FINANCIAL POSITION OF THE COUNTRY.

HL Deb 23 October 1919 vol 37 cc3-40

LORD BUCKMASTERrose to call attention to the gravity of the financial position in which this country stands, and to move to resolve—

That in the opinion of this House it is essential that further taxation should be instantly imposed.

The noble and learned Lord said: My Lords, the indulgence which you so often accorded me on former occasions, and which I need again this afternoon, would be ill requited were I to waste your time in words of formal apology or excuse. There is, I think, no need to preface the subject-matter to which I ask your attention this afternoon. I could indeed have wished that the Motion which stands in my name upon the Paper had been moved by one of the members of your Lordships' House whose high and honourable position in the world of finance would have given to his views an authority and an influence which I cannot claim. I hope, however, that before the debate is over we shall have the advantage of the advice of those members of the House. The country is standing in a very grave and dangerous position, and it is to my mind the duty of all to do what they can by way of counsel and assistance to help to remedy a state of affairs which, unless speedily and effectively cured, threatens to ruin the whole commonwealth.

There are two things that I would like to say about the form of the Notice which I have put upon the Paper. In the first place, I hope your Lordships will understand that it is not intended as anything in the nature of a vote of censure upon the Government, though it is, of course, impossible to dissociate the Government from the financial position which we now occupy. As they themselves have said, expenditure is largely a matter of policy, and the policy is the Government's and the Government's alone. Nor can they urge that they have been stimulated along the course which they have followed by the action of the House of Commons, for they have a larger and a more docile following in that House than any Government has known since the days when "pocket boroughs" were abolished. The responsibility for the position, therefore, is one that the Government cannot evade. But for all that, I think we should be wasting time and energy now if, in considering this question, we were led along the easy and attractive pathways that an attack upon the Government would offer.

Secondly, I dare say you may have noticed that the Motion is strictly confined to the question of finance. I thought at one time that it would be desirable to add our industrial situation, but I avoided it—first, because I was anxious that I should not needlessly extend the area of debate; and secondly because, so far as our industrial difficulties are associated with the material desire of the men for better wages and better conditions (and we make a great mistake if we think that this is the only cause of their discontent)—so far as they are associated with that cause, in truth our financial situation lies at the very root and core of the mischief. For what happens now is this. When the men seek, and often after great difficulty and much friction obtain, a rise in wages, it is instantly followed by an inflation in currency. Prices proceed to rise as the value of our currency dwindles, and the men, instead of finding themselves moving along the road towards that better life which they have been promised with such reckless prodigality of assurance, find that they are moving in the mazes of a labyrinth from whose tortuous pathways there is no escape.

I said that the financial position in which we stood was grave. The facts are familiar to most of us. But there are just one or two outstanding figures that I think it well to bear in mind in considering the position. In the first place, we know that while the amount of legal tender existing before the war was £214,000,000, at the time when the Budget was introduced it had amounted to £540,000,000, and, so far as I can ascertain, it has been increased since that date, and only a fortnight ago was increased by a further issue of from £7,000,000 to £8,000,000 net, while all the time the gold reserve has remained stationary. There is one outstanding fact which shows that the value of every pound sterling before the war has been reduced by more than 50 per cent. While that process of currency inflation continues, industrial discontent and dissatisfaction will continue also, and prices are bound to remain high. There are two more facts which I think are important. One is this. The amounts owing on Ways and Means appear to have been £455,000,000 at the beginning of the year, and now, even after the flotation of the Loan, they are only £33,000,000 lower than they were.

Finally, it is stated that our daily expenditure exceeds by £2,000,000 our daily revenue. This last figure is one which I give with some hesitation. I do not myself accept it as accurate, but I have taken it from the pages of a new Government organ which is published free to the world—I am thankful to believe not at the public expense—and which is not inappropriately named The Future. From that paper, which is obviously an inspired Government organ, intended, and it may be rightly intended, to influence opinion in favour of the Government, I have taken the statement that our daily expenditure is £2,000,000 more than our daily receipts.

Those three facts are in themselves very alarming features of the situation. But lest I should be thought to use language of extravagance with regard to what those figures mean, let we once more quote Government authorities. This same paper, The Future. contains the following statement, and I believe the authority is that of the Prime Minister— We are not paying our way. We shall never pay our way until we increase production, and if we do not do that now, we shall be driven either to increase production or to reduce lower than ever the standard of living. I see no other alternative, except quitting the country for which the people have fought so bravely during the last four years. Therefore the Prime Minister's view of the position is that unless something can happen which at this moment it seems extremely, difficult to stimulate, there is nothing for the people of this country but to leave its shores as quickly and as conveniently as they can.

And the Chancellor of the Exchequer, on August 8, made a statement such as, I believe, has never before been made by any English Chancellor of the Exchequer with regard to our national finances. He said— If we continue spending at the rate we are spending now it will lead us straight to bankruptey, and there cannot be any doubt about it. If we cannot increase production beyond what we are producing now, we shall go to national bankruptey. This statement was made on August 8, and it does not appear from the figures that have read from a recent issue of The Future that the Government have taken much heed by the warning, for they appear to be pursuing their course along the same road with unabated speed.

It is important, in considering what weight is to be attached to this statement, to have some summary and to make some estimate of our national wealth and of the possibilities of the future. People often say—I notice that Mr. Asquith said the other night—that there were all round us obvious evidences of great wealth. I should have said that there were all round us obvious instances of great and unwarrantable extravagance, which is totally different. People imagine that this great, stable, ordered life which we lead is, in itself, evidence of great wealth. It is nothing of the kind. The wealth of this country does not depend upon its existing buildings, which you can insure with an insurance company, but on something quite different. The Pyramids of Egypt are no part of the wealth of Egypt, except so far as they may draw tourists to Cairo. And so the whole of our buildings and our vast machinery are of no value at all unless they can be inspired with the life that will turn them to profitable account.

I think the wealth of our country may be said to come under the following heads— first, our overseas credits; secondly, our internal resources; thirdly, the amount of stock we have of manufactured and marketable commodities; and, finally, our power to produce those commodities in abundant quantities in the future. Let us consider wealth for a moment under those heads. The war, if not entirely, has at any rate very largely denuded us of our overseas credits. The thousands of millions of credits we had in the United States have gone, and in their place there stands a debt which we owe of more than the same amount. Our natural resources may practically be confined to coal and iron.

So far as coal is concerned, what is the position at this moment? Although hostilities have ceased for nearly twelve months, we are in such a position with our coal measures (and coal is by far the largest and most profitable of our natural resources) that we know perfectly well we are going to face a winter in which many will suffer grave discomfort; the weak and the poor will certainly suffer from increased sickness and increased mortality, simply because we are not able to get sufficient coal from the mines to heat and light our domestic hearths. That is the position with regard to coal, and I submit that it is not exaggerated one single word.

What is the position with regard to our industries? It is plain that unless and until some clear understanding can be effected with the industrial people of this country, the dream of increased production —the only thing upon which the Chancellor of the Exchequer and the Prime Minister appear to hang their hopes for the avoidance I of the disaster which they prophesy—is impossible. And good will can only be effected if we cease to mock the efforts of the men by false currency. At the present moment every struggle they make is cheated of its result by the operation of financial laws which they do not understand and over which they have no control, and the result is that they become more and more discontented and more and more angry with the system of society which many of them, as we know, bitterly resent.

The future must lie in our being able to stabilise and clarify our finances. What prospect is there of doing that? I want to consider the figures which are being put before us at the present time to show what our position is. In this connection I beg your Lordships, when we are considering expenditure, not to do what speakers from the Government Bench only too often invite us to do—namely, consider what the expenditure would have been had the war not ended. That really has nothing whatever to do with it—for this reason. We were all perfectly ready to be ruined rather than be defeated, but we are not ready to be ruined now we have won. This comparison reminds me of the old scientific experiment in which a lecturer used to show a dark shadow and make it into a beam of light by the simple process of projecting it against a background which was even darker still. That is exactly what the Government do with regard to this expenditure. They say, "Admitted it is black, but if you will only contrast it with something which is blacker still you will see that it will assume a decent shade of grey." That is not the way in which this question of finance should be considered.

