§ LORD MONKSWELL rose to ask His Majesty's Government whether any considered plan exists for the guidance of successive Governments, laying down the limit beyond which public Expenditure cannot be increased without making resort to inflation inevitable; and to move for Papers. The noble Lord said: My Lords, in times of extreme difficulty the one quality above all others that is required of Governments is foresight. I do not know what secrets may be locked in the bosom of successive Governments of this country. They may be looking ahead and so regulating our finances that the steps they are now taking may be suited for producing the best results in the long run. I hope that it is so, but, if so, it is the most successful practical joke that has ever been played in this or, I should imagine, any other country. It amounts to a complete reversal of all pre-conceived notions, and of all the lessons of history.
§ I am not one of those who think the label by which the Government of the day is known matters much. All Governments are delegates from the electorate. There is little real difference between the different sets of people whom an unchanged electorate returns to power. The Government at bottom simply reflects the aspirations of the electorate. If the electorate possesses foresight, so will the Government do so; if not, not. At a rough estimate I should say that in the whole of my acquaintance there are perhaps ten people who have a rudimentary glimmering of economics, and I imagine that the experience of most of your Lordships is similar. In these circumstances the probability that any Government returned to power by the present electorate works to such a plan as I have outlined appears remote. I hope with all my heart that it does. But appearances are terribly black. It is not too much to say that appearances suggest a wild scramble in which all political Parties take part to buy votes by the lavish expenditure of public money, and that this system makes all acts of foresight impossible.
§ The situation, so far as can be seen, is something like this. About sixty years ago the franchise was sufficiently widened to make the votes of people with little or no capital a matter of importance, and 1116 the widening process has gone on so fast that by the beginning of the present century there was an enormous permanent majority of people in this category. Directly this fact was thoroughly realised political Parties began to vie with one another to buy votes by withdrawing money from production by means of direct taxes levied upon the richer classes, whose voting power was insufficient to afford them protection, and spending it non-reproductively in all sorts of ways calculated to appeal to the majority of the electors. Then came the War, which, besides eating up capital on its own account, enormously accelerated the process of the diversion of capital into non-reproductive channels. I am not here expressing any opinion as to whether the way in which this money was spent was good or bad; I am simply calling attention to the facts. To begin with, the money was easily come by, but as demands grew and production, to put it very mildly, failed to keep pace, direct taxes had to be raised to such a point that at the present time we are obviously approaching the limit of what is possible to raise by this means, and little if any more can be squeezed out of them.
§ It is worth while looking a little closer into this. Direct taxes consist principally of Death Duties, Income Tax, and Super-Tax. We shall be making a generous estimate of the length of human life if we assume that on an average an estate changes hands only once in twenty years. It is now not quite twenty years since Duties on big estates were made so high as to involve the breaking up of a large proportion of the big estates passing by death, and there are still a few left. In a few years the tax gatherers will be going over them for the second time. To suppose that in the meantime a completely new set of big estates has come into existence ready to yield duty on the same scale as those already broken up appears to be out of the question. As to Income Tax and Super-Tax, the noble Lord, Lord Arnold, not long ago informed me that for the last year in which Income Tax was 6s. in the pound the Treasury had at the end of that financial year failed to collect assessments to those two taxes combined amounting to £94,000,000. I will not detain your Lordships by examining the various considerations put forward by the noble Lord to account for 1117 this fact. I should have thought that it bore its explanation on its face.
§ Now, far from there being any immediate prospect of expenses going down, every political Party, in slightly different language, announces its intention of continuing to increase Expenditure; in fact, under present conditions, they one and all appear to be convinced that not to do this is equivalent to political suicide. Where is the money to come from? Quite clearly, the direct taxes will soon be unable even to continue to produce what they are producing now. Indirect taxes are practically useless for vote catching, and there is no prospect whatever that large additional sums will be collected by means of new indirect taxes. Repudiation of the National Debt? This, in theory, may be done in various ways. The American Debt could no doubt be repudiated to-morrow, but what about the repercussions of such a step What chance would there be of our debtors continuing to pay us? Repudiation of the Internal Debt without previous inflation of our currency? I do not think it need be considered. All avenues are closed except one, and that is inflation. It is inflation that is the nightmare that has induced me to bring this subject before your Lordships, and I think I am doing the Treasury no injustice if I say that I have gathered that they are at least as much terrified of inflation as I am.
