FINANCIAL POSITION OF THE COUNTRY.

HL Deb 29 October 1919 vol 37 cc59-117

Debate upon the Motion of Lord BUCKMASTER, "That in the opinion of this House it is essential that further taxation should be instantly imposed," resumed (according to Order).

LORD EMMOTT

My Lords, the figures that have been presented by the Chancellor of the Exchequer to the country since the adjournment of this debate last Thursday must, I think, have strengthened rather than weakened the impression conveyed to the House in the eloquent and impressive speech of the noble and learned Lord, Lord Buckmaster. The noble Viscount who replied on behalf of the Government, and whose speech was followed by all of us with great interest, made several points to which I want to refer very briefly. In the first place, he said that the financial situation was by no means clear because of the uncertainty as to certain large receipts which the Government will receive from the sale of surplus Government stocks. That, of course, is perfectly true. In the second place, he said that relatively to other great countries, with the exception of America and Japan, our own country is, comparatively, favourably situated. That remark gave me a very modified amount of satisfaction. Among those other great countries are several who are debtors of our own. All of them are countries with which we hope to do trade. If their financial position is so much worse than our own it will be obviously very difficult for them to pay the money they owe, and it will be very difficult for them to buy from us the goods we desire to sell.

In the third place, the noble Viscount said that trade was recovering in this country with amazing rapidity, and that if we could avoid serious industrial trouble, and rash finance, there was no reason why we should despair of the future. In regard to that observation I should like to say that I entirely agree with the noble Viscount. That being the case, he went on to deprecate all the talk of "bankruptcy" and of our being a poor country. I feel bound to remind him that if he desires to deprecate the use of that word he ought to have done so to his own colleague the Chancellor of the Exchequer early in August. I must remind him of the quotation from the Chancellor of the Exchequer's speech which Lord Buckmaster read to the House. The extract is as follows— If we continue spending at the rate we are spending now it will lead us straight to bankruptcy, and there cannot be any doubt about it. If we cannot increase production beyond what we are producing now we shall go to national bankruptcy. The Chancellor of the Exchequer is now moving in another place a Resolution which, in effect, states the urgent necessity for retrenchment at the present time.

Finally, the noble Viscount said, in regard to wasteful expenditure, that if there was any Minister who was not alive to the necessity for taking drastic steps, he did not know him. I am perfectly certain that the noble Viscount was absolutely sincere in that observation, and I have no doubt there has been a good deal of shaking of heads in Ministerial rooms over the financial position of the country, But it is not a question so much of wasteful expenditure, according to Ministerial standards; it is really a question of what the country can afford to spend, and whether we are not going beyond that point.

May I state briefly to the House what seems to me to have been the feeling of responsible men in regard to the action of the Government during the period between the Armistice and August last. Immediately after the Armistice the country was plunged into a General Election, and as a preliminary to the General Election an out-of-work donation was granted. That donation was at such a high figure that it was subsequently reduced. Up to September 26, £37,000,000 had been paid on that account, and the amount paid for the week ended September 26 was £494,000. The total which it is estimated will be paid for the financial year is £42,500,000. Whether we shall keep within that sum I am not at all sure.

The bread subsidy was then and is still in existence, costing the country £50,000,000 a year. During the course of the Election a huge housing scheme was adumbrated of unknown cost. The first figure I have seen as to its cost is an item in the White Paper of £10,000,000 a year. That this scheme halts so strangely as it does shows how little it has been thought out by the Government. We were also told that the country should be made "fit for heroes to live in"; as if that were to be done by perorations. The whole atmosphere at the time was saturated by recommendations for fresh and new expenditure, instead of being filled with warnings of the necessity for retrenchment and insistence on the danger of our position unless every one did his best and worked hard to make it better. Ministers knew that the world was poorer. They knew the danger of the increased competition that we shall have to meet from America and Japan, and I believe from India. All this atmosphere was made worse by fostering the idea that some of our financial difficulties would be relieved by the receipt of huge indemnities from Germany. The noble Viscount disclaimed any responsibility for fostering that idea, and I am glad to be able to say that I know of no single word he has said which has done anything to foster it. But that cannot be said for many of his colleagues.

Then came the natural sequel to all this. After this atmosphere had been created there naturally arose demands for increase of wages. Some £50,000,000, I believe, was obtained by the railway men—I do not know the exact amount. Afterwards came the coal miners, and £43,000,000 was granted to them—and granted on the understanding that it was not going to cost the country anything, according to the first Sankey Report. Instead of that, what has happened? We have already paid in hard cash £26,400,000, and in addition we are all paying 6s. a ton more for the coal we use. In the meantime the Estimates had been presented to the House of Commons, and amongst them there is one which I have never been able to understand. How is it, if the Government were anxious to stop wasteful expenditure, that they allowed an estimate of £66,000,000 for the Air Force for this financial year. The Army Estimates have already proved to be grossly under the mark.

I do not want to say for a moment that all this expenditure and increase of wages could have been avoided. I do not say that. But I do say that the whole situation was treated with a light heart, and that these huge increases to the liabilities of the country were undertaken without due thought as to how the money was to be provided. The feeling of responsible people in regard to these matters was one of alarm at the spendthrift course of the Government. Your Lordships were early in the field. There were debates in this House on the question, and Lord Wittenham has reminded us that the Loan which was issued during the spring was relatively a fiasco, because people who had money to loan asked what was the use of giving their money to a Government which was pursuing such a spendthrift course.

Very late in the day—the Press is not always as previous as it imagines—the Press became alarmed. In August Mr. Chamberlain made his alarming speech. In the meantime the Prime Minister had returned from Paris and had taken a view of the situation. We have had other Prime Ministers in this country who were said never to look at the Press. That cannot be said of our present Prime Minister. And when the Press attack had made sufficient impression upon him, something was done; but it was only when summer was verging towards autumn that the situation was taken seriously by the Government. I am quite sure that the noble Viscount was quite sincere in all that he said to us the other night, but I must remind him that he has colleagues at the head of spending Departments with no Treasury experience, no business training—and some of them have probably never had a moderate-sized estate of their own or belonging to anybody else to look after. It was not until the Press campaign had roused the Prime Minister that effective steps were taken. That is the feeling of the thoughtful man in the street, and that is why we are anxious for something more than assurances at the present time.

I have said enough about the past, and I want to come to the future, which is what really interests us. There are two points that seem to me to demand immediate attention. In the first place it is absolutely essential, if we are to pay our way as a nation, that our exports should be increased from their present value of roughly £70,000,000 per month to something like £90,000,000 or £100,000,000 a month. I do not think any less sum than that will, with the profits we are making on our shipping, with our re-export trade, and any balance of interest we may receive from overseas, balance the foreign trade of this country. The second point is that we want to raise sufficient revenue to meet our post-war expenditure from this moment, be it normal or abnormal. Until our exports pay for imports it is obvious that our Exchanges cannot be righted, and London can never again become a free gold market until that happens. Until our revenue is made to cover our expenditure we must go on borrowing, and interest must remain high. Unless both those things are done the position seems to me perilous.

As to the first question, the balance of our overseas trade, I was delighted to hear from Lord Milner that he watches that question with great interest and attention. I have, however, heard from other Ministers, both in public and in private, observations which make me suppose that they imagine that something serious can be done to stimulate our export trade by inducing our merchants to give attention first to the export trade and secondly to the home trade. Nothing can be done in that way. There is only one way in which our export trade can be stimulated and increased, and that is by our providing a sufficient quantity of exportable commodities; in other words, increasing our manufactures.

We have heard something of late about unemployment figures. I was very much surprised, but greatly pleased, to hear a few weeks ago that the actual number employed in this country was 200,000 more than the number employed before the war. At the same time there is another million who do now or very soon will require employment, and for whom no employment is at present available. That arises from the fact that many people who have hitherto lived upon their incomes now find those incomes at present prices to be insufficient, and who are driven into finding employment. Secondly, it arises from the fact that there has been no emigration during the last five years from this country; and therefore we have, in spite of the war, relatively a surplus population of a million on that account.

In spite of there being a considerable amount of unemployment, it is a fact that many producing industries are unable to find the workmen they require. In the cotton trade in Lancashire, at the present time, the number of looms stopped because they want weavers is something between 10 and 30 per cent. in different places—an average of from 15 to 20 per cent. If weavers could be found for all those looms they could be employed. There is an endless demand for the commodities produced by these looms. Trade is extraordinarily good, and the surplus amount produced would all be sent abroad and help to swell the exports, and so help to make the balance of trade which we all desire to see. In fact, about the condition of trade at the present time, I stand rather in a white sheet. I was very pessimistic about the future, and I am glad to see that the demand for goods is so great, and that prices have been kept up. There is the chance of centuries for this country if only the workpeople would set to work with a will and produce materials.

Manufacturers have another trouble. They cannot get new machinery quickly. A long time is required for delivery; and dealing with textile machinery I think I am correct in saying that a great many textile machine manufacturers will not quote any firm prices. They say that allowance must be made for any necessary increase between the time of the order and the time when the machine is delivered That does not help business. But the most serious feature of all, the most serious deterrent—I will only mention it—is the fear of labour unrest. Labour, fed by the utterances of certain extremists and misled to some extent by the atmosphere which I have described as prevailing a few months ago, seems to imagine that without working hard everything will be all right and they will get their present wages. My Lords, I believe in the essential soundness of the great bulk of the working classes. I hope that that is a passing feeling, and will soon go away, but I do say that the situation at present is anxious. If things do not settle down industrially I am afraid that this country's number may be up, and that the glory of the British Empire may have departed. Why have we not at the present time some potent voice amongst us which can convince the country of the obvious truth of what I have been trying so imperfectly to say?

I turn to the other point—the urgent and immediate task before us of reducing expenditure within our revenue. I hope the Government will explore at once the possibility of dealing with capital accumulations during the war which have not already been taxed for excess profits. I believe that on every ground it is desirable that the matter should receive careful consideration. Difficulties, of course, I know there must be, and I am afraid they may be serious, but I can only express the hope that they will be surmounted, for I see no other source of special relief so much in accordance with justice as that would be. I think this question of the taxation of war profits is urgent in point of time. The other more heroic measures of a Capital Levy or Forced Loan ought to wait. Before they am considered at all seriously I think we must balance revenue and expenditure, and see where we stand.

Since the noble Viscount spoke on Thursday last the figures to which I have alluded have been published. I cannot feel the surprise expressed by some people as to the nature of those figures. The course of the Government up to August last made those figures extremely probable. After all, we must be frank about these matters. If you have a brilliant talker who loves the limelight and imagines himself a great strategist at the War Office you will not get economy there, and your Estimates will be exceeded, as has happened this year.

There are a good many questions on this year's Accounts which I should have liked to ask, but I am afraid to detain your Lordships. The House of Lords is not and never has been a place where one can get detailed answers on matters of that kind. To pass on, therefore, to the other White Paper in which is given a very tentative estimate of the figures of the normal year's revenue and expenditure, the year seems to me to be so normal as to be even humdrum, and I cannot imagine that we are going to have a humdrum year so long as the present Government remains in office. But as to the estimates of receipts, if I may express an opinion, I think they are really fairly reliable. I am quite aware that there are considerable discrepancies between those figures and the figures presented to the House by my noble and learned friend (Lord Buckmaster), but I think in his figures he did not estimate that in a full year there were certain extra receipts expected both on Inland Revenue Account and on Excise Account. He did not know, as none of us knew, that the Excise and Customs figures for the year so far had been largely exceeded—that the receipts had largely exceeded expectations —and he allowed for the total stoppage of the Excess Profits Tax. While trade is in the general condition in which it is in this country I sincerely hope that the Government will not drop the Excess Profits Tax. I do not believe that financially they can afford to do it, and I think on political grounds it is most advisable to retain it. I am not sure that by reducing it to 40 per cent. they have not brought it rather lower than they should have done.