No reasonable man for a moment thought that directly hostilities ceased, or peace was declared, we could get back to a perfectly flat normal basis of expenditure. That would be the most unwise and foolish argument to advance. It is not that at all. The complaint against the Government is this, that in the circumstances in which they found themselves they have been prodigal of the nation's money, and that they have not taken, in the circumstances in which we stand, proper steps to safeguard the national interest. There, I think, a strong case indeed is made out.

In February of this year Lord Faringdon moved a Resolution relating to the question of finance, and pointed out that unless expenditure was controlled and steps taken to prevent a further inflation of our credit, grave danger lay ahead. It was in that debate, I think, that I made the humble suggestion to the noble Viscount opposite that a Committee should be appointed at once to ascertain what the country could afford to pay, so that we might know where we stood; and he did me the honour of approving of the suggestion. But has anything of the kind been done? Such a Committee could have been appointed in twenty-four hours. You could have selected from this House men of the highest and unquestionable power, able to settle such a question. But nothing of the kind has been done. Lord D'Abernon also introduced a Motion calling attention to the question of paper money. It appears to have had no effect. And further debates have taken place in which noble Lords, chiefly from this side of the House, have constantly called attention to the dangerous position into which We were drifting. Yet until August 8, when the Chancellor of the Exchequer suddenly made the remarkable statement About the imminence of bankruptey, the Government do not appear, to have taken any steps whatever to curtail expenditure or to meet the growing adverse condition into which they must have known Our financial affairs were drifting.

The balance sheet that was introduced when the Budget came before the House of Commons is, I think, not a little responsible for the misleading position in which people have stood. As you know, it wrote off from the military expenditure £200,000,000 which it was assumed would be realised by the sale of national property in France. As a matter of mere bookkeeping, seeing that the balance was adverse anyhow, I quite agree that it made no difference. It would have made a great deal of difference had the balance been the other way. As, anyhow, it is adverse and you had to borrow, it made no difference. But it made all the difference in the world from the point of view of letting people know where we stood, because you brought forward the amount of War Office expense at a net figure which was £200,000,000 under what it ought to have been, and prevented people from seeing that the real deficit was £200,000,000 more than appeared on the face of the paper, and that the deficit was going to be met in that particular way. I do not wish to take a merely analytical point with regard to the proper way of preparing accounts. I imagine few people would deny that it is wrong, when dealing with national property, that it should he appropriated against the current expenditure of one Department. It ought to be brought into the whole national purse, and dealt with from tip, national purse. That was not done.

Something more happened, for which I do not think the preparation of accounts was so much to blame. Of the assets brought forward £300,000,000 were in relation to excess profits, and it was pointed out that this £300,000,000 included arrears already existing—an existing fund to which you can only have a limited recourse as the years go by, and to which you can eventually have no recourse at all. There fore it comes to this, that your excess was £800,000,000 instead of £234,000,000. Taking it, however, at £234,000,000, we find at the end of six months that, the deficit which was calculated as the deficit for the whole twelve months has already been exceeded, and that either by increased expenditure or by deficient revenue—and I gather from the Chancellor of the Exchequer that it is due to both—we have spent £70,000,000 or thereabouts more in the first six months than we estimated would cover the entire deficit for the whole twelve months.

Here, again, I think some note of warning is only fair. It obviously is not right to assume that therefore there will be another deficit of £300,000,000 for the next six months. Because, first of all, if any economies are being effected—and we are told that they are—they will begin to operate in the next six months, and, secondly, the last six months of the financial year are always the months during which you may expect the larger amount of revenue. Therefore although we have the indisputable fact that we have reached in six months the deficit that we expected to incur in twelve, I do not think we ought to imagine that it will be doubled when twelve months have gone by.

That being the position on the capital accounts, what is the position with regard to expenses? I do not think it is of much use attempting to discuss the expenses in the accounts as they now stand, for the reason that we are living in an artificial and inflated time. It is important to see what must be our expenses—expenses to which we are now committed—for a year when every fraction of the inflated payment has passed away, when we are really in normal tunes, and it may be two, three, or four years before we reach it. But when we reach it what have we to provide? That is of the utmost importance; for this reason—that it is taxation to meet that expenditure which ought to be imposed to-day. That is the bedrock of the expenditure which must be dealt with. You are not meeting normal expenditure by normal revenue.

Let me ask your Lordship's attention to these figures. I gave them once before in the absence of the noble Viscount (Lord Milner), but the noble Earl (Lord Crawford) kindly replied, and the figures which I then gave, he said quite frankly, after two days' deliberation, he was unable to answer. The noble Viscount at a later date, when I had not the advantage of being present, said it must not be assumed that the Government accepted my figures as correct. That was a very reasonable precaution, to which I take no objection. The precaution was justified for this reason, that I believe every one of the figures which I put forward then were too low. I doubt if there was more than one—the fixed charge for our Debt and Sinking Fund—that was up to the real maximum. Therefore let me repeat the figures as they stand to-day.

There is first of all the figure, which no one questions, of £400,000,000 a year, which has to be provided to meet the interest on debt, and then a moderate Sinking Fund—one-half per cent., I think. You then have Pensions, which I took in my former account at £70,000,000, but which are now £100,000,000. You next have three figures which I took from the Government White Paper—figures that cannot be altered —namely,Education, £38,841,000; Old-Age Pensions,£17,892,000; Insurance, £13,435,000— which make another £71,000,000. You then have Customs, which is a small figure; then I have put down £40,000,000 for the expenses of our other Government Departments. That has since been estimated at £80,000,000, and I think it is quite plain that I was wholly wrong in putting the figure at £40,000,000. Then there is £75,000,000 for the Army, and £25,000,000 for the Air Force; this leaves only £60,000,000 for the Navy, or no more than you had before the war. Taking the present inflated prices, that is equivalent to only about half the pre-war service.

There remain only two figures. The first is with regard to the cost of the railways. It was stated in the House of Commons that the loss on running the railways as they stood was £60,000,000 or £70,000.000 a year. The accounts have not been produced, and no one could tell—a very unfortunate circumstance, which has been not a little responsible for some of the ill-feeling and misunderstanding which resulted in the late railway strike. Sir Eric Geddes puts the figure at £60,000,000. I strike off 20 per cent. and say £50,000,000; and I do not believe that any one who examines the character of the Transport Bill and sees what is contemplated will think it is possible, having regard to the inevitable raising of wages which must occur, that you can get much lower than £50,000,000. I think you will get cheaply out of it at that figure.

Another figure which, strangely enough, finds no place whatever in the skeleton balance sheet put forward by the Chancellor of the Exchequer when laying figures before the House of Commons, is the figure with regard to Housing. Now, my Lords, the Housing scheme provides that in a period of years—it may be three or five—you are going to build a million houses, and the expense over a certain fixed amount of that building is to be borne by the State. I estimated the annual deficit on each of those houses at £20 a year; I am convinced now that I was wrong, and that I put it much too low. I hold in my hand an account prepared for the borough of Godalming with regard to the erection of fifty-eight houses. The annual sum that is to be paid for principal, interest, and maintenance (carefully calculated) is £5,269. The amount that will be received from the houses, if they are let at 12sa week rent, is £1,809, which leaves £3,460 to be borne by the State, and this represents £57 a house per year. This is no imaginary thing, nor have I gone about seeking it; this happened to come my way. I say that this is a most striking instance of what this building scheme is going to cost, and it ought to be made public. But it does not seem to me that it is phenomenal, and for this reason. The cost of building the houses which produced these figures is less than £1,000 apiece, and yet it was stated the other day in the newspapers that the lowest tender to the London County Council for building a five-roomed house was £1,021. I quite agree that there will be included in that expenses which may not be included in the other estimate; for instance, the roads will be made up, and the sewers and fences and matters of that kind done, but I think it is true none the less. I do not mind how you reach these figures; they are, I think, an urgent warning that we have to face the fact that the Housing scheme as it has been introduced by the Government is going to be a heavy burden —a very heavy burden—upon the State.