§ I am aware that there are people who think that inflation would be a convenient means of wiping out the National Debt. Germany has done it and survived; France has done it to a somewhat less extent, and has also survived. I believe that any comparison in this respect between this country and France or Germany is completely illusory. Both France and Germany, when they are in a tight place, have the priceless advantage of an agriculture carefully nursed for many generations with the especial object of producing enough food to feed the whole of the population. We have lately heard a good deal of the influx of French people into the towns, but even now half the population live in the country, and there is probably hardly a single Frenchman or Frenchwoman who has not some near relation with a farm, to which he or she could resort at short notice and secure food in return for his or her labour. In this country this resource 1118 simply does not exist. I do not know how near chaos and civil war France and Germany went at the height of their periods of inflation. Clearly they were not very far from it, in spite of the advantages they possessed in the matter of food production.
§ In two words, what I am afraid of for this country is that we are rushing headlong towards inflation; that, in the circumstances in which we are placed, inflation due to unrestrained public extravagance must become progressive. Inflation will progressively raise the price and restrict the supply of imported food. When scarcity reaches a certain point food riots will break out, law and order will disappear, and there is no obvious reason why Great Britain should not perish in a welter of starvation and civil war. It is with these possibilities in mind that I invite the Government to tell us that plans exist and are consistently followed which, so far as human foresight can perceive, are calculated to render this country secure from such a fate as I have outlined. I beg to move.
§ LORD BANBURY OF SOUTHAMMy Lords, as I was for many years Member for the City of London may I say a few words in support of the Motion brought forward by the noble Lord. I have preached economy for many years, not only to this Government, but to every Government, and I am sorry to say that I have preached in vain. Probably many of your Lordships have read the book upon England by Mr. Page, who was American Ambassador here some few years ago. There is in that book a very important passage regarding the commerce and prosperity of England and the United States. In that passage Mr. Page says—this was written some years ago—that one of the main causes of the prosperity of England was the fact that for many years she had accumulated savings. He said that America, being a young country, had not had time to accumulate savings, but that when America had had time to accumulate savings so as to be in a somewhat similar position to this country the result would be that America would out-vie this country in prosperity and success. That seems to me to be very true. But what has happened since Mr. Page wrote that? Instead of this country continuing to save it has merely continued to spend; 1119 and saving at the present moment is almost impossible for any class of people.
Your Lordships have probably seen that in answer to a Question in another place the Government stated that where a man had at the present moment an income of £50,000 a year and paid a premium in order to meet the Death Duties on his death, the result was that the amount he had to pay in Income Tax, Super-Tax and premium came to £50,900; so that though he had nominally an income of £50,000 a year he was actually £900 out of pocket. That sort of thing cannot possibly go on. When we remember that if a man has an estate of £1,000,000 the State takes half of it at one blow, it would seem that the result must be that in a very few years there will be nothing to take from the Death Duties and very little from Income Tax and Super-Tax. It must also be remembered that in a debate on the Finance Bill in another place the Chancellor of the Exchequer said—I can hardly believe that his figures are right but as he said so I presume they are—that there are only 50,000 people in this country who pay a full Income Tax. If that is so, what are the prospects for the continuation of the money which is taken from these people? I have not the actual figures before me, but I believe I am right in saying that Income Tax, Super-Tax and Death Duties amount at the present time to something like £350,000,000 a year. I do not vouch that those are accurate figures, but I think they are something like that. That is an enormous sum and it cannot possibly go on.
We all remember the character in one of Dickens's novels—I think it was Mr. Micawber—who said: "Income, 20s. a week; expenditure, 19s. 6d. a week; result, happiness. Income, 20s. a week; expenditure, 20s. 6d. a week; result, misery." I am not making any attack upon the present Government because I am sorry to say that all Governments during the past ten years have been tarred with the same brush; but that is exactly what the Government are doing now. They are not living on their income; they are living on their capital, and what, apparently, they will not see is that there is no hole in the ground out of which you can dig money and distribute it amongst people. No doubt they are 1120 deserving people. As Mr. Lansbury said, manual labour is a troublesome thing which ought to be avoided, and no doubt they feel that. I do not doubt that I should feel it myself, but we have to face the facts.