But when I turn from the receipt side to the expenditure side I am afraid that the figures are very unreliable. It is admitted that they are tentative—very tentative, in fact. I do not understand the figure of £360,000,000 for the National Debt. That is the figure for this year. The figure for next year must be rather more than that. What it may be in the normal year suggested, of course it is impossible to know, because we cannot tell how much we may receive from our Allies. I presume that we shall get all that the Dominions owe to us, but we do not know yet whether we shall receive anything from Germany. I admit that it must be a guess figure, and cannot be a reliable one, but when we come to the Army and Navy and see a figure of £135,000,000, I am afraid that for the next few years such a figure must be rather more a pious hope than a reasonable expectation. In any case the figures do not help us as to next year, and it is vitally necessary that next year, making allowance of course for appropriations in aid, we should get our expenditure within our income. There can be no sense of security in business, no real hope for the future, until the Government stop borrowing, and there can be no chance of financing Floating Debt as satisfactorily as it ought to be financed until they stop all borrowing. So I venture to ask that the Government should begin at the other end of affairs, and decide what taxation the country can stand, and keep within it, allotting the amount amongst the spending Departments according to what is right and reasonable.

I do not in any way pose as a financier, but I believe that the country is perilously near its extreme taxable capacity. We may raise—I think that we shall have to raise—another £100,000,000 a year, but I very much doubt if we can raise £200,000,000 without doing a great deal of harm. To continue the rake's progress of the first six months of this financial year would, I think, be intolerable. There is much misconception on this question of taxable capacity. Labour, I understand from what I read of the speeches of its leaders, professes to believe that the Super-Tax-payer still remains a source of endless wealth who can be taxed unendingly without deleterious effects to the country. I have been looking at the figures which are presented in Command Paper 224 of 1919. Those figures give the actual incomes for the last financial year on which people paid Income Tax. They also show the assessment for Super-Tax for this year. Dealing with those Super-Tax figures, we see that the total amount assessed for Income Tax and Super-Tax was £417,000,000—and remember those are the figures on which the Super-Tax is being assessed this year. The amount of Income Tax and Super-Tax paid by the recipients of that income is £163,000,000, leaving to them for expenditure purposes a net sum of £254,000,000.

I am going to make an attempt to compare those figures with the figures before the war. In the year before the war the figures with the £3,000 datum line for Super-Tax purposes were £245,000,000. To make those figures comparable with the present figures which start from a datum line of £2,500 per annum, I think you must add about £40,000,000. I am certain that that figure cannot be far away from the fact. That makes a total of £285,000,000 as the amount assessed on incomes exceeding £2,500 per annum. In the last year before the war the amount of taxation, so far as I remember, was 1s. 8d. in the £. Therefore the total tax paid was about £25,000,000. The result is that they received in net income £260,000,000 compared with the £254,000,000 being received by the Super-Tax payers at the present moment net after the payment of Income Tax and Super-Tax. If those figures are correct—and I shall be glad to be informed if they are not—there is an actual reduction in the net amount received by the Super-Tax-payers after payment of taxation at the present time compared with what was the case before the war, although the gross amount they received is very much larger.

In the same five years the remuneration of labour has, I am happy to say, increased by £800,000,000 to £1,000,000,000 per annum. I rejoice in that increase. But mark the difference between the position of labour as regards net income and the position of Super-Tax-payers. It proves at any rate the point that I am trying to make, that Super-Tax-payers do not possess unlimited wealth which can be unendingly taxed, as the Labour Party seem to believe. This is a matter of importance because it has a great bearing on the factor of savings. It also has an important bearing on any heroic measures for the reduction of our enormous National Debt, The Income Tax and Super-Taxpayers in the past have been the great reservoir of saving in this country, and saving, my Lords, must be as necessary for this country, in the future as it was in the past, for saving provides the capital to give increasing employment for our growing population and to improve the condition of the working classes. Before the war it is calculated that this country saved about £400,000,000 a year out of its income. Nearly all that sum—not quite all of it—came from Income Tax-payers, including Super-Tax-payers; and we must bear in mind that when matters have settled down in this country there must be some possibility of saving or it is impossible for the country to progress. Otherwise it will be impossible to find employment for our workers. To imagine that to transfer everything from the saving to the non- saving classes would help the State or the workers themselves, is about the greatest hallucination that ever entered into the brain of man. To tax Income Tax-payers out of existence would recoil just as much on the heads of the working classes as it would on the heads of the Income Tax-payers themselves.

I believe we are pretty near the limits of possible fruitful taxation, and that is why it seems to me so essential to retrench and to exercise ruthless economy. I want to say one word upon the question of those heroic measures to which I have alluded, by which I mean either a General Capital Levy or a Forced Loan at a low rate of interest. I agree entirely with my noble and learned friend opposite (Lord Buckmaster) as to the demerits of the General Capital Levy. I believe it would be a bad precedent. I believe it would work out very unfairly as between individuals. A Forced Loan at a low rate of interest or a levy on the basis of the present Income Tax assessment would be equally liable to the charge of being a bad precedent. At the same time there is one immensely strong reason for reducing the National Debt if we can, and that is that it was borrowed at high prices; if we can pay off some of it now at high prices we can pay it off with far fewer commodities than we should be able to do ten or twenty or thirty years hence.

It seems to me a very difficult choice to make between continuing a very high rate of Income Tax for many years and making some desperate effort to lessen our Debt. The question is, Which would be likely to be the most crippling to industry? I sometimes wonder how far the advocates of a General Capital Levy have ever tried to look into what it really means. The idea, of course, is that if the Debt were greatly reduced Income Tax should be concurrently reduced also. So it is said "It is as broad as long. Why not pay off that capital and you will be charged so much less Income Tax? You will be very much the same as you were." At the present time it is obvious that £1,000,000,000 of National Debt means about £50,000,000 for the service of the Debt. That £50,000,000 is just about exactly 1s. of the Income Tax, because each penny of the Income Tax brings in £4,100,000 or £4,200,000. But the total proceeds of Income Tax and Super-Tax at the present time for the whole year are £354,000,000. It is therefore quite plain that if we made an effort to pay off £1,000,000,000 of the National Debt—and it must be paid off, remember, by Income Tax-payers and Super-Tax-payers, there is nobody else to do it—it would mean an extra assessment for the year of three times the present Income Tax. Therefore the total levy of Income Tax plus this extra levy would be 24s. in the £ for those who do not pay Super-Tax and 40s. in the £—double their income—for those who do.

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

To realise what sum?

LORD EMMOTT

£1,000,000,000. It is three times £354,000,000. If, on the other hand, a more heroic effort was made and it was attempted to pay off £3,000,000,000 of the National Debt, then, instead of the assessment being four times it would be ten times the present Income Tax. In other words, for the man who does not pay Super-Tax it would be three times his whole income of one year, and for the man who pays at the higher rate of Super-Tax it would be five times his income of the whole year. That is a pretty big operation. It might not matter to many men-who have realisable securities—it might be no disadvantage. But I believe it would mean permanently crippling many of the most prosperous businesses in the country, if it were carried out quickly and ruthlessly.

Still, there is this difficult choice before the country some day or other—either the Income Tax must remain at something like this very high figure, with any increase that may be necessary in the immediate future and the probability of a burden of increasing debt as prices fall, or this unpleasant surgical operation to which I have alluded must take place. I maintain that we are not in a position at the present moment to decide on that particular point. I think we must first of all balance revenue and expenditure.

I am sorry to have detained your Lordships so long. I want to say one or two words in conclusion as to the Motion. I agree with the Motion in principle. If more taxation is needed, I think the sooner it is levied the better. Whether such Resolutions coming from your. Lordships' House are of much avail, I leave it to other members of your Lordships' House who have more experience than I have to decide. But I do say this. Whatever is decided here and in another place, where a similar discussion is going on, I hope that these discussions will show the Government, first of all, that a great many responsible people are alarmed and anxious at the spendthrift course of the Government in the past; in the second place, that the nation as a whole is ready for further immediate sacrifice, if that is necessary; and, in the third place, that the nation looks to the Government to show that it realises the position, and looks to it also to bring home to all classes that it is not by hazy aspirations or poetic perorations that the future is to be secured, but that only by work, by thrift, and by sacrifice can we regain our old place in the world.

LORD FARINGDON

My Lords, I am of opinion that your Lordships are greatly indebted to the noble and learned Lord who initiated this discussion. Many of us more than six months a go urged the necessity for the strictest economy being exercised in every direction, and I do not know that our remarks were received quite in the spirit in which they were made. Although I believe there has been an honest attempt to cut down expenditure, we have not made the strides in that direction that the public, I think, had a right to expect, and I am not at all surprised that in the noble and learned Lord's speech the word "bankruptcy" crept in upon several occasions.

I do not, however, accept the noble Lord's view of the situation. He does not appear to me to have drawn a proper distinction between what I will call capital and revenue expenditure. We have been engaged in a momentous war, and money has been lavished upon it of necessity, and until the clearing up process is completed the capital account cannot be closed down. It would, to my mind, be just as unfair to insist upon revenue providing for much of the special expenditure which still has to be incurred as for the expenditure that has had to be met during the past five years. It is regrettable that receipts for what are termed "Miscellaneous" in the White Paper should have fallen so much below the estimate, but if, as the noble Viscount, Lord Milner, intimated, this falling off is mainly a deferment of payments and not due to a too sanguine view of values, this item will be made up next year or soon after.

What really most concerns me, and I think most of your Lordships, and I believe the country generally, is the future, when we shall return to normal conditions. It is the existing state of uncertainty that is harassing the community and is larely responsible for two things—the extravagance of living amongst certain classes of the community, and the large amount of currency notes in circulation. The cry of the extravagant is "Let us eat and drink, for to-morrow we die; let us have a good time while we can." And the small capitalist says, "If there is to be a raid on my savings they are less likely to be discovered if I have them in the form of notes that I can conceal if the necessity arises." I am afraid that the noble and learned Lord's suggestion as to the way in which an equilibrium can be brought about is not likely to diminish this feeling of uncertainty. He puts forward three plans for improving the situation. First, a general levy upon capital; second, a capital levy upon war profits; and third, an increased Income Tax. The first plan can, I think, be dismissed for three very good reasons. The figures put before us were intended to prove that there was need of an increase in our annual income. A Capital Levy would not do that; it would produce once and once only a large sum, but it is obvious that you could not go on with a Capital Levy year by year. Secondly, it would be unwise in the extreme to take from the capitalist his sinews of war, having regard to the fact that thereby the State would lose the 30 per cent. it now receives on the product of that capital. Thirdly, it would enormously diminish the earning power of the nation if its capital resources were diminished.

The second plan, to make a Capital Levy upon war profits, would no doubt be popular with a very large section of the community who naturally, I think, dislike the profiteer. But would it be fair to attack the profiteer now? The State made a bargain with him. It was quite open to the State at the time to say, "During the war we will take all the profits you make in excess of the pre-war figure"; but the State did not say so. The State said it would be content with 60 per cent., then with 80 per cent., and latterly with 40 per cent. The so-called "profiteer" has kept to his bargain, and to my mind it is too late to revise the situation. There is, however, a class of profiteer who has not paid his full share of taxation; he has earned a large income during part of the war time and he has now sold his business at an extravagant price. His income has been taxed, but his profit upon his sale goes absolutely free.

The third alternative is a large increase in Income Tax. Lord Milner pointed out that the measure of a good tax was to be gauged by its progressive productivity. So far the Income Tax has responded well, and it may be that a few more pence can be squeezed out of it—but I doubt it. It would greatly restore, I am certain, the feeling of security which is essential to business progress if the Income Tax-payer could feel that a maximum had been reached. The figures that have been placed before us in the White Paper alluded to by Lord Emmott must of necessity, notwithstanding what has been, be the purest of estimates; still we must remember that they have been prepared by a Chancellor of the Exchequer who has the knowledge that his previous figures were too optimistic, so I do not suppose he has erred upon that side on the present occasion. I mention this because I notice two rather important omissions from that statement —there is no bread subsidy, and there is no railway compensation. I hope that the omission of the latter is an indication el the intention to place the railways again upon a commercial basis. Assuming, however—as I think we have every right to do—that the statement is drawn upon conservative lines, we are justified in believing that the worst is passed and that the future, although difficult in the extreme, is not alarming.

I notice that the item for war pensions in the same White Paper is put at £20,000,000. That must be a diminishing quantity. Year by year the number of pensioners must decrease; therefore the £120,000,000 taken as a maximum will in following years be steadily reduced. I myself am very doubtful whether enough credit is given in the same statement in respect of interest upon loans to the Dominions and to our Allies. It is reasonable to expect that in a comparatively short time a very large amount of money will be received in respect of the loans that we have made. At an early date, I should imagine, we shall get it from our Dominions, and I cannot conceive it possible that our Allies will not at a comparatively early date begin to pay a considerable part of the sums which are due from them.