Something has happened to this scheme which, I think, is disastrous. For twelve months there seems to have been nothing but talk about it, and the result is that the men are more grievously discontented every day. They were promised that these houses would grow like mushrooms, and they do not appear to grow at all. But this has got to be done, and there is nobody more in favour of it than I am. If you are ever going to have this country once more a happy country to live in, you will have to make the homes of the poor decent, and if ever we hope to get rid of the angry acrimonious feeling which undoubtedly does permeate a great deal the labour classes to-day, it is beyond all things essential that we should allow the men not; merely to lead a better material life, but—to use a term that is too often misused and too often misunderstood—a better spiritual life. And that is, believe me, at the back of the men's minds as much as the other consideration.

There then is the position with regard to the expense to which we are committed. I have worked out the. total of these figures at £888,000,000. If you delete from that the items mentioned before—Customs and Excise, Estate Duty, and stamps (representing a sum of £283,000,000; the remaining £5,000,000 will go in odds and ends)—there is left a net£600,000,000 that has to be provided by direct taxation. How is it going to be done? The sum of £600,000,000 a year is, I think, exactly 10s.in the £ on the Income Tax. Those are the figures and the facts. I shall be glad, indeed, if they are capable of elucidation, or if the position can be made more easy; but if not, that is the position that we have to bring ourselves to look at, and we have to make up our mind how we are to meet it.

How is it going to be met? There are three proposals—I do not see for the moment a fourth—by which this position can be countered. The one is a General Capital Levy; the next is a Capital Levy on Profits made during the war; tile third is the imposition of this 10s.Income Tax. Of course, it will have to be more at the present moment—that is obvious—because my figures are for a state of things when every subsidy is ended. Under my hypothesis you will have to pay more at the present moment. But leaving that aside, I ask your Lordships for a moment to consider which of these three plans meets with your approval.

The notice that stands in my name merely asks your Lordships to assert that an instant increase of taxation is necessary; the means by which it is to be imposed is a matter that I have not referred to upon the Paper. A General Capital Levy is undoubtedly open to many objections. There is the difficulty that if you once begin raising taxes by the process of imposing a Capital Levy you cannot be sure that the people who may get control of the reins of Government, and who may quite sincerely and genuinely hate the whole capitalistic system, will not use it as the simple and most effective means of ending Capital altogether. That is one objection to the Capital Levy. There is another objection. It is bound to be unfair; it is bound to be inequitable as between person and person; it is bound to penalise thrift; it will, I think, embarrass industry. Those are undoubtedly the objections. But let us see if they apply with just the same force to a Capital Levy on fortunes made during the war. I do not deny that to some extent they do. A tax levied upon war profits cannot be solely and simply confined to the profits made by industry. If it is to be levied at all, it must be levied upon this principle—that you take the capital value of a man's estate at the beginning of the war and at a notional date after the war, and you take a certain fraction of the increase and appropriate it for purposes of taxation. That is how it must be levied. By no other means can you ever get it assessed at all. It would do something which I think is also important. It would allay the feeling of public resentment that is at the present moment almost universally felt against the men who used the opportunity of the nation's greatest need as a means of making gain. There is no doubt that that feeling is very widespread, and however much it may be countered by reason, no reason will prevail. People see men who in four or five years have suddenly risen to a position of almost unheard of affluence, simply by the process of profitably trafficking with the Government in the means of war, and only too often the position thus obtained is used with very little regard to the feelings of other people and with all the carelessness, the ostentation, and the vulgarity that are frequently associated with raw and quickly gotten wealth. The anger that has been aroused cannot, I believe, be appeased. And, indeed, is it easy for any one of us, if we contrast for a moment the different situations that have arisen out of the war, to repress our own feeling that the man who has profited while other people have had to sacrifice all that they held dear should be called upon to pay back. I own that I feel it, and I know myself that my feelings are shared by others—because, after all, human beings are not mere compound tables of logarithms; they are moved and swayed by passions that logic can never either wholly conquer or express.

Although I think it would be a very bad thing indeed to impose a tax whose sole purpose was to satisfy a social demand —I do not think that a tax ought to be used merely as a means of social betterment, or simply as a means of attacking a particular class of person—yet the tax on war profits has two results. First, it will restore back to the State the money which most of us think ought never to have been parted with in such profusion; and, secondly it will most assuredly do more to unite this country once more than any other scheme that has yet been devised. Therefore I feel that there is a great deal to be said for that method of taxation, and I do not wish to-day to argue in detail about this proposal because, as I have pointed out, my Resolution pledges no one to any definite proposal.

But if it is not adopted there remains the Income Tax—and it is an Income Tax which must be high. It is no use for anybody to think that such figures as I have given can possibly be met by the process of having a low flat-rate Income Tax and a very high Super-tax, because that simply will not work. The only way in which it can possibly be done is by a very high flat-rate Income Tax, with generous deductions on the lower scale. And that is necessary for another reason. Every one knows that there are certain ingenious people who enter into all kinds of intricate financial devices for the purpose of avoiding paying Super-tax. And it is an easier thing to avoid Super-tax than it is to avoid paying Income Tax, because, of course, the Super-tax is never deducted at the source—I have often thought it should be, and that every one should be called upon to claim back if he is dissatisfied, just as people are now if they are under the limit which exempts them from the tax.

However, I will pass that by. I merely want to point out that when taxation is imposed it is essential that it should be a high flat rate Income Tax, and the deductions must be made below it. I really see nothing excepting one of those three policies as possible for the Government to adopt at the present time, and it ought to be adopted without delay. Which of these three policies it should be it is not, indeed, easy to say. I expect it is the common experience of many of us that if three policies are face downwards on the table it is not always easy to select the one that will turn out to be right. I am not at all sure that we shall not have to select two. I think that increased Income Tax and a War Profits Tax will both have to be applied, for I doubt if one will be enough by itself. But, whichever it is, something really great has got to be done if the country is to be lifted out of the financial slough in which it finds itself.

The only other course is that which has been indicated twice by the Chancellor of the Exchequer and by the Prime Minister—national bankruptcy. We are told that that is the bourne to which we are speeding, and when once people get accustomed to the sound of a word they do not appear to pay much attention to it, and they think "Oh, bankruptcy. Yes, that does not mean much, it does not matter much." I think people ought to consider what bankruptcy does mean.

Bankruptcy means first of all the repudiation of our national obligations—a dishonour which this country has never suffered, and which is second only to the dishonour of defeat by the enemy. That is the first thing that it means. The next thing that it means is the complete collapse of all our domestic credits, and essentially of every credit oversea. This means that you cannot get into this country the food that is sufficient to feed the people, and hunger and famine must follow. Finally, I believe that the roots of our Empire are too far spread and too deeply buried to be torn up even by such a catastrophe as that, but it will certainly mean that the centre of commercial power, and possibly also of political power, would shift from this country, and that for the first time in our history the waters of the Thames would wash deserted walls and empty palaces. The road that I propose for your Lordships to follow is a road of hardship and a road of sacrifice, but I believe it to be the road of honour and the road of safety, and I therefore ask you to adopt the Motion which stands in my name.

Moved, That in the opinion of this House it is essential that further taxation should be instantly imposed.—(Lord Buckmaster.)

LORD WITTENHAM

My Lords, I need hardly says that it is only because none of your Lordships of much riper, larger, and longer experience than myself in this House has risen to speak on this momentous occasion that I take the liberty, with a certain amount of knowledge of the subject, to trouble you for not a very long period of time. The noble and learned Lord, in my opinion, did not, over-state the case. In fact, I think he stated the case with extreme moderation, without heat, not as a Party politician, and with all the skill and power of exposition that one would expect from his great legal powers. On the side of expenditure I agree with almost all his figures. I had the honour of saying in this House about the end of July that I did not think his figures of expenditure were in any way exaggerated; neither do I think so now. In fact, I believe that probably he was then under the mark.