There being no hole in the ground out of which we can dig money, where on earth will you get these large sums of money to be distributed in what are called Social Services? I do not wish to enter into any discussion as to whether these so-called Social Services and the enormous Government Departments—too big before the War but enlarged tremendously after the War, whose only object seems to be to harass the unfortunate individual—are good or bad. I simply confine myself to the fact that even if they are good we cannot afford them. There are many things which we should all like to do if we had the money, but if we are prudent people we do not do them. If we do them, the result, as the noble Lord has said, is not inflation but bankruptcy—which may possibly be more or less the same thing because the end of inflation is undoubtedly bankruptcy, or rather the repudiation of your just obligations. In those circumstances, though with very faint hopes of success, because I am certain that the present Government have no plan for economy—that is the last thing they are thinking of at the present moment—but in the hope that my few remarks may influence not only the present Government but noble Lords who usually sit on these Benches, too, some of whom are conspicuous by their absence at the moment, I beg to support the Question of the noble Lord.
§ LORD MARLEYMy Lords, I have to thank the noble Lord who moved the Motion for his courtesy in writing a letter to me beforehand explaining the line upon which he proposed to address your Lordships on the subject of his Motion. I tried to analyse the exact meaning of his Motion from his letter and I came to the conclusion that, perhaps, the three things he most wanted to know were, first of all, whether there was a plan for the guidance of successive Governments in Expenditure; secondly, whether it was thought that we have reached the limit of national Expenditure; and thirdly, whether any sort of inflation ideas might he expected to occur after that limit of Expenditure 1121 had been reached, if further expenditure were required.
§ LORD MARLEYI think I might reassure the House at once by saying that the Government has decided not to repudiate the National Debt. That, no doubt, will be of some interest to noble Lords.
§ LORD MARLEYPerhaps in the course of the very few words I propose to address to your Lordships' House I may be able to reassure the noble Lord. The noble Lord, Lord Banbury, begged for prudence in Government Expenditure. I think he was perhaps right—
§ LORD BANBURY OF SOUTHAMI am sure of it.
§ LORD MARLEY—especially when one looks at the record of the previous Administration in this connection. Noble Lords who were conspicuous by their absence are now conspicuous by their presence and no doubt they will read in the OFFICIAL REPORT to-morrow what the noble Lord, Lord Banbury, said about them. The Budget now before another place seems to me to be an extraordinarily straightforward one compared with the financial antics of the previous Chancellor of the Exchequer. After all, the Government have made the attempt to pay for the commitments of this country out of direct or indirect taxation, and though it is uncomfortable for all of us to have to pay additional Income Tax or Super-Tax, yet on the whole it is, perhaps, more honest and more honourable to do it that way than to attempt to pay for the cost of running the country by the means used by Mr. Churchill.