The noble and learned Lord, when he placed this Motion upon the Paper, had ample justification therefor; and no doubt the production of figures by the Government is to a large extent the result of his action. The noble and learned Lord's Notice had been down for some time, and the Government have known not only that this discussion would take place here but that a similar discussion would take place elsewhere. In the circumstances I hope that Lord Buckmaster will see his way not to press his Motion. While the necessity for bringing constant pressure in favour of economy is by no means removed, we have now received some assurance that existing taxation will enable us to get through our troubles. This should produce not a feeling of optimism but at any rate a sense of security which will make men devote their best energies to the righting of a difficult situation. I have found of late that there is more and more a disposition to consider that things are in such a hopeless condition that high rates of interest are being sought, not necessarily upon the best security, but it is constantly said, We shall probably lose all we have in one way or another, therefore let us get the highest rate possible for our money while we can." That feeling is entirely due to the sense of insecurity that is abroad in every direction at the present time. If that can be dispelled, then business of the most genuine order will be revived and, bad as is the position of this country, we shall pull through. We are a great and powerful manufacturing nation, and if you can restore confidence there is absolutely no reason why the troubles through which we are now passing, great as they are, should not pass away in a comparatively short period.

LORD BEAVERBROOK

My Lords, I, too, have come here to support the Motion standing in the name of the noble and learned Lord. When the noble Viscount addressed the House last week it appeared to me that he took altogether too optimistic a view of the position of our national finances. Since that tame the Chancellor of the Exchequer has issued his White Paper, and I think this White Paper is sufficient justification for the view I then expressed. I also think it is a complete justification for the Motion that has been put down in the name of the noble and learned Lord.

It has occurred to me that the systems of taxation which the House was invited to consider by the noble and learned Lord when he spoke here last week—three in number; first, a General Capital Levy; second, a Levy on War Fortunes; and third, an increase in Income Tax—cover the whole field of possible taxation. The noble Viscount, in his reply, made extended reference to the position a century ago in 1816. He said, I think, that the ratio of income to debt at that time was in the proportion of one to sixteen and that at present the ratio of income to the National Debt was one to ten, and I think he took comfort from the comparison. It does not seem to me that it is a subject for comfort when you take into consideration that a century ago the Income Tax was only 2s. in the £ against 6s. at the present time; and if the noble. Viscount carried the argument a hit further, it would be clear that if the Income Tax and other forms of taxation were increased at this time just double and if the return was just double the present return from taxation, the ratio of revenue to debt would then be one to five. That would not be subject for congratulation.

However, I do agree with the noble Viscount when he says that the wolf is not at the door, though I take a different line of reasoning in coming to the same conclusion. It is true that our national expenditure exceeds our revenue by a very considerable sum. The Debt has reached the enormous total of £8,000,000,000, but, unlike most other nations, that Debt is almost entirely a debt owing to our own people. The amount that is owing abroad is very small indeed, compared with the total figures which we have to face, and the real difficulty does not lie, in my opinion, in the very large National Debt with which we have to deal, but lies in the fact that tile revenue is so entirely inadequate to the basis of expenditure on which we have embarked. I quite realise that the Chancellor of the Exchequer, in laying down a normal balance sheet, sees some prospect of a time, at some future date, when our revenue will be equal to our expenditure. I am not very much impressed by the picture. I have found in business experience that estimates are always misleading, and the Estimates of Governments do not differ greatly from the estimates which engineers and others who engage in construction enterprises lay down from time to time. They are seldom lived up to; they are almost invariably exceeded. I have little doubt that the normal expenditure which the Chancellor of the Exchequer forecasts will not, be reached in our time.

Consequently, it seems clear to me that if we are to face the situation as it exists and not as it is estimated, we must make up our minds at once that additional taxation is necessary in order that the revenue may have some relation to the expenditure, and that until we do engage in additional taxation, until we do provide a revenue sufficient for our expenditure, we can have no hope of putting an end to the system of inflation which has been going on for the last five years. It seems to me that inflation is the real source of many of the difficulties, of much of the trouble, in finance with which we have had to contend. So the noble Lord proposes additional taxation. In his speech he dealt at length with three proposals. With the permission of your Lordships, it is my desire to address myself to one particular proposal—namely, that of the taxation of war fortunes.

I recognise that a Capital Levy is not an impossibility, but it is a method of finance which I believe ought, to be resorted to only in emergencies which are much greater than the difficulties we have to face at present, great as they are. Likewise, the Income Tax might possibly be increased, but increases at the present time appear to me to be most undesirable, because there has been such a rapid advance in the last five or six years that fixed incomes, moderate in amount, have borne rapidly increasing charges, and time must be given for readjustment and for the stability which, I am sure, is absolutely necessary to a readjustment of the national finance. There must be stability at some figure or other. Until stability is reached there can be no finality in the difficulties with which the national finance will have to contend. Until there is some opportunity for adjusting limited incomes to the enormously increased Income Tax in the last few years and also a stability of prices which will give the earners of these small incomes to understand just what are their obligations and what are the resources with which they have to meet them, there ought not to be any further increase in the Income Tax.

I realise that in the Super-Tax there is opportunity for some considerable, increase in income. The Super-Tax at present is imposed on men with incomes in excess of certain figures and imposed on the money actually received by them, but in addition to the money they have received from the corporations in which—

THE EARI OF CRAWFORD

Not actually received.

LORD BEAVERBROOK

On incomes received by them. The Super-Tax is imposed on the incomes received by them.

LORD EMMOTT

The gross incomes.

LORD BEAVERBROOK

That is so—the gross incomes, after deducting the Income Tax; that means the net incomes, of course, because the Super-Tax is not payable at the source. It is imposed on the incomes received by them.

A NOBLE LORD

Gross incomes.

LORD BEAVERBROOK

On the gross incomes. That is my point. I am talking only of the imposition of the Super-Tax, but a certain proportion of the income has first been subject to taxation at the source. Of course, I see that, and I am much obliged for the correction. There was really no confusion in my mind, but confusion in my speech. A certain amount of the earnings of the corporations in which shareholders are interested are never distributed. The Super-Tax is only payable on that proportion of the earnings of the company of which distribution takes place.

No doubt a considerable increase in Super-Tax returns can be secured by taxing the total earnings of the company and by compelling the shareholders to pay a tax upon the total earnings of the company in which they have holdings and not on the amount of earnings which reaches their pockets. That is not an original suggestion by any means. It is a form of taxation which is in existence in other countries. I think in the United States of America, it has been carried to very considerable lengths. Of course, if it were adopted here, the total would not be any very considerable sum, considering the very large increase with which the Exchequer has to deal at the present time. It is an expedient that I should like to see the Chancellor of the Exchequer adopt, but it would not be any very great palliative in the present circumstances of national necessity.

The third alternative, the taxation of war fortunes, is a very different matter. I prefer to term it a Capital Increases Tax. The noble Viscount, in his speech last week, said that the proposal for the taxation of war fortunes deserved the most careful study and consideration, but he deprecated hasty action and indicated the difficulties with which the Government would find itself confronted in case progress was made along that line. The Government will realise, I am sure, that these fortunes are a wasting and perishable asset. They are vanishing day by day, and every day, every week, and every month of delay means that these fortunes are becoming less taxable because they are being dissipated and distributed in many directions. There cannot be much longer delay.

Already the proposal has been before the Government for eight months. It has been urged constantly in newspapers, in another place, and in your Lordships' House. It has been supported by very able arguments; much has been written on the matter, and the Government has had all this time to deal with a subject which will not brook any delay. If it is now the intention of the Government to deal with the question, to consider its various ramifications, then I have no doubt those who support the taxation of war fortunes, or a Capital Increases Tax, will be quite satisfied to await the result of their deliberations. While realising all the difficulties which will beset the Chancellor of the Exchequer, they would like to know that the assurance of the noble Viscount carries us this far, that the Government will really undertake the consideration of the whole subject, and will come to a decision with a mind favourably inclined to the arguments advanced by the noble and learned Lord, and supported by every noble Lord, more or less, who has spoken in this debate.

I want to urge the taxation of war fortunes for another reason. I urge it as a measure of fiscal justice. During the war the Government introduced and carried into effect the Excess Profits Tax. That tax, and its incidence, is frequently used as an argument against a Capital increases Tax. Instead of being an argument against it, it is realty an argument for it; and for this reason. There were two classes of the public which made vast sums of money out of the war—one class which was subjected to a certain amount of taxation under the Excess Profits Tax, and another class which has escaped taxation altogether, although their process of making money has been almost identical with the process of that class which has been subject to the Excess Profits Tax.

There have been holders of shares in companies which have benefited enormously—shares which have increased out of all proportion through the events of the war. Shareholders, with no desire to make money out of the difficulties of the nation, have found themselves holding large numbers of shares in companies which have increased eight, ten, and twenty times in value. They have sold their shares and realised increases in capital out of all proportion to anything they ever expected, but as it is an increase in capital they have been completely free from anything in the nature of war taxation; they have been free from the Excess Profits Tax. They are in quite a different position from the munitions manufacturer who has had 80 per cent. Excess Profits Tax to pay; these enormous increases in capital values have been utterly free from the Excess Profits Tax.

This increase of capital value has gone on all over the country in almost every line of business; not only in shipping and in oil shares, but in almost every sort and kind of enterprise. If you will take any of the financial newspapers and refer to the quotations of stocks and shares on the front page you will see the prices in August, 1914, and the prices for to-day, and if you examine them closely you will be amazed, as I was when I examined them to-day, at the gigantic increases which have taken place in some shares. Surely, if realisations have taken place—and they must have taken place—and if they are to be absolutely free from war taxation while the munitions manufacturer has had to pay 80 per cent. of his profits in the way of Excess Profits Tax, I am right in saying that the Excess Profits Tax is an argument in favour of the Capital Increases Tax.

I understand that in Government circles the objection to the Capital Increases Tax is that the amount which would be realised would not be sufficient to justify the great disturbance which must take place in industry and commerce. I agree there will be some disturbance, and I will address myself to that argument for a moment. The total expenditure during the war amounts to as much as £8,000,000,000. Of that sum £1,000,000,000 was borrowed abroad from America, and £1,000,000,000 is the popular estimate which is represented by the sale of English securities in America and elsewhere, the money being re-invested in England, no doubt in War Loan. That reduces the figure of £8,000,000,000 to £6,000,000,000. Where did that £6,000,000,000 come from? It is new wealth. Nothing has been lost to the country during this time. The £6,000,000,000 is new money; it represents inflation and the profit which has been made by dealing in war and the necessities of war.

That inflation, no doubt, represents a considerable sum. I take ten shillings as the value now of the pre-war sovereign; I assume that this difference in the value represents the extent which inflation plays in building up this enormous debt of £8,000,000,000. Therefore, it would be right to say that inflation represents half of that £6,000,000,000 —say £3,000,000,000. I think it will be agreed that this is a very generous estimate. That leaves as much as £3,000,000,000 which must represent the sums of money that have been made—profits that have been made—in Great Britain during the war, out of war services. Assuming that £3000,000,000 is the figure, that is the amount with which the Chancellor of the Exchequer will have to deal. I recognise that there must be abatements and exceptions, and that £3,000,000,000 will not accrue to the Treasury. I know that large sums of profits have been distributed and dissipated, and that men who have made huge sums have died, and their estates have been distributed and subjected to very heavy Succession Duties. It would not be fair to ask their beneficiaries to pay enormous taxation again. Therefore that £3,000,000,000 must be considerably reduced. But surely if we reduce it to only £1,500,000,000 we will be making most generous reductions. I think that estimate is a reasonable figure which might be realised from the taxation of war profits or capital increments.

I do not think that anybody has a right to address himself to this subject without making the point that the taxation of war balances, or the Capital Increases Tax, does not have any relation to or bearing upon the War Loan and other national securities. The War Loan is quite a different matter. While we have a right to tax ourselves and to tax one another, we have no right to tamper with the national obligations, and all owners of Wax Loan and other national securities ought not to be permitted to get into a state of anxiety about these proposals for dealing with capital increment, for I do not think that any of the supporters of these proposals have any intention of tampering with or altering or amending the national obligations. Likewise I know there must be many abatements and exemptions. For instance, the beneficiary who has paid very heavy Death Duties. Obviously such a person is entitled to a very considerable degree of relief. Also there is the man who has saved his money and husbanded his resources during the war. He is entitled to consideration, without doubt, compared with the man who has spent lavishly all through the last five years. For my part I have great confidence in the Chancellor of the Exchequer and his permanent officials, and I fully realise that if the principle of the taxation is conceded there can be left to the Chancellor and his colleagues the decision as to what ought to constitute exemptions and abatements.