The noble and learned Lord was, perhaps, a little pessimistic, although I am not quite sure of my own figures, but in his remarks on our position in regard to credits in other countries, I do not agree with him. I think that in 1914 we were owed something like £4,000,000,000 abroad. Then came the war. We sold about £1,000,000,000 to America. I think we made ourselves liable for another £1,000,000.000. That is£2,000,000,000 gone out of £4,000,000,000. On the other hand, we lent to our Allies something like £1,800,000,000. Let us say that £800,000,000 has gone, leaving us£1,000,000,000. If I am right, we are still owed all over the world £3,000,000,000; I think we are owed in neutral countries something like £2,000,000,000. If that is so, to that extent the position is better.

With only a short time in which to deal with this immense subject it would be presumptuous on my part to attempt to detain your Lordships for a great length of time; but in the next place I should like to say that, however you may look at it, this is an astoundingly difficult problem to deal with. If you brought down one of the gods of finance from the upper regions—where for the moment, I suppose, such deities live—he would be up against difficulties which he had never had to face before. He would be up against difficulties of currency, difficulties in the labour market, difficulties through having our great shipping trade almost massacred for the time being, the difficulties of great neutral countries having been able to spring into the breach immediately at the end of the war and to be occupied—legitimately occupied—in taking as much of our trade as they can. Then there are the difficulties of not knowing how big an Army to keep up. If you reduce your Army too low you are, of course, up against the pre-1914 condition, which might mean the loss of our place in the world. I still believe what is said in Holy Writ that it is the strong man armed who keepeth his house. Yet on the other hand, if you keep the Army expenditure where it is to-day, it only aggravates and intensifies the terrific financial position in which we stand. The same with the Navy and with the Air Force. It needs a superman to know where to draw the line; it needs a superman to tell you exactly how you ought to raise this colessal sum year by year—not for one year, not for two years, not for five years, but for fifty years—in such a manner as not to ruin the State.

May I examine the proposals of the noble and learned Lord as being the only means by which we can raise the money. The noble and learned Lord was not able to produce any balance Sheet—at which I am not surprised or grieved—to show that by adopting any of his methods we were going to bridge the gulf. Let me take first of all the Capital Levy. If you have a Capital Levy—apart from the thousand and one things about which I need not trouble your Lordships because you understand them as well as, probably better than, I do myself—you are destroying absolutely the means whereby you live. At this moment you want all the capital that you have; indeed, you want more than the capital you have in order to push trade at home and abroad, to increase your export, and to increase your production. You cannot do that without capital; and once the capital gets out of the hands of the individual into the hands of the State we know what happens. It means national profligacy in regard to expenditure. The State is not the proper custodian of money on a huge scale, as our experience in the last few years has shown. In addition, you could not do it apart from your destroying the means whereby you live. Before I pass on to say why you could not do it, may I mention that your Income Tax would be extraordinarily diminished? The more capital the State takes out of the pockets of the individual and puts into its own pocket, the less the income Tax will be. Therefore the one is to that extent destroying the other, and destroying it to a very grievous extent, so that there you are landed in an inextricable difficulty.

Then how are you going to put it in motion? It is difficult enough even now to levy the Death Duties, as those who are concerned in these matters well know. In that case it is only in regard to a certain number every year, but if you have the Capital Levy you are going to apply Death Duty methods to the whole population at the same time. Already the Government authorities are almost snowed under in trying to bring the estates of dead people up to date and getting in the money earned by those estates. If you are going to do it at the same moment for the whole population chaos will not be the word for it; you would want all the gods in the regions above to come down and help you. Also, the more you call upon the whole population to make an estimate of their goods and chattels the more the bottom would drop out; because everyone would be assessed at the same moment, and you must imagine every one having to sell at the same time. The more the thing is examined the more impossible it becomes; and I think that every State that has considered it has been confronted abinitio by such tremendous difficulties that it has had to be dropped.

The second proposition—namely, to take more of the war profits, is, of course, much more feasible, much more attractive and sound, on the face of it. But may we examine that proposition with an absolutely impartial mind—not looking at it merely because we do not happen to have made war profits and do not mind letting the other man's withers be wrung while ours remain unwrung; but consider if fairly and judicially, as I am sure the noble and learned Lord would wish to do, and as he, indeed, did. In the first place, we had the whole machinery of excess war profits working during the war, and very heavy taxation has resulted therefrom. I think one of the noble and learned Lord's own Party, Mr. McKenna, during the first year of the war, did not levy any Excess Profits Tax at all, as far as I can remember. That was rather a lapse from virtue, according to virtue as we understand it now. The next year—here I am speaking entirely from memory and may be wrong—I do not think he levied more than 50 per cent. Then it got up to 80 per cent. under his successor, and now I think, in the last Budget, it is down. It is worth while considering whether, both Parties in the State having adopted that method of machinery, it would be quite fair to scrap it or to use it as is suggested and to say to the trader, "Although at the time we entered into a year to year understanding with you that you should pay that amount of war profits and that the State should be satisfied, you had much more left. We knew about how much you were going to have left, but you had a great deal more; now, disgorge! We are in a great difficulty, disgorge!" I must leave it there to your Lordships' sense of fairness.

Now, the machinery is there to hand. Do not imagine that I am holding it up as a temptation to anybody to put it in motion, but the machinery is more or less there to hand. Owing to the machinery that was set up to deal with excess profits, the big people, who have made their returns year by year since the war began, are pretty well known. But do the big people exhaust the whole question, if you wish to be fair? We have had profiteering up and down the whole country. If you are going to try and follow the little profiteer and make him disgorge—and you ought to do so if you are going to be fair—there again you must have all the gods of Olympus to help you to track all the profiteers, because they have lived in every class. As the schoolboy Latin has it, you may expel human nature with a fork but it will always come running back again. It is human nature to profiteer and human nature has profiteered.

There have been some very big whales and some very little minnows at the game. Are you going to catch the whales only in the net, or are you going to try to catch the minnows also? That is another matter for your Lordships to consider. You can do it. You can catch the whales. There is no doubt about that; and I saw, either yesterday or to-day, in one of the many able letters and articles that have been written on this matter, that if you were to take the remainder of the war profits from the profiteers, which can be easily ascertained, it might amount to the colossal sum of £900,000,000 or £1,000,000,000. Of course, that is very well worth having, because it would pay off our Floating Debt. I hope I am not digressing from the argument by referring to the Floating Debt, because that debt is now about £900,000,000. Therefore, if the whales disgorge to the tune of £900,000,000 or £1,000,000,000 we should have no more Floating Debt, which is a serious and pressing danger to-day. To that extent we should go on with a cleaner sheet. But there I must leave that matter.

Now I come to the third expedient, which is fraught with difficulty. They are all fraught with difficulty. It is the expedient with regard to the Income Tax. At present the great middle class—we are all one class, as a matter of fact; it always makes me indignant when I hear of the working class and the idle class; we are all the working class; and so, when I talk of the middle class, I do not mean, God forbid! the social middle class but the people with middle class incomes—the middle class has been frightfully hit by the war. A great many of them have not profiteered. Look at the position to-day of a great many of them. with small incomes, which were only just sufficient before the war, when the sovereign was worth 20s.and when everything was very cheap, to bring up their families as they ought to be brought up. Now you are going to impose more Income Tax upon them. They will go under. The noble and learned. Lord said, and I think quite truly, in the financial sense, that you will have to raise the foundation tax, otherwise you will not get enough. By the foundation tax I mean the 6s. Income Tax. That is going to crush tens of thousands of people. They will be down and out.