I noticed that my right hon. friend the Chancellor of the Exchequer, speaking on Mr. Churchill in another place, said:—
Mr. Churchill's policy has always been that of the prodigal taking no thought for the morrow. I am convinced that he never expected to face the House of Commons with another Budget. He had got to the end of his resources, and if he had been Chancellor next year (1930), he would have been compelled to impose additional taxation and thus expose his defalcations.1122 Those defalcations were very uncomfortable matters, like the £19,000,000 raid on the Road Fund, like the annual raid on National Health Insurance funds amounting to a diminution of national contributions in the neighbourhood of £2,800,000 a year, and the extremely unfortunate cutting down of money available for the Unemployment Insurance Fund in 1925, which, had it been continued to be paid at the rate then in force, would have ensured that the Unemployment Insurance Fund, instead of being in debt to the amount of something like £35,000,000, as it is at the present moment, would have been actually a solvent Fund to-day. The Government amount cut down was something in the neighbourhood, when taking into account Government contributions and employers and employed contributions, of £8,500,000 a year, of which the Government contributions were £5,000,000 a year. This added up during the last five years would have provided enough money to make the Fund solvent at the present time.Then there is the extremely doubtful method of legislating to-day, and making arrangements to pay, perhaps, to-morrow. The administration of the late Government was somewhat on those lines and about £15,000,000 has to be found this year for a measure which was passed eighteen months or two years ago. The result is that my right hon. friend, the Chancellor of the Exchequer, found himself with a, deficit of £14,500,000 in the present Budget, due to that type of what I might call rather too clever financial jugglery. As a result—and it will interest noble Lords to have this fact recalled to their memory—Mr. Snowden has proposed that in future there shall be no tinkering with the Sinking Fund. To quote his words:—
…there is one certain method by which all efforts to reduce Debt can be rendered futile, and that is by leaving Budget deficits uncovered…There is still this deficit of £14,500,000 which I have to meet somehow. I cannot disregard it…it is my intention to propose to Parliament an alteration in the law bearing on Budget deficits in general. As things stand, the Chancellor of the Exchequer of the day is under no legal obligation to propose to Parliament that a realised deficit shall be made good. I propose to alter that.That means that in future we shall have a position arising under which deficits in 1123 the Sinking Fund must be made good under the law of the country. I think that fact alone is to some extent a measure of prudence and foresight in legislation, and I hope it will meet with the approval of the noble Lord.There was the question of the meaning of the Expenditure of the country and the noble Lord divided Expenditure into reproductive and non-reproductive Expenditure. I might, perhaps, suggest that a better division would be reproductive Expenditure, what I would venture to call transferred Expenditure, and non-reproductive Expenditure. In reproductive Expenditure I would put services which add to the physical and mental development of our country and its people.
§ LORD MARLEYI am sure the noble Lord would have been sorry if I had not said that. So, in reproductive Expenditure, I put services such as education, health, housing, agriculture and matters of that type. Then, in transferred Expenditure, I venture to put such things as the Debt services of the country—the Internal Debt services of the country, not Foreign Debt services—old age pensions, and widows pensions, which are merely a transfer of money from the pockets of some into the pockets of others, and it is a system which, personally, I should like to see carried very much further. The Debt services, in point of fact, I believe, do not make such a great difference as is generally thought, because I believe that the payers of taxes which go to pay the interest on the National Debt very largely receive back that money as dividends on their holdings of Government loans. It is an interesting fact—and this will bear out perhaps what the noble Lord, Lord Monkswell, said—that owing to the deflationary policy, not deliberately perhaps but certainly pursued during the last seven or eight years, the proportion of the National Expenditure, of which the National Debt services form a ratio, has been constantly increasing. That is to say, whereas something like eight years ago the National Debt services were only about 25 per cent. of our total Expenditure, the average during the last four years has been in the neighbourhood of 44 or 45 per cent. That 1124 is a sort of fixed sum which cannot be altered, but as the price level falls it bears a larger ratio to our total Expenditure.
Then the third category that I wanted to put forward was what I call the exhaustive category—that is services like the Foreign Debt, the United States Debt, and Defence Services, which now amount to £110,000,000 a year. I suppose the less said about our Foreign Debt settlement the better. It was an extremely unfortunate episode, not at all in the interests of the taxpayers of this country. It was settled on a basis far worse than the similar Debt of France and Italy was settled, and what made the matter far worse was that our settlements of the French and Italian Debts were worse from the taxpayers' point of view than the United States settlement. That is a fact which cannot be lost sight of, and will not be lost sight of, by the taxpayers of this country.
The next point I want to deal with very briefly is the question of whether the limits of the national taxation have been reached. I would remind your Lordships of an extremely interesting Report of a Committee presided over by the noble Lord, Lord Colwyn, on taxation, in which it was pointed out that the proportion of income paid in taxes by the poorest people in this country was considerably higher than the proportion of their income paid in taxes by those possessing a considerably larger income. Let me give the figures. That Committee pointed out that a family with an income of £100 a year paid approximately 12 per cent. of that income in taxation. A family with an income of £500 a year paid only 6 per cent. of that income in taxes. A family with an income of £1,000 a year paid 11 per cent., that is less than the percentage paid by the poorest family, by the £2 a week man. Then, when you get to an income of £2,000, the percentage is 15 per cent. and it goes up to as high as 50 per cent. or more in the case of the largest incomes. It might be as well to remember that while the taxes are very high yet the sum left is still a sufficient one to eke out a precarious existence.