In your Lordships' House are many noble Lords who have vast experience in the City, vast knowledge of finance in Great Britain, and vast knowledge of industrial conditions in this community. The noble Lord, Lord Faringdon, talked to-day in a most interesting and convincing way, and I hope that other noble Lords with wide experience will join in the debate. My own knowledge of finance in Great Britain is rather limited. I have gained my experience abroad, and while I am a close student of finance here I do not pretend to have the knowledge which can only come from experience and which is possessed by many of your Lordships. I hope that they will address themselves to this subject, and I think that at any rate much in the way of advice, and valuable advice, may come from your Lordships' House. I heard not long since a noble Lord express some doubt as to the effect of our deliberations upon the Chancellor of the Exchequer and his colleagues in the Government. Nevertheless, I fully believe that the debates here may be productive of much good, particularly when there is such an earnest desire on all sides to find a reasonable, sane, and sensible source of taxation.

I have only one more word to say. I do not assert that the accumulation of a war fortune was the act of a profiteer. Much less do I desire to penalise men who made money out of the war or during the war. I realise that most of them were quite unwilling profiteers—that they had their money thrust upon them in the great majority of cases—but the proposal for taxation of war increments is a sober proposal. It is not so far removed in principle from many schemes of taxation which have been carried out in the past. For my own part I hold that it is an act of fiscal justice, and a relief sorely needed for the strained finance of this kingdom.

VISCOUNT MIDLETON

My Lords, we feel, some of us, in a difficulty with regard to the terms in which the noble and learned Lord has placed his Motion on the Paper, but I do not think that any of those who have preceded me have agreed that it is essential that further taxation should be instantly imposed. On the main question we feel ourselves in the same difficulty as Lord Faringdon. If it were not for his usual kind heartedness he might have been tempted, remembering the debate which took place nine months ago, to say to the Government "I told you so." We are exactly in the position which it was then anticipated we should be in. We are in the position that the Government, by the confession of the White Paper, are almost at their wits' end to know what is to be done even up to the close of the present financial year. In the circumstances I am not in the least surprised at the injunction of the noble Viscount opposite that we should not rush into any rash or precipitate steps. I think that was a very fair admonition from him, and more so because it is quite possible that some of the suggestions which have been made by the noble Lord who has just sat down are worthy of your Lordships' consideration.

The question of Super-Tax upon public companies is one which, in view of the enormous amount of wealth of the country at the present time held by public companies, is certainly a most important one. It is one by which those who are the largest gainers from public companies would be hit to the largest degree, and that is exactly what is most necessary at the present time. As regards some of the remarks which the noble Lord made with respect to an increase generally in the price of shares, and his assumption that all persons who hold shares in large numbers were all of them suffering from that particular malady, I can only say that the noble Lord must be a great deal more fortunate in his investments than the majority of your Lordships. Those of us who are unfortunate enough to hold, in however small amounts, gilt-edged securities cannot hope ever to see them it the price at which they were before the war. The noble Lord obviously is one of those fortunate individuals who has known how to place his investments in a more profitable form, and is probably one of the very few in this House who is in that position and able to bear a share of taxes amounting to £1,500,000,000—the sum which he said would be put into the common stock to meet our deficit.

Before I deal, as I should like to in a very few words, with some of the remarks of the noble Viscount (Viscount. Milner), I would point out that we have some grounds of complaint against the Government for the way in which they have treated this subject during the last few months. It was nine months after the Armistice that the Prime Minister made his celebrated appeal. I maintain that the Government ought in November last to have divided the expenditure of the country into two heads—one, that which might require to be continued if the war broke out again to a limited extent; for no human being could suppose that with Germany disarmed to the extent that she was at the beginning of the Armistice we were likely to require the whole of our 4,000,000 or 5,000,000 men in the field again—and two, that which would be required after adopting a policy of economy which I contend would have brought in another £500,000,000. The noble Viscount (Viscount Milner) shakes his head. I am afraid that he has been far too much occupied to go about as some of us have done and note how this expenditure has grown. I am not going to argue the matter now. I will only say that it is not a question merely of staff; it is a question of the huge increase of establishments and buildings made months after the war. These were arrested last August, and might have been stopped in the preceding December.

The noble and learned Lord now sitting on the Woolsack (Lord Buckmaster) talked of making "a land fit for heroes." We all desire to see this social programme put forward, but when it, comes at the same time to talking of housing and of education, of small holdings, and of reclamation, and of all the other services on top of an enormous War Debt, and of £120,000,000 in pensions each year, all I can say is that it is impossible financially for the country to do it. You cannot drive six financial omnibuses abreast through Temple Bar. The Government would have been better advised if they had restricted to some degree their social measures. They will be forced to restrict them presently from the sheer impossibility of finding the money to carry them out. Let me ask the noble Viscount whether he has considered what the present position is as regards housing. When the Government were preparing the Housing Bill why did they not come to terms with the trade unions in regard to finding the artificers to carry out the work? I believe that even to this day no arrangement has been made with the trade unions by which you can increase by a single man the staff needed to carry out these vast services. The time to make those efforts was before the Government passed the Bill, and not after it has already become law. Nothing, I believe, is so much wanted in this country at the present time as training facilities for plumbers, carpenters, bricklayers, and other workers of that kind, in order that we may have a body of men who can more or less cheaply carry out the work which lies before us. So long as we attempt to rely solely on existing staffs we shall not arrive at the results desired, especially with all the difficulties of material in addition. The noble and learned Lord gave us the other day figures which will paralyse the Bill, for local authorities are not going to undertake, nor do I think the country will undertake, to carry out building schemes at such an enormous cost as that indicated by the noble and learned Lord.

The noble Viscount (Viscount Milner) gave us several reasons for satisfaction in his speech, which was a sedative. Everybody was glad to hear that too low a view is being taken of what we may receive from Germany, and everybody welcomes the assurance that an injustice would be done to our Allies if we did not allow for a very large return from the loans which have been made to them. But surely the noble Viscount was ill advised when he took the Income Tax as an instance of the abounding prosperity of our revenue. The noble and learned Lord is, I understand, going to a Division on the subject of instant taxation. If there is to be an instant taxation I imagine that it can only be through the Income Tax. If it is to be through the Income Tax, let us have the figures and be clear about them. I believe that the noble Viscount, if I may say so with respect to him, misled us and the country in his speech. He said that the masters under whom he had served—and great masters they were in finance—always held that what proved the justification of a tax was when the last imposition of the tax produced as much as or more than the first imposition produced, and he said that a penny of Income Tax last year produced more than it did before the war, and would be larger still in the present year.

The fallacy of that contention is, I think, this. Last year we not only had the Excess Profits Duty of £300,000,000 but we had the Income Tax on some £400,000,000 to £450,000,000 of those excess profits, and that laconic Tax alone represented the sum of about £130,000,000. We all admit that excess profits are abnormal, and the Government have reduced their expectations front excess profits this year, not merely to the extent of 40 per cent., but to one-sixth of last year. The noble Viscount said that every penny on Income Tax has produced £1,000,000 more; therefore seven-two pence produced £72,000,000 more. That was the gain that you ought to have had, but you lost £130,000,000 by your Income Tax on excess profits, and the ordinary Income wax was less by £48,000,000 compared with before the war. I believe I am correct in that matter.

You may have fresh industries which grow, up and which replace to some extent what is lost in excess profits, but I believe I am speaking absolutely by the book when I say that, so far from the general mass of laconic Tax-payers having as large an income on which to be assessed as before the war, they have less income. I believe you will find that, if you tried now to put fresh income Tax on, you would only hit two sets of individuals who are really in a better position. The first are those who have made large profits in the war, of whom we have heard a great deal to-night; the second are those who receive excess wages. I think the noble Lord, Lord Emmott, gave us a sum of from £800,000,000 to £1,000,000,000 excess in wages now being paid. I believe that, if you take those who through the war or through greater prices have got an enormously greater return from their labour than they had before, and some of whom are claiming that up to a very high figure they should be exempt train Income Tax, you will find that the mass of extra Income Tax, if there is any, is paid by those who have made large profits in the war and those who have gained by the great increase of wages, largely due to Government employment.

But I lay this down for your Lordships' consideration, that of the ordinary men paying Income Tax on, say, £500 a year, or if you like £5,000 a year, there is not one man in a thousand who is buying as much (though he is paying more for it), who can afford to employ as many people (though he is paying more to them), or who is able to travel as much or to spend as much in any direction. I believe you will find that the great majority of them are unable to save anything under present conditions. They have cut down to the last degree; and before the noble and learned Lord goes to a Division I earnestly ask him to consider this, that if he with his high authority pledges himself and those of his Party who follow him to this course he is really pledging them to a course which may not improbably have the effect of largely redwing employment.

I am not one of those who think that after a war of this kind we can all maintain our positions in the same way as before. I can only say this, that the immense changes in land which are taking place require no adventitious aid to expedite them. In the county in which I happen to live three out of four large places (I mean by large places those which are beyond the smallest houses) are in the market. I think in the last six weeks three places Which have been historically in the same family for generations have all been sold—and sold to men who have made money during the war. Such changes must take place in these conditions, but they are, I think, an indication that we have come very near the level at which you cannot impose taxation of this kind with advantage to the country. You cannot afford to break all the men who are living on a fixed income. That is really what you have to consider.

The noble Lord who last addressed us spoke with all the knowledge and experience of those who have been in the midst of recent developments, and we can all feel that there is there a large margin which has somehow to be met. But before imposing fresh taxation I would urge upon the Government that they should take three or four courses which alone can really bring the Budget to a level. First, as is proposed in another place to-night, that an actual figure should be fixed beyond which they cannot go; that they should fix that figure themselves and undertake that it shall not be exceeded up to March 31. The second suggestion is to cease the unemployment donation. When the noble discount urged us not to take rash and precipitate steps he was wise. I think the Government ought not to take rash and precipitate steps. I believe that the manner in which the unemployment donation was given, the amount of it, the universality of it, had more effect in raising prices and diminishing output than any other thing which has happened since the war concluded.

The last step I would ask the Government to take is to use their power for the reduction of prices. I had an opportunity a short time ago of hearing something officially of what has been done in demobilisation in France. I believe the Government can make a most excellent showing as regards the speed and economy of their demobilisation. But I will tell them this, that they have got in France at this moment tens of millions of stuff which is deteriorating daily, which is costing enormous sums to guard, and, as far as possible, to shelter. If they would only allow some outside authority to dispose of £10,000,000, £20,000,000, or £50,000,000's worth of this material at a low price they would ultimately be better off than they would be if they kept it with all the staffs for a higher price. They would not only gain more for the country, but they would enormously reduce the prices of all those articles in this country, where, before everything, it is most necessary to bring clown prices at this moment. I venture to offer that as a practical suggestion, and I am quite certain that the noble. Lord opposite, if he will give his attention to it, will find that there is practical support for it.

I sincerely trust that the Government will not pander too much to the national desire to protect our trade by a drastic Bill which, on the pretence of stopping dumping, will enormously tend to keep up prices. We must have cheap prices. The President of the Board of Trade the other day justified himself with regard to motor cars. He said that a motor car which was not a commercial car would pay 70 per cent., one way or another, as compared with the car produced in this country. All I can say is that if everything is going to be done on that scale, if every doctor and very small person who has to get about has to pay 70 per cent. more under present conditions in order that we may keep the trade, you are deferring for a very long time that reduction of prices without which you will get no reduction of wages and no change in the vicious circle which is at present inflating our currency and endangering our national position. I would ask the Government to consider not merely such strong steps, proposed by the noble Lord, as may become necessary, but that the administrative, steps to which some of us look, which in themselves are capable of limiting the expenditure by a very large amount, should be tried in order to bring this deficit within the bounds of reasonableness.