Then the noble and learned Lord said that he wishes the whole Income Tax to be deductible the source. I wish he had sat on the Income Tax Committee which met in the first year in which Sir Henry Campbell Bannerman's Government came into power, in 1906; then he would not have said that, because it is impossible; it is impracticable. It is easy enough with the railway companies or with other companies, when the whole of the fruits of the year's trading is paid into one till and the tax is deducted from the till, so that people who have dividends are paid their share minus the Income Tax. If you are going to have the whole Income Tax deducted at the source, there again you want not only all the gods of Olympus but all the angels besides if people who are entitled to a return are ever to get it. Why, even now, as the noble and learned Lord probably knows, there is chaos. They are snowed under at the Inland Revenue in trying to give back to people Income Tax which ought not, to have been paid in the first instance. A man who had, we will say, a dividend from a railway company from which the whole Income Tax was deducted but who, owing to his position, was entitled to a return of it, would not be able to get it for months and months. If you are proposing to make the whole Income Tax deductible at the source that would aggravate the difficulty to such an extent that it would be an impossibility and there would be universal chaos. That is only a detail.

There remains the great, broad principle: What is going to happen to this country with a higher Income Tax? I am only pointing this out to show that under each of the three heads put forward by the noble and learned Lord there is such a ponderous weight of objection that one is left almost in a condition of despair. I have no doubt as between the first and the third expedients, because a Capital Levy, if it is once and for all made, as the noble and learned Lord foreshadowed, may suggest to those who come into power in the future that, having once had a cut at the joint, they should follow and strike deeper and deeper into what was left on the joint. But, suppose the Capital Levy was once and for all, there is no room then for repentance or alteration. It is done, and the consequence remains. The Income Tax is gathered in from year to year and you can alter the amount. If circumstances alter you can alter the income Tax. If the position gets better you can lower the Income Tax, and if it gets worse you can raise it. But the Capital Levy strikes a blow at the heart of the State from which there is no recovery.

What are we then to do? If Lord Buckmaster's figures of expenditure are right, the means which he suggested are desperate. He did not mention one, perhaps because he thought the House would laugh if he referred to it—namely, that extraordinary amount we were to get out of the Germans when the war was over. Perhaps the noble and learned Lord never believed in it, but I do not think it is a negligible quantity. I am not at all sure that Germany is not better off than any other State in Europe to-day. There has been a tremendous amount of camouflage and, of course, the Germans themselves say they have nothing left; but people who have been there tell us there is a great deal to be got, and a pledge was given by the Prime Minister, which I imagine he will carry out as far as he can—namely, that the loser pays the bill. So far as the loser can be made to pay, the Germans will have to pay, although I suppose we ought not to take that into account in striking a balance sheet for the next year.

I may be right, or I may be wrong, but I think we shall have to raise another Loan. I do not see how we are to get on a possible financial basis without another Loan. But can you raise another Loan? It is an open secret that although the Victory Loan brought in a certain amount, it disappointed a great many high financiers. There was a good deal of changing from one security into another, and there was not as much new money invested as had been hoped for. There was between £300,000,000 or £400,000,00 of new money—not more. A new Loan would be unpopular in the City of London just when everybody is struggling to get ahead with production with the money they have got; and, to be quite candid, people do not trust the Government. Those who have money to put into loans say that this Government is so profligate that it is no good lending their money. And on what terms would you raise the Loan—at 5½or 6 per cent.? There again the interest on £1,000,000,000 at 5½or 6 per cent. would have to be added every year to the amount that would fall on the taxpayer. Whichever way you look at it, there are the most astounding difficulties. I am imagining for the moment that I am Chancellor of the Exchequer. Thank God I was created in such an ordinary mould mentally that there was never any chance of my attaining to that position. But we must not underrate the extraordinary difficulties of the position.

Just one word about profligacy, and I have done. I am not now speaking as a Party politician. The times are much too grave financially for any man to be a Party politician—he must stand up and say what he thinks. The Government have been extraordinarily profligate. They have gone on during the year which has elapsed since the Armistice as if all the wealth of the world was at their command. There has hardly been anything cut down; many things have been started, but no attempt at real economy. The worst of it is that if some great apostle of economy does speak, with one side of his mouth he says "Retrench," and with the other "Spend." The noble and learned Lord is not exempt from that criticism, because when he referred to the housing of the people, which is to cost over £300,000,000, he said it had to be done. That is what every great social reformer says. When you come to his pet lamb, "it must be done." Yet on the other hand he' says we are going straight down the slippery slope, as indeed we are, into the pit of national bankruptcy. In a great many cases we shall have to use the knife, not to cut at the tops of the branches but to cut much nearer to the roots of the tree. A prominent politician said this country must be made "fit for heroes to live in." In my opinion it was a most dangerous phrase to use. It is all right if you spread the improvement over a hundred years, but the people of the country imagine you are going to make this land a fit place for heroes to live in within twelve months. Whoever invented that phrase did an extraordinary amount of harm, almost as much as the man who said in the beginning of the war "Business as usual." The man who invented those two phrases has a great deal to answer for.

There seems no signs of this profligacy diminishing. Cut down the Army, of course, to the lowest point of safety, and cut down a great many of these social schemes, not because you want to but because you must. You are like the rich man who used to be a philanthropist, but has suddenly become poor. For no fault of his own, perhaps he suddenly becomes poor, yet still has, the dreams of the philanthropist. You have got to tell him that he must wake up, that he is no longer rich, and that he has to cut his coat according to his cloth. That is a very unpleasant thing for the nation to have to do, but it has to be done, and I am driven to the conclusion that you will have to face a higher Income Tax; that it may not be unfair to a. certain extent to increase the taxation on, and even to expropriate part of, the war profits; and, further, that we shall have to raise another Loan—individual extravagance has got to go as well as national extravagance. We have all got to live simply and not to set wild examples of extravagance in our private lives such as were set by a certain number of people during the war and are being set by much larger numbers since.

THE SECRETARY or STATE FOR THE COLONIES (VISCOUNT MILNER)

My Lords, I think it may be for the convenience of the House that I should now make a few observations. I admit that I am somewhat surprised that a greater number of noble Lords have not addressed us. Indeed, had I been aware that this was going to be the case I should have pressed much more strongly than I actually did a request which. I made to the noble and learned Lord who has initiated this debate that we should wait, before entering upon the discussion of these questions of such great-gravity, until we had received the figures which are shortly to be presented to both Houses of Parliament, and which will contain revised Estimates for the current financial year and for the future. I did not press that request more strongly because I was under the impression that there was a very general desire to have a debate now. As it is, I am placed in the unfortunate position of having to speak for the Government on questions of this difficulty without being able to refer to vital figures, and of being exposed to the likelihood that many of the important speeches directed against the Government will be made after I have spoken. It seems a somewhat unfair position in which to be placed, but I have no doubt that it is due to accident. Therefore I will make the best of the position, and ask your Lordships to be indulgent with me if I am not able to give on all points such full and precise information as I should like to be able to afford.

As I have said, it is a matter of great regret that we have not waited for the figures which have been promised by the Chancellor of the Exchequer. It may, of course, be said that it does not so much matter about precise details because the general position is perfectly clear. But, my Lords, the general situation is very far from clear. The uncertain factors are still extremely numerous. Some of them, very important indeed, are entirely beyond our control. I am thinking especially of certain very large items of receipts. With regard to the control of expenditure, I should like to say a word presently. I defy any man, however well versed he may be in making estimates of revenue and expenditure, to speak at this moment—I have myself in my time had as much experience in that direction as perhaps any of your Lordships—with any assurance as to the position in which we shall find ourselves at the end of the present financial year, much less how we shall fare in the course of the next financial year. We shall certainly be in a much better position to judge in a week or ten days, when we have the promised figures before us; but even then there will be many elements of uncertainty, many things which may turn out a great deal better or a great deal worse, according to the course of events at home and abroad, with so much industrial unrest here and elsewhere, and so many of the great countries of the world, who are our debtors, in an unsettled position and with a very uncertain future.