I should very much like to go into the figures quoted by the noble Lord, Lord Banbury, when he instanced the case of the unfortunate man who has £50,000 a 1125 year but whose taxes and insurances amount to £50,900 leaving him minus £900 to live on. I feel extremely sorry for that unfortunate man, but I have noticed that most people are very pleased to pay as high taxes as possible because, after all, the higher the tax one pays the higher is the income from which the tax is paid. There is no doubt that the policy pursued by the Conservative Government during its four years of office has increased the burden on the poorest people by increasing the amount of indirect taxation. It is quite clear that it is the policy of the present Government to alter, as far as is in their power, that ratio of indirect taxation. Then there is a possibility that we may get a little money by preventing tax evasion.
§ LORD BANBURY OF SOUTHAMI am sorry to interrupt the noble Lord, but may I ask, if a man does not smoke or drink and his income is under £200 a year what tax does he pay? He is much better off if he does neither.
§ LORD MARLEYIf he does not drink or smoke he does not pay any taxes.
§ LORD MARLEYBut his fellow-taxpayers pay more. What I have given is the average.
§ LORD BANBURY OF SOUTHAMIt is a voluntary payment.
§ Loan MARLEYVoluntary or involuntary, it is a tax on the people with incomes of £100 a year. I am not giving my figures. I am giving the figures of the Committee presided over by Lord Colwyn.
§ LORD BANBURY OF SOUTHAMIf it is voluntary surely it is not taxation.
§ LORD MARLEYThe point is that if two persons are liable to taxes and one does not drink or smoke and the other does, and the average of the tax is so much, then the one is paying twice as much as the other. I think that must be clear.
§ VISCOUNT BRENTFORDHe would if he drinks twice as much.
§ LORD MARLEYIt is the average. To go back to the question of tax avoidance, the Board of Inland Revenue has had to take cognisance of the fact that there is a certain amount of tax avoidance by 1126 people living abroad. I understand the position is that anybody who lives abroad for under three months of the year avoids paying Income Tax and Surtax in this country.
§ VISCOUNT BRENTFORDNot under three months.
§ LORD MARLEYI beg pardon. I should have said more than six months. I am told on reliable authority that there are people who watch their diaries very carefully and on the last day of the period when they would become liable they hurry abroad again. I do not know that there is much to be gained from that source. There is also the question of the conversion of estates into private companies. While that is perfectly within the law, yet it is liable to misunderstanding and objection and the Chancellor of the Exchequer proposes legislation to prevent avoidance of Estate Duties on landed estates and investments through the medium of private companies.
Then there is another source from which we may be able to get a considerably greater return from existing taxation. I refer to the possibility of inducing investments in industry in this country, and particularly in the export industries, instead of the money which is available being used for investments abroad. Mr. McKenna told us, in a recent monthly statement from the Midland Bank, that approximately £150,000,000 is now being invested abroad each year. It is the aim of His Majesty's Government that some of that money should be invested in this country in industries largely export in character, so that instead of exporting capital we should export goods made by British workers in this country. An example of that is the Government's Coal Mines Bill, by which we hoped that the industry would be put upon such a prosperous basis that money would be available from the British investor for the coal mining industry to enable the coal mining industry to reorganise itself and so increase its exports abroad instead of exports of capital.
§ LORD BANBURY OF SOUTHAMIf I had any money to invest I would not put it in a coal mine if the Bill passes.
§ LORD MARLEYWell, that is an interesting proposition with which everyone may not be agreed. But the mutilated 1127 body of that Coal Mines Bill which your Lordships have nearly smothered—
§ LORD BANBURY OF SOUTHAMHow?
§ LORD MARLEYIt has been pointed out again and again that there are provisions which the Government consider are of essential importance which were deleted by your Lordships. I am not attacking anybody.
§ LORD MARLEYIt was mutilated.
§ LORD MARLEYIt is the opinion of the minority in this House and of the majority in another place that the Bill has been mutilated.
§ LORD MARLEYThat is what I say now. It is perfectly clear that the Bill has been mutilated. Finally, I want to remind your Lordships that owing to tax reduction during recent years and owing to the fall in the price level those who have comfortable incomes are considerably better off. I believe it to be a fact that a man with a gross income of £10,000 a year is twice as well off to-day as he was eight years ago.