THE MARQUESS OF CREWE

My Lords, on the last occasion on which a financial discussion took place in your Lordships' House I ventured to suggest that in the existing circumstances, while even though war conditions did not precisely prevail yet the effects of the war were so markedly before us, and while our national finance remained in the turbid condition in which it does, His Majesty's Government ought to allow the country to carry on something of what is known in some businesses as a continuous audit—namely, that at brief intervals (far briefer than has been the practice during the war) we should be precisely informed of the position in which we stand. Some such information has been forced from the Treasury recently by the figures and facts which the Chancellor of the Exchequer has set out in the Paper that is before your Lordships' House.

When you come to a difference in the anticipations of three months ago and the anticipations of to-day of no less than £223,000,000 and more, it is clearly necessary to set the facts before the country. Those future anticipations, as we now have them, have been discussed by several noble Lords in the course of the debate, and some dissatisfaction has been expressed with not a few of them. The fact that the Army expenditure is not reducible as yet to a considerably lower scale than appears in the White Paper of the Secretary of State for War will be a grave disappointment to some. In particular, the fact seems to need further explanation that we should have now to maintain on full pay as large a military force as existed before the war, that force including all the overseas garrisons, the whole of the Army Reserve, and the whole of the Special Reserve—those two last classes being men engaged in earning their living in various industries. That it should be necessary now to continue to maintain 750,000 men actually serving in the ranks of the Army does seem to demand further explanation than it has yet received.

There is one further point in the statement of revenue and expenditure to which I should like to call attention; I rather think it was touched upon by the noble Viscount, Lord Milner, in his speech the other day—that s to say, that it appears that the realisations of surplus stock by Departments, such as the Ministry of Munitions and the Ministry of Shipping, are treated as part of the revenue of the year and are not set down for purposes of reduction of capital debt. Surely that must be a misleading practice and it goes beyond a mere matter of accounting, because those stores were not purchased out of revenue; they were purchased with borrowed money. It is true, of course, that in the years that they were bought a large revenue was obtained, but it would be altogether wrong to earmark part of that revenue as having been devoted to their purchase. They were notoriously and explicitly purchased out of borrowed money, and it would therefore seem to be merely candid in a financial statement from year to year that all the proceeds of the sales of those articles should be treated not as revenue but as a diminution of the corpus of the debt. We all feel certain that the Chancellor of the Exchequer meant well by us when he issued this Paper representing his hopes of a future Exchequer balance-sheet in normal years. It is spoken of in almost pathetic terms as very tentative, and we cannot help asking ourselves when those expectations are likely to be translated into facts. It must, I think, be several years, as matters now stand, before any- thing approaching the normal year of which the Chancellor of the Exchequer speaks can actually come into being.

We all of us, I am sure, feel not a little sympathy with the Chancellor of the Exchequer in the position in which he is placed in being responsible now for our national finance, and we know that he will devote the utmost honesty of purpose as well as ability to the solution of the gigantic problems which he has to face. He is, in fact, in a position, having regard to the sums that we owe and the sums that we are owed, to repeat in his own person the old rhyme which some of your Lordships may remember— It is a very good world that we live in, To lend, or to spend, or to give in; But to beg or to borrow or get a man's own, It's the very worst world that ever was known. That is the position in which the Chancellor of the Exchequer, speaking on behalf of the nation, finds himself at this moment. He has to consider, and we have all to consider, how this situation is to be met, and therefore the noble and learned Lord, in order to bring about a full discussion here and to make his own views quite clear, has placed this Motion on the Paper. The noble Viscount (Lord Midleton) who has just spoken seemed to consider that the only method of enforcing fresh taxation "instantly," in the words used by my noble and learned friend, was by an increase of the Income Tax; but, as we have heard from my noble and learned friend, and as has been developed in other speeches, two other methods have been put forward as possibilities.

The noble Viscount took some exception to the word "instantly." In the earlier part of his speech he seemed to think that that was placing a somewhat unfair pressure on the Government, although later on he seemed to qualify that statement by pointing out, what was perfectly true, that a considerable number of months has passed during which the financial advisers of the Government have known what was existing and what was impending and have been able, no doubt, to give their minds to a consideration of how the situation should be met. I am inclined to agree with the noble Viscount who spoke last, that there is little or nothing to be done with the Income Tax. We are nearing the point, I should think, at which additions to the Income Tax will tend to produce less per penny than the full amount which is quoted at present, while unless some different and steeper method of graduation is devised even a moderate increase of the Income Tax would tell with extreme hardship on people of what in more prosperous times were considered moderate fortunes, many of whom now find it very difficult to make both ends meet.

Then there is the suggestion of the General Capital Levy, so enthusiastically favoured by some. Its advocates have never, so far as I know, explained clearly or fully the precise methods by which a General Capital Levy is to be enforced, but its unpopularity with many depends not only I think on that fact, but on the belief, which may not be altogether ill-founded, that many of those who advocate it, although sincerely desirous of raising a large sum of money for the benefit of the nation, are even more attracted by the prospect of breaking down very large fortunes, and in particular, of the breaking up of very large estates. That bias, existing as we know that it does, in the minds of many who propose this General Capital Levy, naturally causes their advocacy of it to be regarded with a certain degree of suspicion. The assumption which it is desired to make, that everybody is dead and that Death Duty has to be paid on a certain scale on the estates of everybody—which is what a Capital Levy really means—is one which, I cannot help thinking, His Majesty's Government would be exceedingly unwilling to make. Nobody can foretell what the precise amount of dislocation of business and disturbances of industry might be from the application of a General Levy of that kind, and those who advocate it have not, as I venture to think, at present attempted to meet that point. Many of its advocates, of course, are less concerned with the dislocation and disturbance of business than they are with the maintenance of a high scale of wages, forgetting, however, that the one must depend upon the other, and that the dislocation of industry is bound to react on the wage-earning class as a Whole.

Then there is the third proposition—that of a differential tax upon capital— founded on a comparison with what capital was in 1914 and what it is now, which was explained in a powerful speech by Lord Beaverbrook, and which has, as we know, been before the country—I daresay some of your Lordships may have seen a letter in The Times, I think of yesterday, by Mr. Herbert Samuel, in which the details of such a scheme are clearly laid out—and, as has been already observed, it appeared to us that the noble Viscount, Lord Milner, regarded this proposition with greater favour than any of the others which had been put before the House. I confess that I am inclined to agree that of the various propositions this is the most promising. I hope, therefore, that it will be subjected—no doubt with others, as the noble Viscount promised should be the case—to early and full examination. Nor do I see, I confess, why an examination of these various expedients should occupy a great deal of time. Haste has been deprecated, but as I have already ventured to observe, all these matters have been before the country and subject to consideration by experienced officials of the Treasury and by others for a considerable time past, and I doubt if there is very much more to be learned about them than is already known. It only, therefore, remains for His Majesty's Government to form, and to announce, their opinion on the subject.

I do feel, and I think everybody must feel, that the era of economy upon which the country is quite rightly told it must enter in the matter of public expenditure must mean in certain lines some sacrifice, if not of actual efficiency, at any rate of the perfection at which we have been accustomed to aim. Some natural resentment has been expressed at the suggestion that the two most appropriate subjects for general saving and economy were education on the one hand, and housing on the other, a somewhat surprising choice to make, I am sure your Lordships will agree. So far as education is concerned, it appears to me that to attempt to save one penny on the education of the nation must be the vilest possible economy. So far as housing is concerned, there is this to be borne in mind—that at a great crisis such as exists at this moment of the shortage of houses I do not think it is necessary to build houses in a form or manner which will enable them to accommodate a remote posterity. I do not see why a considerable part of the housing which has to be done or ought to be done immediately should not be of a more or less temporary character. That is to say, to put up houses commodious, comfortable, and water-tight, which would have a life of fifteen or twenty years, might be truer economy than to insist that every cottage and house now erected must be good for a hundred years. That, however, is only in passing and has only an indirect bearing on the question before us.

The noble and learned Lord asks your Lordships' House to express an opinion on his Motion. As I take it, when he employs the word "instantly" in his Motion—it seems to have caused some alarm—he hardly supposes that the Chancellor of the Exchequer will come down to the House next week with propositions for new taxation. What I take it he means is that there should be not a moment's unnecessary delay in tackling this question and in making both ends meet so far as it is possible to do so out of the resources of the public as they exist. What is in the mind of the noble and learned Lord is, "For Heaven's sake stop borrowing; raise money, do not borrow it." I trust, therefore, that your Lordships will be content to agree to the terms of his Motion, impressing and enforcing as they do that truth of which, I believe, your Lordships are all persuaded.

LORD HARRIS

My Lords, I should like to offer a few humble remarks upon this most difficult subject. The noble and learned Lord pins himself to the remedy of charging either private income or private capital in order to provide a remedy for the position in which we find ourselves, The position in which we find ourselves, which I take it has prompted his Motion, is that our expenditure is something like £200,000,000 or more in excess of what was anticipated by the Chancellor of the Exchequer. That is a most disturbing fact, but apparently it is to some 50 per cent. caused by the expenditure in the War Department. A very large proportion of it is due to the non-payment to us of the German subsidy and non-payment of loans to the Colonies.

I do not take the same pessimistic view of the situation as the noble and learned Lord. He has on two, if not three, occasions warned us that the nation was rapidly going towards ruin if it did not adopt his proposals. There is another view to take—I am sure he will admit that— the view which is advanced by economic experts. I want to put before your Lordships presently opinions by one who is believed to be a financial and statistical expert in order to show that it is possible to take a more optimistic view. The noble and learned Lord, like a celebrated character in Pickwick, is anxious to "make our flesh creep." I confess that my flesh has not crept so far, because I prefer to pin in faith on the optimistic expert rather than the pessimistic one.

The general tendency of trade, which we can all observe for ourselves, should tend to encourage us. I was speaking at a political meeting last night and had rather a humorous altercation with a member of the audience on the subject of the position of the country. After a while I said "Is trade bad?" "No," he said, "trade is all right, but it is because of inflated currency." That, I venture to say, is quite a delusion. What I suggest is that the position of the country, the economic and the trading position of the country, is encouraging, and that we should be wise to do everything we can to encourage trade, to encourage the investment of money in commerce, and to assist and encourage increased production. What, the noble and learned Lord proposes to do is in absolute contradiction to this. If you are going to tax income, or make a levy on capital, it is inevitable, more so in the latter case than in the former, that you deprive individuals of the capacity to employ labour, and it must result in a diminution of the capacity for production. Take a simple exposition. If you are going to make a levy on the capital of the farmer you take something from him—say it is a team of horses—it must reduce his capacity for production, and the same applies in every other industry or business.

I do not intend to trouble your Lordships with any more words of my own. It would have been perfectly easy for me to prepare a speech founded on the extract which I ask your Lordships to allow me to read. It is in a more simple and concise form than any words of mine would be. The quotations are from a contribution by Mr. Edgar Crammond in the Quarterly Review of October, and I think that your Lordships will admit that they do put our position in a far more favourable light than the noble and learned Lord desires us to accept. I am only going to read a few extracts. Mr. Crammond is dealing with the question of international trade, and quotes the imports and exports and re-export; from January to September of this year, and he says that— Much anxiety has been caused by the fact that the Board of Trade Returns appear to show that we now have an adverse balance of trade at the rate of £700,000,000 per annum; and from this circumstance, coupled with our heavy national expenditure, it is inferred that we are 'on the road to ruin.' When the trade figures are analysed, they admit of no such inference; on the contrary, they point to the extraordinary strength of our economic position, and the rapidity with which we are re-establishing our former commanding position in international trade. For the first eight months of the present year the imports of food-stuffs and raw materials were valued at £1,018,300,000. In view of the world increase in commodity prices this is not unduly alarming. It is natural that, as a first step to the resumption of our foreign trade, we should obtain food for our workers and raw materials for our manufactures. It is obvious that the sellers of these commodities believe that we can pay for them; and it is equally obvious that our British buyers can see their way to re-selling them at a profit. The fact is that we are in a better position than any other country in the world to pay world prices for commodities. The growth of exports is equally satisfactory, and gives some indication of what we shall be able to export when our transport machinery is in full working order and our factories have been fully transformed from war production to peace production. In considering the question of the amount of our exports it must be remembered that our manufacturers are naturally supplying the urgent home demands first. Is it not obvious, with Europe devastated by war, bereft of all that machinery—the means of transport—which is necessary for production, that she must go to that country or those countries which have not been devastated by war, and which at the present moment are alone in a position to supply those things which she must have to re-establish her position? The first country which is able to do that is the United States of America, and that accounts in great measure for the fact that our imports from the United States are so very large. Again, Mr. Crammond deals with the question of the real valuation of our indebtedness and the real valuation of our expenditure and of our revenue. He says— Our Peace Budget will be approximately £800,000,000, or four times the amount of our pre-war Budget. If the national wealth and national income had remained at the level of 1913–14 our economic position would indeed be serious, because the national debt would be 36 per cent. of the national wealth, and the Budget would be 33 per cent. of the national income; but such is not the ease. Our assets must be measured in the same monetary values as our liabilities—that is to say, in 1919 money values, not in 1914 money values. In 1914 I submitted to the Royal Statistical Society an estimate of the national wealth for 1912 at £16,472,000,000, and the national income at £2,140,000,000. At the present time the national wealth of the United Kingdom may be safely computed at £24,000,000,000, and the national income at £3,600,000,000. I wish to make it perfectly clear that I do not maintain that in terms of commodities and services we are 50 per cent. better off than we were in 1912, but I do contend that, if the United Kingdom was then worth £16,400,000,000 with the menace of German militarism confronting it, and the average price of commodities standing at 85, our national wealth to-day, with German militarism overcome, with our increased power of production, and with the average price of commodities in the neighbourhood of 200, may be fairly estimated at the figure I have stated, namely, £24,000,000,000, and the national income at £3,600,000,000. In other words, if we accept and stabilise the new valuation of money, our post-war National Debt will be only equivalent to a sum representing 23 or 24 per cent, of the national wealth, and our post-war Budget will not amount to much more than 20 per cent. of income. He concludes by this very encouraging remark. He advises this— The capitalistic system has survived ordeal by war. It has proved itself the only one under which production is stimulated on an economic basis, and it has shown that it is capable of infinite modifications. It is quite feasible, under the capitalistic system, to satisfy the reasonable demands of labour for a share of the benefits of increased production, and a voice in the direction and control of industry. A constructive policy-which would meet the reasonable demands of labour would provide, inter alia—