With all these doubts and uncertainties, I am prepared nevertheless to maintain that the financial position of this country, serious as it is—though it is far less serious than that of any other great country in the world, except the United States and perhaps Japan— is not sufficient to justify the talk of bankruptey and blue ruin in which so great a number of people, possibly even some members of your Lordships' House, are at present delighted to indulge. Nor is it such as to justify us in making any rash changes in our fiscal system. Additional taxation may be necessary; I fully admit it, although I do not admit that its necessity has yet been proved, and in army case it is incumbent upon us not to proceed in this matter without the utmost deliberation, or without giving the most close and careful study to the various sources from which additional taxation can most safely and most justly be derived. It is a most delicate operation, as I think anybody must have convinced himself after listening to the speeches which we have heard to-day, to indulge in such a novel experience as, for instance, the General Capital Levy. Without going into it at this moment, or into any of the proposals which have been broached—I may have a little more to say about one or two of them presently—I would make this general remark, that irreparable mischief might be done to the recovery of trade and industry—which, for all that has been said, is proceeding rapidly, and will, if only grave industrial trouble can be averted, proceed with amazing rapidity —by any rash and precipitate step in the direction of which I have spoken.

I believe, my Lords, that the panic which has seized upon a large portion of the public, and which is vigorously fomented by certain organs of the Press, is due to the belief that the Government does not realise the gravity of the financial situation, or the necessity of taking the most drastic steps to put a stop to all wasteful expenditure. That is constantly asserted and reiterated, and by force of constant reiteration it has got itself believed. If there is any member of the Government who is not, and has not constantly been, alive to the necessity of taking drastic steps to stop wasteful expenditure, all I can say is that I have never met him. I entirely deny that the Government has been or is supine in this respect. We may not always have taken the right step—we are not infallible —and the number of complex and urgent problems, the aftermath of war, with which we have had simultaneously to deal have been fairly overwhelming.

Then the process of re-establishing the normal checks upon expenditure, utterly shattered as they were by the exigencies of war, was absolutely bound to be a gradual one. Money was running away through a hundred channels. It may be that it is running away still through some, though I hope we shall be able soon to say that it has been stopped from running through all. The Treasury has been reorganised and immensely strengthened in its endeavour—and it is an endeavour which could not be accomplished in a day—to restore its old control over expenditure, to restore it and to improve it, and it has had the constant support of the Government, I might say more especially the most vigorous support of the Prime Minister himself. But it was necessary to concentrate effort in the first instance upon the main avenues of waste. There is only a certain amount of human time and human energy. There are only a certain number of people who can possibly deal with matters of this kind. Had we increased our staff, as I believe in some respects we would have been wise in doing, we should have had an immediate outcry about the extravagance of fresh appointments. There are only a certain number of people with the experience and the knowledge, and in a position competent to undertake and deal with this gigantic task of re-establishing an adequate financial control over the whole range of our expenditure, and they have had to concentrate themselves, and have rightly concentrated themselves, upon the main points, and upon sources of expenditure where the greatest amount was to be immediately retrieved. I say that this has been going on for a long time, and I believe that the main points have now been dealt with, but the effect—as the noble and learned Lord pointed out in his speech, in which I am bound to say he made very many fair allowances for our difficulties—of these great and enormous reductions in the main items of expenditure cannot be immediately apparent.

Take the case of demobilisation, for instance. Millions of men have had to be brought home from abroad. We are prepared to show that they were brought home as fast as was physically possible, and dispersed in the most expeditious manner. But then, every man that is demobilised, though that means so much saving for the future, causes an actual increase of expenditure at the moment. He has to receive his gratuity, and that is only one illustration of what happens all round. The actual process of cutting down expenditure very often necessarily involves an immediate and a temporary increase. Weekly returns of revenue and expenditure are apt to be misleading at the best of times, but at a time like the present, and in the middle of such a transformation scene as we are going through, with the whole activity and industry of the country being rapidly switched round from one form of production to another—in the midst of such a transformation scene these records of revenue and expenditure in any particular week or particular month are simply no guide at all.

I know it may be said that this is all very well, but that now it is nearly a year since the Armistice, and that we have not yet balanced revenue and expenditure and are still living on borrowed money. The noble and learned Lord who introduced the debate admitted, and I think any reasonable man must admit, that in this financial year it was absolutely impossible to do otherwise. No Government would have been expected in this year to balance revenue and expenditure. No country could have come down with a run from an expenditure of nearly £3,000,000,000 to one of £700,000,000 or £800,000,000. That would have been wholly impossible if all the circumstances had been the most favourable that it is possible to imgaine.

And, as a matter of fact, the circumstances have been unfavourable in the extreme. We have only just concluded peace with Germany; peace with Turkey is still hardly in sight. We have had troubles in Afghanistan and troubles in Egypt. More serious still, the condition of the whole of the Near East is such that the reduction of our forces in that part of the world has had to be slowed down. It would be the most desperate kind of economy to run the risk of another war in order to save even an appreciable number of millions on indispensable garrisons. On the other hand some very large sums—very large indeed—which we reasonably counted upon receiving in the course of this year we shall not receive. That does not mean that we shall not get them at all, but that we shall not get them in this financial year.

As a result of all these unfavourable accidents the deficit for this year, which the Chancellor of the Exchequer very roughly put at £250,000,000, after taking account of those appropriations in aid to which the noble and learned Lord referred and which entirely agree with him in thinking had better be put in our financial statements in a different form (I have never understood the reason for separating these recoveries, showing some of them as what they are, and allowing others to disappear in the reduction of certain Estimates)—I say that the deficit for the year, which the Chancellor of the Exchequer originally estimated at something round about £250,000,000, will be largely exceeded.

The actual amount of excess and the reasons for it will be contained in the Papers which will be shortly presented to Parliament and. which I am not in a position to anticipate to-day. And even when we have the Estimate it will necessarily be only a rough approximation. I am not able to anticipate the figures. All I can say is that there will be an increase; in fact, as the noble Lord has already pointed out, there is already an increase. But that increase will, to a very large extent, be due, not to increased expenditure, but to deferred receipts which will come to us in the following financial year.

That is, broadly speaking, the position. It is a position which is regrettable, though I do not admit that it is due so much to any neglect on the part of the Government as to changes of circumstances over which we have no control. But though the position is regrettable it really is not catastrophic. That with the return of normal conditions revenue must be made to cover expenditure and to provide besides for a substantial sum for a reduction of debt is, of course, axiomatic. I do not admit for one moment that there is any possibility of our doing anything else but providing fully for our expenditure every year on a return to normal conditions, and doing more than that—commencing the reduction of debt. But I say "normal conditions." The conditions of this financial year are one hundred leagues from normality. The conditions of the second half of the year would be very much nearer to normal than those we have had hitherto. The process of moving towards normal expenditure will now, barring unforeseeable fresh disasters, be rapid and progressive; but I really am not prepared to say that even next year you will not have some overlap of war expenditure, or that within next year the position will be one which you could describe as normal. But it is surely clear that the only reasonable way of regarding the deficit of the financial year which will terminate on March 31 next is to look upon it as part of our war burden due to the liquidation of commitments which were the direct result of the war.

There is a good deal of speculation— the point, of course, is of capital importance —as to what the war burden will ultimately be. I see the figure of £8,000,000,000 constantly quoted. I cannot say whether that is or is not accurate, though personally I dare say it is not far from the mark. But that is gross debt. People who talk as if our permanent war burdens were to be £8,000,000,000 make a number of assumptions, some of which are certainly wholly wrong. I am speaking now of the position at the end of the present financial year. The estimate that our real burden of debt will be £8,000,000,000 is based upon the assumption that we shall have no more war assets coming in to us from the sale of surplus material, and otherwise; that we shall get not one penny of the £1,600,000,000 which is due to us from foreign countries or of the nearly £200,000,000 which is due to us from the Dominions; and that we shall not get anything whatever out, of Germany. Some of those assumptions are certainly wrong. It is certain that we shall have several hundred millions still to receive next year from the liquidation of war assets; indeed, the receipts from that source will be larger next year owing to the fact that some of the assets on which we had counted this year will be realised much later than was expected. All these debts from our Dominions may certainly be regarded as good debts. When you come, of course, to the two items of debts from foreign countries and recovery from Germany, the amount is more speculative; but it surely is preposterous to suppose that, while we are to pay (as we are going to pay) what we owe to foreign countries to the last penny, foreign countries are going to default in toto in their obligations to us. How can we suppose such a thing as that? It is an insult to the great Allies with whom the principal indebtedness to this country rests.