Several NOBLE LORDS: No.
§ LORD MARLEYThat is an absolute economic fact susceptible of clear proof. By that I mean that the money available for spending after taxation will buy twice as much to-day as it would have done at the time of the highest inflation period in this country. It will buy twice as much. I believe that to be absolutely susceptible of clear proof. In this connection we have the fact that the yield from taxes has kept up very well. The number of Surtax payers remains constant. The yield from Estate Duties, from Surtax and from the principal sources of taxation remains constant, so that I would suggest that we have not yet arrived at the period when no further taxation is possible, although, fortunately for the peace of mind of noble Lords opposite, we have the 1128 assurance of the Chancellor of the Exchequer that he believes that no new taxation will be necessary next year.
§ THE MARQUESS OF SALISBURYHe said that he would not impose any new taxation. That is rather a different proposition.
§ LORD MARLEYIt is a different proposition; I stand corrected. I gather that the noble Marquess suggests that he said that he hoped that it would not be necessary.
§ VISCOUNT BERTIE OF THAMEUnless there were unforeseen circumstances.
§ LORD MARLEYUnless there were unforeseen circumstances. I am not prepared to say whether there will be unforeseen circumstances or not. That is in the laps of the gods and, for all I know, may be decided to-day in another place. Finally, may I deal for one moment with the question of inflation? I do not quite know whether the noble Lord suggested that inflation was a disease or a medicine.
§ LORD MARLEYAs a medicine, of course, it is a possible form of taxation but, on the whole, an undesirable one. I do suggest, however, that the alternative to inflation—namely, the deflationary policy of recent years—has been at least a serious contributory cause of unemployment. I am not going to suggest that this is the deliberate policy of any Government. I believe that it was partly due to a world-shortage of gold. I am told that the world needs an average increase in the gold supply of about 3 per cent. per annum, and I am told that there has been an actual decrease in the amount of gold available. That has resulted in a falling price level and a gradual deflation throughout the world which has at least been partially responsible for the world-wide unemployment problem that is now facing this and other countries. I suggest that this danger of food riots and starvation is not a real one. A well known Socialist writer on this subject, in putting forward that proposition, said:—
Our capitalist community, unable to support itself with its own hands, will fall back on horse, dogs, cats, rats, blackberries, mushrooms and cannibalism.1129 I hope on the whole that we shall be able to avoid these dangers, and that noble Lords will be able to reassure themselves on that matter.
§ LORD JOICEYMy Lords, the matter that the noble Lord has brought forward in this Question is a very important one so far as this country is concerned. I do not think that either he or my noble friend Lord Banbury will get very much comfort from the reply that has been given by the noble Lord. I think we ought to realise the feeling that exists amongst all commercial people. Depend upon it, the opinion of large commercial concerns and their leaders in this country is a very important one so far as finance is concerned. If you read the speeches delivered at their various meetings, whether of banks or of any other commercial concern, I think you will be satisfied that there is a real and general anxiety with regard to our Expenditure and our financial position. We are undoubtedly drifting into a very serious disaster, and the misfortune is that those who control the taxation and Expenditure of the country do not seem to realise it.
I notice that the noble Lord who has just spoken stated that there was very little doubt that the yield from taxes was increasing. But how long is that going to go on? Death Duties, as we all know, are drawn chiefly from capital and we are spending our capital as if it were revenue. Everybody knows that, when that is done, you affect the income from that capital. There are many other ways in which capital is being expended and treated as revenue. The Chancellor of the Exchequer made a statement the other day that taxation did not affect the industries of the country. Any Chancellor of the Exchequer who snakes a statement of that kind shows clearly that he does not altogether understand the question. If you look at the various large industries that have been accustomed to pay very large sums in Income Tax, such as the coal industry, iron and steel, shipbuilding and ship-owning, most of them, even last year, contributed considerable sums in Income Tax owing to the system of averaging. These large sums are disappearing, and I feel quite sure that we may in the future find that the Revenue upon which Mr. Snowden is depending will not be realised.