1. "(1) For the maintenance of wages at a general level of 100 per cent. increase on pre-war rates.
2. "(2) For a great increase of production, which will result in a fall in prices, so that the margin between the workers' wages and the cost of living will be increased. The worker will thus benefit by the increase of production.
3. "(3) That wages must not be increased beyond the present level, otherwise commodity prices will rise and the surplus between the wages and the cost of living will disappear. It is in the true interests of the workers themselves that wages should not be advanced, so that the purchasing power of money may be allowed to increase.

If we adopt, as I believe we can and should, the policy outlined above, the economic outlook is extremely favourable. The story of the splendid economic effort of the British Empire in the great war has yet to be written. We have been the main instrument in the destruction of the great menace to the peace of the world during the past forty-five years. The German Navy is at the bottom of the sea; and British Sea Power has been established upon a more unchallengeable basis than it has ever occupied before. We have extended and consolidated the Empire, and we have done these things without materially impairing our economic strength. I apologise for quoting. I had prepared a speech which would have embodied all that I have read, but I preferred to quote because this condenses better than I could have done. I submit that it expresses a point of view which is capable of being taken in preference to the pessimistic view of the noble and learned Lord.

As I have said, I cannot possibly support the Motion of the noble and learned Lord, because it means, if it means anything at all, increased taxation, and the noble Marquess who has just spoken said the great thing to lay down was that we must not borrow anything. That was contested by the noble Lord who spoke behind me, Lord Faringdon, who deprecated taking that view because he said your capital account is not yet complete. You have still got the aftermath of the war, and you cannot draw a line and say your capital expenditure is finished. I would very humbly prefer to borrow for, I believe, only a short time longer in order to acquit that capital account rather than impose a levy on capital or by increased taxation reduce the capacity of this country for trade and commerce, and reduce the capacity of the individual to employ labour.

LORD GAINFORD

My Lords, there is one point in regard to which I disagree with the noble Lord who has just spoken, and that is that we should continue to borrow. I take a very strong view that the period for borrowing should now cease. I think that it is a self-evident proposition that we must raise our taxation in a period of peace to meet our expenditure. Our views may differ as to the extent to which our expenditure may be reduced in order to meet the present amount of taxation which has been imposed—and certainly I believe that there has been a good deal of extravagance in the past, especially during the last nine months when much expenditure has been incurred that might have been prevented.

But I rise really with a view of asking the noble and learned Lord who proposed the Resolution to omit from it the word "instantly." Personally I believe that this war will have been fought in vain if it is any longer necessary for us to maintain an Army and a Navy on the scale which existed even before the war. I see no object in an enormous expenditure on the Navy now that Germany does not possess one at all, and I believe that there is ample room for a largely increased saving upon both the Navy and the Air Service over that which has been indicated by the Minister of the Crown. But be that as it way, I am heart and soul in support of the proposition that unless the expenditure of the country can be brought down to the country's revenue, further taxation must be imposed if we are to avoid the ruin which would then threaten our country.

I realise, as the noble Lord does who last spoke, that if further taxation is going to be threatened in the immediate future a great deal of capital which is now awaiting investment in the country will not be turned into productive enterprise. I know in the coal trade, in connection with the pioneer work, that something like £50,000,000 is ready to be invested by private enterprise for the development of the colliery fields of this country, and that would enormously increase coal production, reduce the price of coal to the consumer, increase the amount of revenue out of which taxes can be raised, and be a great improvement in the industrial life of this country, but if we are threatened with further taxation the directors of companies will not invest the money of the shareholders with which they are entrusted in enterprises that will produce less than can be secured by investment in the Government securities of the day. Therefore I believe that it is important that we should have a few months in which this enterprise should be permitted to have a fair field. I think that the whole effort of the country should be in the direction of reducing our expenditure to the very lowest point, and it is with that view that I ask my noble friend to omit the word "instantly" from the Resolution which he has moved.

THE EARL OF BEADING

My Lords, I am loth to intervene at this stage of the debate, but I desire to say a few words in reference to the Motion which stands before your Lordships' House. The question before us is whether or not taxation should be instantly enforced.

LORD BUCKMASTER

I am willing to omit the word "instantly."

THE EARL OF READING

After listening to the debate throughout, may I say that I do not think the Motion is improved by omitting the word "instantly." The question before the House is whether this House should now resolve that further taxation should be imposed. As I understand, the whole drift of the argument and the reply which has been made by the noble Viscount is that it is not necessary at this moment to declare that further taxation should be imposed. That is, as I understand, the argument.

VISCOUNT MILNER indicated assent.

THE EARL OF READING

Reasons are given that there will be further liquidation of assets, which in truth is liquidation of capital, and that there will be also further opportunities of receiving the result of the Excess Profits Tax, and (as I followed what has been said by the Government) that upon the present aspect of things it would be a mistake to come to a conclusion that we should now declare in this House our opinion that further taxation should be imposed.

May I be permitted to say that I think the House is indebted to my noble and learned friend Lord Buckmaster for having brought this Resolution before it. The debate has been not only most interesting, but to my mind most instructive. If it does nothing else I think that it must clear the air and establish, not only in our own country but throughout the world, where some of the observations made in these debates may be reported, that this country is not believed to be on the verge of bankruptcy. We have heard a great deal of that, and I shall make no observation upon the occasion when the remarks were made. All I desire to say is that they have been taken up quite naturally and discussed throughout the Press, and the result has been that more or less authoritative persons have used language as if we were at least in some fear of bankruptcy.

The impression has gone forth that we are in a much more exhausted condition than I believe is really the case. We are more in the situation of the owner of a great estate who has large undeveloped resources. He has hitherto been able to live on the income—the resources— which he has obtained from the capital that he possessed in the shape of his land, mines, or whatever the property may consist of. At this moment we, just as the owner of the estate, have had to draw very largely—indeed almost entirely—upon our stock of liquid capital. We are in the position of those who have spent enormously from capital during a time of great emergency in order to save the property. We have saved the property, and what we have to do now is to develop the resources of that property in order that we may get a larger return, and, if it becomes necessary—I do not know at the moment that it is necessary— make some further loan upon it. I cannot see now that the case is made out for the passing of this Resolution.

I will say quite frankly that I was rather inclined to take the view of the noble and learned Lord when I first read the Resolution. The result of all that I could discern from the newspapers and generally was that it was essential that we should at this moment do something further, but I am convinced now that we should do better to wait. In a few months' time when, it may be, another Budget is introduced, or when we are in a better position to judge how far the noble Viscount's optimism has been justified by events, we shall be in a position, if necessary, to pass a Resolution of this kind.

I cannot think that we better the position by leaving out the word "instantly," and for this reason. The true test of the prosperity of the country is not so much at this particular moment what you raise from taxation. The true test to which we have to devote attention now is how we can increase the resources by stimulating production. That is really the root of all our taxation. Taxation and what may be obtained from taxation is only the result of money obtained from production. Lord Gainford, in his speech, proposed that the word "instantly" should be omitted, and that, I understood, was accepted. His argument, which semed to me quite powerful, is that the Resolution is just as good without the word "instantly" as it is with the inclusion of the word.

I would suggest that we should do nothing in this House which would amount to a declaration, leaving for the future the question as to whether further taxation should be imposed at any time, because the Resolution would then read that it is essential that further taxation should be imposed. As Lord Gainford said, it is necessary, particularly nowadays, to do nothing which will have the effect of dispiriting enterprise in this country. Our future rests upon the credit of the country, and the credit of the country will not be improved by having it chronicled that your Lordships are of opinion that further taxation must be imposed in order that we should place ourselves in a proper and stable financial situation. The mere fact that it is so regarded is, in itself, a disturbing element. It means that your Lordships are not prepared to say that at this moment that course should be adopted, but at some future moment—and when, nobody knows—further taxation should be resorted to.

I submit that once we have come to the conclusion, as I gather that my noble and learned friend Lord Buckmaster has, that it is not necessary to insist upon the word "instantly," the better course would be to withdraw this Motion and to being it forward when my noble and learned friend thinks that the time has come for again asserting his view and with perhaps a better knowledge of the true financial situation than we have been able to obtain at the present moment. Then, if necessary, it may be declared, if this House thinks right, that there should be recourse to instant further taxation, but no good purpose can be served by asking your Lordships' House merely to declare at large that it is necessary that further taxation should be imposed. Therefore I would suggest to my noble friend that in the circumstances the Motion had better be withdrawn.

LORD SHEFFIELD

My Lords, I think, after the speech we have just heard, it is rather important that the noble and learned Lord who brought forward this Motion should press it. I am not now on the subtleties of language, the question whether the word "instantly" should be dropped out. The real point is, Do we believe, if we are to make both ends meet, that we ought if necessary to impose further taxation? The noble and learned Lord, the Lord Chief Justice, has distinctly intimated that he thinks it to be a sound policy, to develop the estate, to embark upon a further course of borrowing. That is presented as an alternative—that we ought not to shrink from further borrowing, and for that reason I wish to support the Motion.

I do not believe in the Government of this country being put in the position of the directors of a company, and to have the discretion of embarking, as a Government, upon speculative experiments based upon borrowing in order to develop the resources of the country. The proper way to develop the resources of the country is to leave it to the people who have developed the resources of the country hitherto and not to interfere by a system of Government licenses and withholding of Government licenses.

Very little has been said in this debate of what I think is very important to restore the economic stability of the country—namely, to get nearer a sound financial basis upon a gold basis. It ought to be done, and I hoped that when the Loan was floated it would be largely used to redeem the paper currency. But the currency is being inflated indirectly from the continual advances that the Government is getting from the Bank, and then the Bank accommodates the other banks with currency. I think it is a great misfortune that no statutory limitation was imposed prohibiting the Government from issuing Treasury Notes without a basis of bullion.

We are now on the eve of a crisis with our silver currency. You see what is happening in France, where owing to the great depreciation of silver, silver is hoarded, and the French do not know which way to turn for small change. We are likely very soon to be in a serious difficulty with silver currency and we hear talk of the issue of 5s. notes. I do hope that no more inflation of the currency will be allowed. If there is to be subsidiary paper currency it ought to be strictly based upon silver bullion held as against every note issued. But I am not going into that now. What brought me on my feet was to challenge the idea that we ought as a wholesome policy in the economics of the country to look forward to future borrowing in order, as the noble and learned Lord put it, to enable the Government to develop the resources of the estate. I do not consider this country to be the estate of the Government, for them to develop. I think it belongs to the people of the country.