Now as regards recovery from Germany. I was one of those who always protested against what seemed to me to be the extravagant expectations which were at one time formed—which it was fashionable to form—as to what we might get out of Germany. I remember the talk about her being made to pay the last penny of what we had expended in the war. But as much as I disbelieved those extravagant estimates as to what we might get, so I utterly repudiate the equally extravagant assumption that we are to get nothing at all. I do not for a moment regard that as within the bounds of probability. It may be that we shall be rather slower in receiving than we at one time expected, but I do not believe that we shall not receive a substantial contribution towards relief from the burden of our war debt through what Germany may be able to pay us and through what she has acknowledged by treaty she is bound to pay us.

According as things turn out worse or better, the ultimate burden may be far greater or far less. I do not know that it is really any use attempting to speculate at the present time about the exact amount of it. It may be £7,000,000,000 or £6,000,000,000, or perhaps less; who can really say? But whatever the amount it is, of course, a staggering figure. Yet there are a number of considerations which ought to lead us, not indeed to minimise its gravity—I do not want to do that—but not to let it frighten us out of our wits. There has been no time in all the 230 years that we have had a National Debt, when a great and sudden increase in that National Debt has taken place, at which people—not only ordinary people but economists of great repute—have not been found to come forward and predicate that it was utterly impossible for the country to bear it.

The statesmen of 1816, confronted with a Debt of £900,000,000, might well have thought that their problem was insoluble, when there were men actually living and still in the vigour of life who could remember the debt at £130,000,000; and the problem which confronted the statesmen of 1816 was greater than ours. The taxation was regarded as absolutely crushing. The literature of the time is full of references to it, and it was crushing on the great mass of the people, though certainly the rich escaped much more lightly than they do to-day. I say that the statesmen of 1816, with a burden of taxation which was absolutely crushing upon the mass of the people, had to face a debt of £900,000,000; and what was their tax revenue? It was £65,000,000 in 1816, and it was £54,000,000 in 1817, with that burden of £900,000,000 of debt. That is as one to sixteen. Today, our revenue from normal sources—I am not thinking now of the temporary sources of revenue like the Excess Profits Tax, but I mean the great items which are permanent pillars of our revenue like Customs, Excise, and Income Tax—is in the region of £700,000,000. Possibly, at an unfavourable estimate, it is as one to ten, compared with—

LORD BUCKMASTER

May I suggest that they do not exceed £600,000,000 on the figures published? I am simply referring to the Returns relating to the Financial statement of 1919–20. [LORD BUCKMASTER handed the White Paper to the noble Viscount.]

VISCOUNT MILNER

The total receipts from taxes as shown here for the year 1919–20 appear as £940,000,000.

LORD BUCKMASTER

And£300,000,000 are from Excess Profits Duty.

VISCOUNT MILNER

Yes, £300,000,000 are from Excess Profits Duty. On these figures the noble and learned Lord appears to be right; but, nevertheless, I think there has been some increase in the rate of taxation, some material increase under the head of Excise, since these figures were issued, and with that and the increase of Income Tax to the present rate, I believe the noble and learned Lord will find I am right in saying that £700,000,000 is the yield of our normal taxes at the present rate in the coming year. I am rather hampered at this point by my uncertainty as to the figures which will be put forward by the Chancellor of the Exchequer next week.

LORD BUCKMASTER

I feel that I owe an apology to the noble Viscount for having interrupted, but I thought the amount was substantial. The reason I did so was that the Chancellor of the Exchequer said he was disappointed in the returns of revenue, not that they were increasing.

VISCOUNT MILNER

I should like to deal with that point. When the Chancellor of the Exchequer said he was disappointed with the returns of revenue he must have been thinking of the total of £1,200,000,000, including exceptional receipts. The noble Lord behind me says that the Chancellor of the Exchequer was not referring to tax revenue; and this is my point, because it is a matter on which I happened to make particular inquiry in the last few days from the Revenue officials. What they tell me is this—that though, as I have already stated, there are certain receipts, not revenue at all, which we expected during this year but which are going to be thrown over into next year, and though the Excess Profits Duty is now expected to show a less return this year than was estimated, what I call the normal items of revenue, Excise, Customs. Income Tax, were buoyant, and that, unless some complete change comes over the situation within the next five months, they will show at the end of the year appreciable increases over the estimates. That is a very encouraging fact and one of very great importance.

I was always taught by my masters in finance in old days—and they were some of the most eminent of our public economists—that the real danger point for which to look in taxation was when an increase of the rate of taxation no longer produced a correspondingly increased return; when your last penny on the Income Tax, for instance, did not yield so much as the pennies previously imposed, or rather when the penny of the Income Tax, after the rise in rate, was not so productive as before. What is our position in that respect? Every penny of Income Tax in the year before the war produced, in round figures, £3,100,000. Last year every penny of Income Tax produced £4,100,000.

VISCOUNT MIDTLETON

The noble Viscount does not call that a normal year. It is not a normal comparison.

VISCOUNT MILNER

This year it is estimated that every penny of Income Tax will produce even more than that.

VISCOUNT MIDLETON

That takes in the whole of the Excess Profits as well.

VISCOUNT MILNER

I am quite aware that we are dealing with counters. The pound sterling is not what it was before the war, but had it not been for the immense rise in the cost of everything our Debt would not have been £6,000,000,000 or £7,000,000,000; it might have been £3,000,000,000, or £4,000,000,000. Then, the goods by which the interest on that Debt is really paid have increased in value in something like equal degree, and that leads me to make one observation with regard to prices, a point of very great importance in all our forecasts as to the burden of debt and revenue.

I should regard artificial attempts to bring down the general level of prices—I am not speaking of the exceptional gains of profiteers, or of profiteering, which ought to be suppressed like any other form of robbery—but I think that any attempt by artificial means to bring down the general level of prices, not that I believe it is practicable, might have a very disastrous effect. That a gradual fall of prices resulting from the multiplication of goods is an unmixed blessing I certainly believe, but I am not equally convinced that a sudden or rapid fall of prices brought about by artificial means would be otherwise than unfortunate. It would certainly involve us in a struggle for reduction of wages, which might well result in revolution; on the other hand it would reduce the value of all the goods with which we really pay the interest on our Debt, while the amount of the Debt itself would remain the same. We should reduce the value of the goods by which we pay our Debt while the amount of the Debt itself would be unaltered. I am speaking now of a sudden rise—not that I anticipate it—in the value of the pound sterling. If that rise is gradual it will not have the same disturbing consequences, because it will leave room for a number of financial adjustments, and among others probably bring about a reduction in the rate of interest which would enable us by conversion to lighten the burden of our Debt.

The noble and learned Lord went at some length into a consideration of various exceptional measures by which the burden of debt might be lightened, and the noble Lord behind me dealt also with the same point. I have listened with the greatest interest to their suggestions, and especially to what was said about the possibility of a special levy upon the increases of wealth due to the war. I admit that of all the proposals which have been put forward this is the one which seems to me to deserve most sympathy in principle. It seems, in principle, only fair that people who very often by no effort, and often no desire, of their own have become enormously enriched as the result of the war should be called upon to make a special contribution to reduce the burden which the war has placed upon the shoulders of the whole community. Whether, when you come to look into it, the execution of that principle would produce such inequalities and would threaten us with the commission of so many individual acts of injustice that it might have to be abandoned, I am not prepared to say. But I do say this, that the project is one which deserves the most careful study and consideration, and I agree with both the previous speakers in thinking that of the various special expedients which have been discussed it is the one most worthy of all respect.

