe there was anybody in the warring countries who last July or August believed the war would be over last year. A year ago we were looking forward to an expenditure of £3,000,000,000 in this financial year. We had contemplated and were fully prepared for it. The country was prepared to go on spending £3,000,000,000 for even another year. Owing to the termination of the great struggle that expenditure has dropped to £2,000,000,000. We contemplate next year a fall to £1,500,000,000. That is a fall of 50 per cent, in the transitional year. In the following year, assuming the world to return to a state of order, I think we may anticipate something like another 50 per cent. drop. It leaves the country no doubt with an enormous burden to bear, but not a burden which there seems to be any reason to suppose it cannot bear or the seriousness of which should be exaggerated.

The noble Lord concluded his speech with two propositions, with one of which I heartily agree. He took the view that it was desirable to have a Committee of the best experts that could be found to enquire what really was the maximum bearing capacity of this country in the way of taxation. I am speaking for myself personally, but I should gladly welcome an inquiry of that kind, made by trained and impartial economists. Another proposal which he made, which I think is more disputable, was that there should be an absolute and immediate, cessation of borrowings. The sooner we can stop borrowing the better, and we are ill most anxious to do so, but I think we can no more stop borrowing instantly, in a case of this kind and after such a financial experience as we have had during the last few years, than you can demobilise instantly. The passage from war conditions to peace conditions is bound in any case to be a gradual one, and I think we are moving as fast in that direction as is really wise. I am sure it would be a mistake, vitally important as it is to avoid any waste, to lay down a hard and fast rule of that kind, because borrowing fresh expenditure even on a large scale may be absolutely essential to that increased productivity which the noble Lord himself admits, and which we all admit, is the only ultimate way out of our troubles.

I would like to give him an instance out of my own experience. At the time when Egypt was crushed by the burden of her debt to such an extent that the interest had to be funded and a new loan raised to meet this accumulated interest which Egypt could not pay. Lord Cromer insisted—and he; succeeded in the teeth of the violent opposition of financiers—upon adding a certain sum of new money to the debt created by the funding process. People said "Here is Egypt absolutely a bankrupt and unable to pay the interest on her present debt, and wants to borrow more." The noble Lord who made so interesting a speech to-night on the value of money, will remember the circumstances because, I believe, he was himself concerned in the transaction. I venture to say that there never was a more profitable investment of money than that additional borrowing which was made at the very moment when Egypt was so impoverished that everybody thought the one necessary, right thing to do was to stop all fresh expenditure, certainly to stop all fresh borrowing.

There are other forms of waste than those which are represented by £ s. d. I believe the greatest waste of all in this country is the wasteful system of production and distribution in some of our principal industries, and I believe that the greatest waste to-day is perhaps in the way we use, or misuse, our electric power. It is quite conceivable to my mind that the expenditure of £40.000,000 or £50.000,000, or even a larger sum which might have to be borrowed, for some great industrial improvement, some great improvement in our method of production, might pay itself back cent, per cent, just as the famous million of Lord Cromer's which he borrowed as fresh money when Egypt was actually in bankruptcy. Certainly it paid itself back more than cent, per cent. I am not advocating fresh borrowing, but I am saying that in my opinion it would be a fatal mistake and a radical financial error to say that, because we have got this enormous burden of debt, we should draw a hard and fast line and say we should not borrow henceforward for any purpose whatever.

Remember that if the war had been going on we should have been borrowing merrily, as we were right through the war. We should have been borrowing this year, perhaps, £2,000,000,000. Well, a country which can afford to borrow £2,000,000,000 a year for several years for the purposes of war and destruction must not be debarred, even in its present difficult financial position, from borrowing far smaller sums for the purposes of production, always provided that there is reasonable ground for supposing that they will bring a substantial return. I am all for the greatest possible economy, but the economy which is most important of all to my mind is the economy of efforts, economy of national energy, and if, by any further capital expenditure, we can make our national effort more productive and make better use of our still, in some ways, greatly undeveloped national resources, I think we should be making a great mistake to let ourselves be deterred from undertaking it, even by the contemplation of the heavy financial burden which we have to bear.

VISCOUNT MIDLETON

My Lords, I beg to move that the debate be now adjourned.

Moved accordingly, and, on Question, Motion agreed to, and debate adjourned accordingly.

THE MARQUESS OF SALISBURY

My Lords, I do not think the Question was put from the Woolsack as to the day to which the debate should be adjourned. That will have to be mentioned.

THE CHANCELLOR OF THE DUCHY OF LANCASTER (THE EARL OF CRAWFORD)

My noble friend Lord Milner paused before speaking, and I understood that he was the last speaker as nobody else rose. I will consult as to the day on which the debate should be resumed.

THE MARQUESS OF SALISBURY

There is no criticism of my noble friend. I only suggest that we should have it regularised for the convenience of the House.

THE EARL OF CRAWFORD

It takes me by surprise. I did not know that the debate was going to be adjourned.

THE MARQUESS OF SALISBURY

I suggest that the debate be adjourned until Monday.

THE EARL OF CRAWFORD

I would rather have notice.

THE MARQUESS OF SALISBURY

Shall I leave it in the noble Earl's hands?

THE EARL OF CRAWFORD

I am, as I have said, taken by surprise. My noble friend Lord Milner paused to see if any other noble Lord wished to speak, and nobody rose. If I may, I should like to consult about the actual day for resuming the debate.

THE MARQUESS OF SALISBURY

Certainly.