THE EARL OF READING

I never said that there should be further borrowing. On the contrary, I am against it.

LORD SHEFFIELD

That was the drift, I thought, of your remarks.

THE LORD CHANCELLOR (LORD BIRKENHEAD)

My Lords, it may not be inconvenient that I should make a few observations which, having regard to the course of the debate, require to be made at this stage. I should say, to make it as clear as it is in my power on behalf of the Government, that the debate has been an extremely helpful one in all its course. Certainly no complaint can be made of the overwhelming majority of the speeches which have been delivered. Lord Emmott contributed a note of optimism which I particularly valued from the fact that some of his observations upon the Government were not, perhaps, couched in the most eulogistic strain. He said, for instance, that no humdrum finance could be anticipated with this Government in power. The observation seems to me, if I may say so with the greatest possible respect, to be a little pointless, unless he meant to convey that with an ideal Government in power, or possibly with a Government in power of which my noble friend himself was a member its financial operations would be of a humdrum character. The noble Lord knows as well as I do that if a Government of Gamaliels were in power for six months they would, equally with the present Government, fail to produce a humdrum year of finance, and therefore that observation was, I think, a little unworthy of its context.

The noble Lord spoke also of the "Rake's Progress" and the spendthrift course of the Government. I say, once and for all, that I challenge and dispute absolutely the fairness of those charges. I do not say that it is not possible to point to individual cases in which there has teen indefensible expenditure; but I say plainly that if you take the finance of the country as a whole in the last twelve months, if you examine (as you are entitled to examine) the policy of the Government and of the individual members of the Government., you will find that there has been a genuine, a strenuous, and a not unsuccessful attempt to pursue economy.

The noble and learned Lord who introduced this topic has in my opinion rendered, not only in this debate but on many other occasions, great service to the public. His views upon this subject are not cheerful—it is, indeed, difficult to form extremely cheerful views upon the situation in which we are placed, but my noble and learned friend has been less successful than most of us in this particular. It is useful, however, that there should be a member of this House who from time to time, with high authority and with undoubted force and eloquence, calls attention to the financial situation in which the country is placed; and my noble and learned friend has more than once by his forcible utterances directed your Lordships' attention to our financial position. But I question whether my noble and learned friend is very happily inspired in the particular Motion to which he desires the adhesion of this House to-night. My noble and learned friend the Lord Chief Justice has spoken of the suggested difference that would be made by the omission of the word "instantly." I agree with the noble and learned Earl. But the criticism of this Motion at this moment goes, I think, a little deeper. The noble and learned Lord knows as well as I know that the two main proposals which alternatively he submitted to examination—namely, a Capital Levy and a taxation upon what may be roughly described as war profiteering—could not in any case be made the subject of an immediate scheme of taxation.

Most of your Lordships who have spoken have, rejected a proposal at this moment for increasing the Income Tax, and I think, as a summary of the opinions which have been expressed, if novel and extreme measures are to be taken the two courses which have received support are taxation of capital and a special tax upon war profiteering. There may be much to be said in favour of those proposals, though there is certainly a good deal to be said against them; but whether the balance of argument be to pronounce in favour or against, nothing is more certain than that no immediate proposal should be brought forward, and no proposal could be brought forward at this stage without exposing your Lordships to the suggestion of adopting a thoughtless and inconsiderate Resolution. No one should think that the Government have neglected to explore most carefully these grave proposals. The time at my disposal will not justify me in discussing the grave objections on principle to a tax on capital. Those objections are obvious to everyone. Such a tax might bring about developments not contemplated by those who are its thoughtless advocates to-day, and such a tax should indeed be gravely weighed and re-weighed in the balance at a moment when the enterprise and the resiliency of capital is one of the hopes of the recovery of our commercial stability.

The other proposal—powerfully recommended to your Lordships by both my noble and learned friend Lord Buckmaster and my noble friend Lord Beaverbrook (who addressed an interesting speech to your Lordships)—is one which undoubtedly makes prima facie a strong appeal to men's general sense of reasonableness. I have no doubt, using such sources of information as are open to me and hearing what men of all ranks are saving to-day, that large numbers of people believe it is not right, that it is not defensible, that while hundreds of thousands of our young men were dying in order to preserve for those who remained at home the very means of livelihood, those who stayed, however valid their excuse for staying, should use it as a means for making vast fortunes the only opportunity for which was the necessity of the State in time of war. That appeal is a powerful one, but there are many complications. None of your Lordships, I am satisfied, would expect that the Government should hastily decide upon a topic so weighty and a proposal so novel; and I speak with some knowledge of the subject when I say that the practical objections and difficulties, if not insuperable, are at any rate immense. The subject is being explored; it has been explored, and will continue to be explored; but I may say without offence, I hope, to my noble and learned friend or to my noble friend Lord Beaverbrook, that neither betrayed any realisation of the practical difficulties which lie in the path of the adoption of such a proposal. I will say no more unless I should be thought to be prejudicing the position of those who are examining into this matter, but I desire to make it plain that this particular door is not closed.

I will now address myself shortly to the more general question. Nothing has astonished me more than that those who listened to the speech made by my noble friend Lord Milner a few days ago in this House should either have actually felt, or should have affected, deep surprise at the production of the figures which your Lordships have lately examined. There was a leading article which appeared in yesterday's issue of The Times. Let no one suppose that we are unaware that The Times is to-day the principal organ of the Opposition, but that circumstance hardly explains such an observation as the one to which I would direct your Lordships' attention. The Times of yesterday said— No graver statement on the national finance has ever been issued by a Government in this country than the White Paper.…It is the more startling because it runs wholly counter to the hopes fostered…particularly by the speech made by Lord Milner in the House of Lords last week. While many of the arguments they used by Lord Milner carry weight, there cannot be the smallest, doubt that his speech as a whole was mischievously misleading, in the light of the figures now published. Whether he was unaware of the truth about the financial position of the country, or whether, knowing it, his intention was to deaden the coming shock, the result is the same. Once more prominent Ministers are revealed as having been diligent to conceal the truth; and one more blow has been dealt against the fugitive remnants of the Country's faith in the candour of the Government. If those words have any meaning at all, they mean this—that my noble friend came down to this House and deliberately attempted to deceive your Lordships as to the statement which he was making. Observe, my Lords, it goes further. It means that my noble friend prepared this deception although he knew that these figures would be before your Lordships and available for the resumed debate, and although Ire had attempted, unsuccessfully, to procure those figures even before the debate began, in order that they might be presented to your Lordships' House. I never heard such a suggestion made by reasonable people, and I will only say this—although my noble friend needs no such statement from me—that there is no member of your Lordships' House who, by his long career and distinguished public usefulness, less merits such imputation, and there is no member of your Lordships' House against whom such an imputation could be made with less reason.

NOBLE LORDS

Hear, hear.

THE LORD CHANCELLOR

Let me for a moment and very briefly, because it is the shortest method of dealing with this matter, ask those of your Lordships who have it to take this White Paper in your hand and, if you will be good enough to give me your attention for not more than five minutes, I hope I can completely satisfy your Lordships that every word which was said by the noble Viscount in the debate that we are now concluding was justified by the figures, of which, of course, he was generally aware. Your Lordships will find on page 3 the estimates for the expenditure and revenue. The revenue is less by £32,450,000 than was budgeted for; the expenditure is more by £191,195,000.

Let me take first of all the deficiency in the revenue. Your Lordships will find a note under the head of "Miscellaneous revenue," which will show that the estimates were framed upon the basis, at that time common to every one, that the stocks belonging to the Ministry of Food would be realised. At that moment it was the policy of the Government that such realisation should take place, and your Lordships will see that with that and with other allowances which are explained in the note under the head "Miscellaneous revenue," a sum of £65;000,000 is affected. In other words, had not policy, connected with a different subject, required that the Food Control should be maintained, instead of there being a deficit on the estimated revenue we should actually have had a surplus. I deal here entirely with what was said by Lord Emmott and by Lord Milner last week. The resiliency of trade and the promise of trade, if only we can use our opportunity, if only we can unify and harmonise the different elements of the nation, have never in our history been greater or more promising than now, and the response of the revenue budgeted for lent extraordinary encouragement to the views I am attempting to put before your Lordships.

I pass to say a word on the excess of expenditure by £191,000,000. The Press has been very busy with this figure. In one paper you read—"Sensational development of the Budget Estimate; amazing miscalculation by Ministers." I really think that in the expedition which I imagine is required for the purpose of editing evening papers, where Parliamentary documents have sometimes to be dealt with at short notice, some of those who prepare the headlines do not find it possible to read those documents in the slightest detail at all. I would ask your Lordships to look on page 4 at the table which deals with estimated expenditure. I do not propose, nor would it be worth while, to deal with the small items by whirl the expenditure has exceeded the estimate. I deal with the main items, because if the criticism on those fails the criticism on the whole, in a day of gigantic figures, also fails. If your Lordships take those figures, the first and main item of excess deals with the Army, in connection with which there is an excess of £118,000,000. The noble Lord, Lord Emmott, quoting I think from one of our more enterprising papers, said that if we keep a brilliant strategist at the War Office we must expect that millions of expenditure, and so forth, will have to be met.

LORD EMMOTT

I am afraid it was not a quotation.

THE LORD CHANCELLOR

Then the noble Lord is entitled to take pride in originality, but his brilliancy of phrase, unfortunately, does not correspond with the facts. I will claim the noble Lord's attention while I satisfy him upon that. I do not know whether the noble Lord has realised that the estimated expenditure in relation to the Army proceeded upon the basis—as the Minister was entitled to proceed—that £47,000,000 would be recovered in the current financial year from the Germans to pay the expenses of the Army of Occupation. I think the noble Lord will appreciate that that fact is not unimportant. To that figure must be added another. The War Minister, in advising the Chancellor of the Exchequer of the amount for which he should budget in relation to military expenses, also informed him, and was entitled to inform him, that £20,000,000 would be recovered from the self-governing Dominions. Through a series of accidents, with the details of which it is not necessary to trouble your Lordships, that expectation has been, not indeed falsified, but postponed. If you take only these two items —I could give many more, small in themselves but cumulatively representing a considerable sum, but I am confining myself to these two large items—you arrive at the conclusion that of the additional sum in relation to the expenditure on the. Army £67,000,000 are explained simply by the loss of receipts which no human being could have estimated, and which I assure the noble Lord have no connection whatever with any strategical gifts which the Secretary of State for War may or may not possess. So much for the loss of receipts.

May I show the noble Lord that there are considerations equally deserving of his attention in relation to the matter of income upon which the Secretary of State could not calculate and upon which, equally, the Chancellor of the Exchequer could not calculate? Let me take the sum of £12,000,000 spent on the increased pay for troops. Really, who could foresee exactly what would be the reasonable requirements of pay I All of us will agree that whoever else is not paid, the soldiers must be paid, and all of us will agree that they must be liberally paid. Who could budget on this matter when the relation of prices and the economic considerations determining them were unknown? Nobody could say what should be paid, and £12,000,000 are accounted for under this head alone.

The sum of £13,000,000—again I am dealing with increases of expenditure—arose simply through purely fortuitous circumstances. It was originally intended that the gratuities to discharged soldiers should be paid next year, and it was so stated at the time. Then it became evident that, having regard to the speed at which demobilisation proceeded, there was an overwhelming and universal desire that these gratuities should be paid this year, and therefore £13,000,000 have been disbursed in the current year which were never contemplated by the Chancellor of the Exchequer and never mentioned to him by the Secretary of State for War. The sum of £7,000,000 has perished, unfortunately, owing to the variation in the exchange value of the rupee, and not even the restless activities of the Secretary of State for War have had the remotest influence on the exchange value of the rupee.

I could give your Lordships details of the whole of this additional expenditure amounting to £50,000,000–1 have dealt with the £60,000,000 on the other side—and I make bold to say that not one single item would be challenged by any of your Lordships. I claim, as far as the excess expenditure on the Army is concerned that the statement in this White Paper is consistent with what was said by the noble Viscount the other night, and that it is to be explained by every reasonable man who understands the difficulties by which the Government have been confronted during the last twelve months.