About all these projects I should like to say this, and I believe it to be the counsel of wisdom for to-day. By all means let us study them, and study them with the most unprejudiced mind, but do not let us rush into them like something that must at all costs be done at once or else the leavens may fall. The wolf is not at the door. We have plenty of means to meet our immediate requirements. If we do adopt any of these forms of raising revenue, I trust it will be because we are convinced that it is desirable to adopt them in order to effect a fairer distribution of the burden, and not because we feel that we are obliged to snatch at more money anywhere, anyhow, because we cannot get on from day to day. One thing I feel certain about, and that is that, whatever we do, we should make up our minds that we cannot and must not draw any more from the pockets of the lower grade of Income Tax-payers. By lower grade I mean those below—shall I say?— £1,500 a year. I believe that there is no class of the community which has suffered more in consequence of the war than that to which I refer, especially in the case of people who have small fixed incomes which they may not be able to increase by any means, such as pensioners, widows, and others in that position. There are, I am convinced, innumerable cases of privation and real penury in this class of the community. The same is the case with the small earned incomes of the professional and commercial classes, especially in the case of men who have large families to bring up and to educate. These are matters which I assume are receiving the careful attention of the Income Tax Commission, and I think we ought to await the result of their labours before coming to a conclusion upon this point, or indeed upon any of the points to which I have referred.

I have only one more remark to make. In all these questions, whether of the control of expenditure or of new methods of raising revenue, I think that the dominating consideration must always be the effect, upon national trade, national enterprise, and national output. Increase output, alone is going to see us through our difficulties, as it saw our forefathers through theirs. I am sometimes alarmed, in these, days of necessarily severe economy, lest we should be tempted to cut down something which is essential to greater production in the future. I am terrified by suggestions about saving on Education, about saving on Scientific Research, and about saving on the promotion of the National Health.

LORD RUCKMASTER

Hear, hear.

VISCOUNT MILNER

I go further and say. in regard to this violent crusade against staffs, that though there have been enormous swollen war establishments which you cannot reduce too drastically, I could point to not a few staffs which could be actually increased to-day, and which ought to be increased in the interests of economy itself. What worries me most is not the thousands of millions which we owe to ourselves but the much smaller number of millions which we owe to other countries. The figures that I always study with the deepest interest are those showing the balance of our trade with other countries. Here let me say that, anxious as the consideration of those figures makes me, I nevertheless, considering all the troubles we have had during the last few months, cannot regard those figures as otherwise than indicating a great and growing activity of our trade and industry which, unless some new catastrophe comes to stop it, is I believe likely to lead to a very great, improvement in our economic position.

What worries me most of all is the spectacle of the waste, not of counters but of real wealth, involved in our per- sistent unscientific use of our raw materials. We bewail the reduction of our output of coal, but we might get double the value out of even the reduced output if we could only learn to make a better use of the coal. In the development of electricity, of wireless, of new forms of transport, of new science of the air, I believe there are many prospects of increased wealth for this country. More than that, there is a mine of wealth very little appreciated at the present moment in some of our Colonies and Protectorates if only we develop them with greater energy than we have done in the past.

I believe that there is great danger in our getting into the frame of mind of regarding ourselves as a poor country. We have some years of greatest difficulty before us. There is all the need in the world for the utmost economy in the sense of the prevention of genuine waste, but we are not yet a poor country, or a poor Empire. Potentially this country, and still more this Empire, is immensely rich. We may fail to make use of the magnificent opportunities of increased production and economic recovery which are undoubtedly under our hand. We may fail through laziness or incompetence, or, worse than either, through domestic discord, or, worst of all, through loss of heart. Why should we lose heart? Do not let us as a House at any rate encourage it. I, for one, refuse to believe that the great, unbreakable spirit of this country which has carried us victoriously through the greatest of all wars will founder in the rough but not unnavigable sea of our economic troubles.

LORD EMMOTT

My Lords, I venture to suggest to your Lordships that this debate may well be continued when we have in our possession the figures promised by the Chancellor of the Exchequer therefore move the adjournment of the debate.

Moved, That the debate be now adjourned.—(Lord Emmott.)

THE LORD PRESIDENT OF THE COUNCIL (EARL CURZON OF KEDLESTON)

My Lords, like my noble friend who has just spoken, I have been a little disappointed at the small number of speakers who have been willing to address us to-night, all the more so that the noble and learned Lord opposite was so insistent upon the urgency of this question that he declined to delay its submission to us even for a day.

LORD BUCKMASTER

That is really not what occurred.

EARL CURZON OF KEDLESTON

It is, at any rate, the impression conveyed to me of what occurred. I think the appeal made by my noble friend below the gangway (Lord Emmott) is a reasonable one, even though it is rather early in the evening. I appreciate the desire of the House to resume this discussion at, the moment when your Lordships have in your possession figures which are not now available. I understand that in another place Papers are to be laid on Monday next, and that it is contemplated that a financial discussion should take place in that House at the earliest on Wednesday of next week. I think it would be desirable, at any rate, that we should not resume this discussion here until we have the papers, or until after the discussion in another place. I do not know whether the noble Lord has any idea of the date to which he would wish to adjourn the debate, or if he wishes to adjourn it without mentioning the date.

LORD EMMOTT

I hope that the adjourned debate will not be taken before next Wednesday. Any date after next. Wednesday would be equally convenient to me. I should like to consult the convenience of the House generally. Could it not be put down for Wednesday and then be postponed if that day should prove inconvenient?

LORD BUCKMASTER

I do not wish to enter into any controversy on a matter about which it is easy to be misunderstood, and it is no use discussing why it was that I desired this Motion to come on to-day. There was to my mind very good reason why it should do so, and there are equally good reasons in my view why this debate ought not to be postponed until after the debate in the Commons. I think we should understand why it is that this House should be regarded as incapable of expressing its own independent views upon this Motion, and why we should always have to wait until after the House of Commons has debated the matter. If there was one thing that I understood noble Lords were more concerned about than another it was that they should not wait to express their own views until after a debate has taken place in the House of Commons. I want to know why we are to do that now.

EARL CURZON OF KEDLESTON

I should be the last person to suggest to your Lordships that you should take second place to the House of Commons in any matter whatsoever. I was merely thinking of the convenience of your Lordships' House. You have heard a very important statement from my noble friend this afternoon, and it is quite clear that when discussion takes place in the other House you will hear the views of the Chancellor of the Exchequer and other authorities speaking for the Government, and I own that I thought it would be entirely for the convenience of your Lordships that you should resume this debate at that date. If you do not wish that, but desire to pursue the discussion immediately the Papers are available and without waiting for anything else, I am at your Lordships' disposal. I will only suggest to the noble Lord below the gangway that, having himself moved the adjournment of the debate, he should name a day for its resumption.

LORD BEAVERBROOK

My Lords, it is not my desire to take up the time of the House. I came here anxious to support the noble and learned Lord in the Motion that he has brought before your Lordships. I want to address myself to the proposal for the taxation of war fortunes, and I should like another opportunity of continuing the debate, particularly when we have the figures of the Chancellor of the Exchequer before us. For the present I wish to say that, while I listened to the very optimistic statement of the noble Viscount with interest, I do not agree at all with the conclusions that he has drawn. I feel that the statement of the noble Viscount is entirely inconsistent with the figures of the financial position in which the country finds itself at the present time. In particular, the noble Viscount said that—

Several NOBLE LORDS

Order! Order!

LORD BEAVERBROOK

In particular I want to say, in relation to—

LORD HARRIS

I beg to call the noble Lord's attention to the fact that the Motion before the House is the adjournment of the debate, and not the Motion of the noble and learned Lord who sits in front of him.

LORD EMMOTT

At the invitation of the Leader of the House, I beg to move that the debate be adjourned until Wednesday next.

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