1130 If you take away capital which pro duces revenue, depend upon it you must, affect that revenue, and I think that the Government—and I do not speak only of this Government but of all the Governments that have controlled our Expenditure and taxation—do not yet seem to realise the serious position that we are in. When you consider that there are only 60,000 people who pay these enormous sums in Income Tax and Super Tax, you will find that a large proportion of it has been paid by those industries which at the present moment are practically making nothing, or even losing. I hope that the Government, and in particular the Chancellor of the Exchequer, will give serious thought to the Question that has been so ably brought forward by Lord Monkswell and supported by Lord Banbury. Depend upon it, there is great anxiety among the great financiers of the country that we are drifting into a very serious position.
§ LORD CUSHENDUNMy Lords, when I came into your Lordship s' House this afternoon nothing was further from my intention than to take ally part in this debate. I read the Question standing in the name of my noble friend Lord Monkswell, and it did not suggest itself to me as a subject in which I should feel called upon to take any part. I should not have done so, but for one or two observations that fell from the noble Lord who spoke for the Government. I followed his speech as closely as I could. My difficulty was to make out where it was relevant to Lord Monkswell's Question. He went into a number of interesting financial matters and laid down certain propositions, but they did not seem to me to have any relation what ever to Lord Monkswell's Question, which asks
whether any considered plan exists for the guidance of successive Governments, laying down the limit beyond which public expenditure cannot be increased without making resort to inflation inevitable.The noble Lord has not given any reply, or any attempt at reply, to that Question. It would be a matter of very great interest to hear what the Government had to say in answer to it.Instead of that, the noble Lord spread himself pretty continuously over the whole financial position, and thought it necessary to make a rather pronounced attack upon the finance of his predecessors. As 1131 I had the honour of being at the Treasury with my right hon. friend, Mr. Churchill, I feel inclined to say something in repudiation of what has fallen from, the noble Lord. Of course, a matter of this sort is one with which one cannot possibly deal at all fully without preparation of some sort. As I have already explained, I have made no preparation whatever. It is some time since I studied any of the materials which one would have to study to prepare a speech of this sort, and I can only speak from recollection, but I utterly repudiate the language used by the noble Lord with reference to my right hon. friend.
One of his expressions was "Mr. Churchill's financial antics," and then he went on to give one or two illustrations of What he considered to have been "antics." Of course, we had a re-hash of the old accusation about the Road Fund. The raid on the Road Fund was a catch-word on the Benches opposite before and at the last Election. I do not believe that any sober and instructed opinion in this country has at any time regarded what was called the raid on the Road Fund as any improper dealing with the financial situation. After all, let me remind your Lordships what the Road Fund is. To whom did the Road Fund belong? We had accusations of theft. I think the expression was used occasionally, that my right hon friend, Mr. Churchill, had robbed the Road Fund, and that he had committed theft. The Road Fund belonged to the taxpayers of this country. The Road Fund was a Fund with a very large amount standing to the credit of the taxpayers. It had been raised by taxation, and it would have been absurd, in the financial position which obtained two years ago, to have allowed that enormous sum to run on, which could not be used within any immediate future for the benefit of the roads of this country. It would have been absurd not to have used it for the benefit of the taxpayers, as Mr. Churchill did use it.
Then the noble Lord instanced the dealings with the Insurance Fund. Again he brought forward that example to show that Mr. Churchill had dealt with the finances of the country in a hand-to-mouth way and without looking forward to see what was going to happen in the future. As a matter of fact, exactly the contrary is the case with regard to the 1132 Insurance Fund. Mr. Churchill, at the time when he was preparing his last Budget, was fortunate enough to be able to forecast a very considerable decrease in unemployment in this country, and he had only to deal actuarially with the Insurance Fund to determine at what figure of unemployment the Insurance Fund would be paying its way. Unemployment was then falling very rapidly, and there was every hope, which probably would have been realised but for the result of the Election, that unemployment would decrease rapidly in the course of the following year, with the result that the Insurance Fund would be paying its way. As a matter of fact, it was no responsibility of Mr. Churchill's that that did not take place. It was the policy of the noble Lord and his friends, and not that of Mr. Churchill and his friends, that has added 600,000 or 700,000 to the number of the unemployed. That was entirely due to the policy of noble Lords opposite. Therefore, when the noble Lord, in his irrelevant answer to Lord Monkswell, chooses to make this attack upon the finance of Mr. Churchill, I think I am justified as an old colleague of Mr. Churchill in asking leave to repudiate the noble Lord's language and meaning.