As we hear so much of the War Office and its expenditure, let me add this. They had to deal on the day when the Armistice was signed with vast forces aggregating 5,000,000 men in all parts of the world; men crying for demobilisation, who, in the very moment of their victory, if they had not been sagaciously guided, might have lost their mark of glory under the temptations to disorder and discontent which a feeling that the demobilisation was unfair might have created. That vast Army of 5,000,000 men has been dealt with. It has been successfully dealt with. It has been brought home almost completely, sometimes at the rate of 30,000 per day, with the minimum of friction and discontent; and the Army Council deserve the thanks of your Lordships for the care, the skill, and the enterprise with which they have obtained a new Volunteer Army, not clamouring to be demobilised, but which at this moment is able to fill the place of every conscript soldier in the world if there were only tonnage enough to take them out. These things cannot be done without expenditure and without waste. But when I read all the extravagant and ignorant criticisms which are made about the War Office, I see nothing in what they have done to deserve the censure, and I marvel that the critics should know so little, apparently, of what the War Office has done.

Let me address myself briefly to another point. In Table IV, your Lordships will find examined and explained the other item in respect of which the expenditure as now estimated very greatly exceds the Budget figure. It is under the heading, Civil Services—£96,000,000. It is hardly an exaggeration to say that the two figures—the War Office figures and this sum—give a complete explanation of the discrepancy between the Budget figures and the actual figures. In this Table IV, the increase of £96,196,000 may be analysed as follows—War Pensions, £32,000,000; Loans to Allies, £2,000,000; and the next really large item is Foreign Export Credit, a sum of £12,000,000. I want to examine in this connection the statement made by the noble Viscount, Lord Milner, because it was a considered statement, as all his statements are. Let me remind your Lordships what the noble Viscount actually said. He said this— As a result of all these unfavourable accidents the deficit this year, which the Chancellor of the Exchequer very roughly put at £250,000,000…will be largely exceeded.… 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. I want your Lordships to understand how right the noble Viscount was, and how great is the degree of reassurance which we may draw from those circumstances. Among the receipts on which the Chancellor of the Exchequer relied, and was entitled to rely, when estimating the deficit at £250,000,000 were the following, which we now know cannot be received in the year 1919–20. First of all, there is the repayment by the Dominions, £20,000,000; secondly, payment by Germany of the cost of the Army of Occupation, £69,000,000. I say nothing about any payment from Germany or the prospect of any payment from Germany. I only say that if any payment of any kind at all is forthcoming from Germany, which I for one confidently anticipate, this must be a first charge. There is also an amount mainly due to the continuance of the Food Control which was not anticipated, amounting to £59,000,000, and certain arrears of the Excess Profits Duty, which will not come in the year, amounting to £20,000,000. The aggregate of these figures is £168,000,000, amounts which the Chancellor of the Exchequer counted on receiving and will not receive, and the assertion, therefore, that the increase in the deficit is due to deferred receipts is not only in the spirit accurate but is abundantly justified by the figures, t which I have directed your attention.

The great danger, speaking as a Minister, on such a subject as this is that any controversial note inevitably invites and provokes a reply. I am most unwilling in a debate of this kind to assume a controversial note; still less do I wish to conclude my observations in a controversial tone. I think we are all agreed about what is fundamental in this debate. There is no one here, whether he has on the whole taken the view that we need not despair, still less that we need advertise to the world approximate or imminent insolvency—even such speakers have realised that our position is extraordinarily grave. Of course, it is grave. You cannot take part in a world-convulsion, you cannot swiftly transform the whole contribution of your manufactures and industries from a peaceful to a war basis without serious consequences which we shall not escape in a year or two, and which we shall be happy to escape in a generation.

Nothing has impressed me more with the scale upon which the British Empire waged war than the figure supplied to me by the Quartermaster-General at the War Office. He told me that on the day the Armistice was signed he had in his hands £1,000,000,000 worth of disposable stock—materials, uniforms, etc. We are told that £8,000,000,000 has been expended on every branch of the war. Yet here, on the day of the Armistice, as an illustration of the scale upon which the Government was preparing, and rightly preparing, the instrument of war on the basis that it would continue, we find one-eighth of the total expenditure actually in the hands of the Quartermaster-General. When I read of the expenditure on the Navy, multiplied almost in the proportion of three to one; when I think of the expenditure abroad, of the vast sums that we spent in all parts of the world, when I think of all the money that was dissipated, I marvel, not that the cost of the war was so great, but that relatively it was so small.

That we can win back, I share the optimism which was expressed by the noble Viscount, Lord Milner, in the earlier debate; but on one condition and on one condition only—namely, that all branches of the population of this country realise that each is indispensable to the other, and that the moment when we have conquered the most powerful external enemy that ever threatened this Empire is not the moment to make permanent enemies among our own people. I am satisfied that, if you take the history of industrial crises in the past, in prudence and moderation we have set an example to the whole world. We all of us know the part that these astonishing islands have played in the war, which has saved civilisation and vindicated the public law of the world. I, for one, will never think so meanly of the people who have displayed qualities so brilliant, as to doubt whether they will substitute for the martial qualities which have won the war those qualities of sanity, patience, and sobriety which alone can win the peace.

LORD BUCKMASTER

My Lords, I am very conscious of the consideration that has been extended to me by all the speakers, and by all your Lordships, in the course of this debate, and I do not propose to abuse that consideration by detaining you now for any length of time; but there are incidents that have arisen in connection with this discussion which render it necessary for me to place before your Lordships once more the reasons why I feel unable to withdraw t his Motion.

A good deal of the discussion has necessarily and profitably wandered wide of the terms of my Motion itself. I do not propose to enter into any debate now about the merits of the Secretary of State for War —a subject of such vast importance would demand one or two days for itself. Nor do I propose to take any part in the controversy between the noble Viscount and The Times, because I am sure the noble Viscount will do me the justice of saying that I have never associated myself with any such statements, or expressed at any time anything but what are my sincere feelings of admiration for the noble Viscount and his attainments. Upon that I will only say that I shall look forward with some new interest to-morrow to reading The Times.

The real thing which I wanted to bring before your Lordships was entirely independent of this. The big discussion was about what may be described as the capital position in which we stand. This was the matter that caused me anxiety. I ask, If you take the expenditure as it now is, and cease to criticise it but purge it of all the expenditure associated with the war, get it quite clean of subsidies and inflated payments of all kinds and all descriptions, and bring yourself to consider the irreducible expenditure to which we must now stand committed having regard to the present financial position, is that expenditure of such a character that it can be met by existing taxation? If it is not, I believe that all your Lordships would be in agreement in saying that further taxation must be imposed to meet it, because if that course be not taken, what we inevitably do is to increase the burden that is already around our neck, and at last we shall be unable to carry it.

For that purpose I prepared figures—they were estimates in most cases, but in others they were taken from the Government publications—to show what that expenditure might be; and when I am accused of presenting gloomy and pessimistic views to the House I would beg each one of your Lordships to remember that I presented no views at all except the views which those figures presented. I asked for criticism and consideration of those figures, and there is not a single speaker who has ventured to controvert any single one of the items which I made up. Yet it is impossible, if those items are right, to avoid the conclusion that our present revenue was short of this irreducible normal expenditure which we have to meet. If so, the only honest and honourable way of meeting it is to impose further taxation.

The odd thing about my figures was that, so far from being pessimistic, they were optimistic. I have been so anxious to avoid anything in the nature of exaggeration, and so sincerely desirous of getting at the real facts and not attempting to make a case, that I have put the figures as low as I could, and I find that my figures are strongly confirmed by the estimated future balance sheet which the Chancellor of the Exchequer has now put forward. It is a remarkable balance sheet for this reason, that it changes the figure which in the former balance sheet put forward in March was £761,000,000 a year, to £808,000,000, so that within the course of a few months the estimated expenditure for the normal year has risen by roughly £38,000,000. My figures were £880,000,000 and the difference is made up in this way. The Chancellor of the Exchequer has proposed to put the debt charges at £360,000,000 including Sinking Fund. At the present time, if you look at the figures prepared by the White Paper, issued with the Balance Sheet, you will find that that is the present amount of money you pay in interest on the actual outstanding debt without any Sinking Fund at all. Therefore if you allow only one-half per cent. for Sinking Fund you get an increase of £40,000,000, which would make £400,000,000, the figure which I gave before to your Lordships, and a figure which has been twice publicly repeated by the Prime Minister as the figure for the Standing Charges. The Government cannot complain if I on this occasion accept the Prime Minister's statement as accurate.

The next figure is this. The Chancellor of the Exchequer omits absolutely from this account any payment in respect of the railways. He assumes that the deficit, which was said to be £70,000,000, and which of course depends upon increased wages—for further increases in which pressure is constantly being exercised—is going to be completely blotted out, and in the course of time will wholly vanish. I put that figure down at less than his figure—namely, £50,000,000 —but I am prepared to reduce it still further and take it at £30,000,000. Then he brings forward the cost of the fighting forces at £135,000,000, and I bring them forward at £160,000,000. This seems to suggest some reconstruction of the Cabinet, because it is really incon- ceivable that with the present method of managing our fighting forces you can reduce the Army, the Air Force, and the Navy within the limits of £135,000,000 in any measurable time. They cost £87,000,000 before the war, and we all know that expenses are doubled. I put it down at £165,000,000, and that accounted for £25,000,000 increase.

Finally the Chancellor of the Exchequer has, for the first time, introduced £10,000,000 in respect of housing. No one in the course of this debate has said that the figures which I placed before your Lordships with regard to the actual housing scheme of Godalming were exceptional; and they showed this fact—that if you exacted 12s. a week rent in respect of the occupancy of the houses they were proposing to build, there was an annual deficit on each house to be borne by the State of £57, and I further pointed out to your Lordships that in fact the contract price for building these houses was less than the lowest tender obtained by the London County Council for building houses. Therefore when you put down £10,000,000 for that it is obvious that you are not facing the facts. If £10,000,000 is to be the figure it necessarily follows that this housing scheme will fail, and the only result of having promised it will be an increased bitterness and disillusionment of the people who believed that the houses were going to rise by a wave of a wand. If these figures are put together you will find that they bring my figures almost exactly on a par with those of the Chancellor of the Exchequer. They amount to £125,000,000, and the difference is largely due to the fact that for some odd reason that always possesses Chancellors of the Exchequer they insist on bringing in as a part of the Government revenue and as an asset £40,000,000 from the Post Office when there is a little more than £40;000,000 on the other side. Therefore my figures were not pessimistic figures; they were actual figures of which I have obtained most strange and striking corroboration from this document.

If I am right in the estimates which I humbly submit to your Lordships, our expenditure at the present moment on a normal rate cannot be met by our present rate of taxation. That is the logic of the position. I am not a pessimist in calling your Lordships' attention to this. I simply desire to know what is to be done. What is the remedy? Has anybody suggested any? Not at all. All that has happened has been that people have suggested the extreme inconvenience of taxation. I can appreciate that. Taxation is no doubt a most extremely annoying and inconvenient process, but if it is the only method of paying your way surely it must be resorted to. And when it is suggested that, for example, the limited Capital Levy on war fortunes means in some way the destruction of capital and the annihilation of wealth, I must say that I am a little amazed at the statement. After all, if the Levy were collected what would be done with it? If we had a normal Government in office I know what would be done with it. It would be used to redeem Treasury bills. What does that mean? The money goes straight back into commerce again, because it goes into the banks and is available for use in trade, and the country is none the poorer. Although it is perfectly true that you have shifted the assets of credit, you have not taken away from the country the power of paying its way; you have not taken away from it the power of recuperating its industry; you have not taken away from people who desire to start business the opportunity of obtaining extended credits at the bank. The idea that you have, by doing this, destroyed and annihilated capital is truly a most bewildering notion of finance.

It certainly was not for the purpose of creating a gloomy atmosphere, and it was not for the purpose of suggesting that this country was bankrupt, that I brought forward this matter. I myself made no suggestion whatever of the country being bankrupt; and the noble Lord, Lord Harris, who rather chided me, thinking that I had done so, had better have directed his reproaches to the members of the Government whose words I quoted. I made no suggestion. I simply said that the Government had told us through their most authoritative statesmen, the Prime Minister and the Chancellor of the Exchequer, that unless a certain event happens, which may or may not occur, this country is going to ruin; and I have pointed out that one of the reasons why it is going to ruin is that, however you reduce your expenditure, when you have got it down to its Hat, normal, level rate you still are not producing enough revenue by a very considerable sum to meet that expenditure, and my humble suggestion is that honest finance demands that that expenditure should be met.

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