The noble Lord expressed in very truthful language what is the policy of the present Government, not in relation to the Question put upon the Paper, but generally. He expressed the policy of the present Government as transferring money from the pockets of some to the pockets of others. That is a very euphemistic way of expressing a policy which might be very much more succinctly described. The noble Lord then reminded us of some findings of the Colwyn Committee. These, again, had no bearing upon the Question addressed to him, but nevertheless were of some interest. The findings which he quoted from the Colwyn Committee's Report I and others have sometimes thought were very good examples of the findings of theoretical financiers in giving an academic opinion.
The noble Lord quoted the statement that the man with £100 or £200 a year paid so much percentage in taxes, and that the man with a larger income paid so much less percentage, and so on. Viewing the matter practically, that is sheer nonsense. How can you tell what 1133 any man or any individual on the average would pay in taxes on a certain income, when his taxable capacity depends entirely, or almost entirely, upon indirect taxation? A man with £100 a year may not need to pay any taxes at all, and a great many of them do not, and therefore to talk about an average is, with great respect to the noble Lord, really absurd, and it is absurd to draw inferences from it, as the Colwyn Committee did. It is quite true that a man with a small income may, if he so chooses, by using dutiable commodities, pay a large part of his income in taxation. It may well be that a man with a much larger income, although he uses dutiable commodities, pays a lower percentage in taxation, but that is not really practical politics, and it has no bearing whatever upon the subject which your Lordships are now discussing.
There was one other statement made by the noble Lord which I do not venture without examination to contradict directly, but which I must say surprised me very much, and about which I am very sceptical. He said that the result of the finance of the last Government was to increase the amount of indirect taxation. I think if the noble Lord will examine the figures again he will find that it is not so. If you take in the Betting Tax as being indirect taxation, it may be that with that tax included his statement would be correct, but considering the amount of reduction which the late Government effected in indirect taxation, through the increase of Imperial Preference and in other ways, too, although it is quite true that the proportion as between direct and indirect taxation may have been altered, and I think was altered, by the late Government, I do not think it is correct to say that the amount of indirect taxation was positively increased by their operations.
The noble Lord finished by quoting an assurance of the Chancellor of the Exchequer—I am not sure whether it was an assurance or merely an expression of opinion—that next year he would not be obliged to put on new taxation. I do not know, as I say, whether that was an assurance or not. If it was an assurance it is not an assurance to which I, at any rate, would attach very much importance. We have had so many assurances, not only from the Chancellor of the Exchequer, 1134 but from the Government of which he is a distinguished member—assurances which have never been borne out by the facts—that I do not think we need take much comfort to ourselves from any assurance given by the Chancellor of the Exchequer with regard to future taxation; and in any case, even if we could rely upon that, it would not supply us with any intelligible answer to the Motion of the noble Lord.
LORD MELCHETTMy Lords, I think that a few words should be said on one aspect of the case which the noble Lord opposite raised, because in his speech he betrayed that curious muddle-mindedness on financial matters which seems to afflict the present Government in a most extraordinary degree, and which, if continued, is bound to ruin this country. In one part of his speech he announced that the policy of the Government was to transfer money from those who are better off to those who have less; I will not say from the more industrious to the less industrious, or from the more deserving to the less deserving, but he announced that as a policy. Carried far enough, that is the doctrine of Mr. Lenin, which has been carried out so successfully in Russia. And it is, after all, only a question of degree, for when taxation reaches a certain point the difference left is so small a margin that it really does not matter very much whether you take the capital and transfer it to the State, or take so much of the income that there is nothing left. That is a mere matter of machinery. But then the noble Lord went on to say, curiously enough, that the Government were exercised about the export of capital, which, I was surprised to hear him say as a Free Trader, was sent abroad in the form of money. I always understood it was sent in goods.
§ LORD MARLEYI said it was invested abroad.
LORD MELCHETTInvestments abroad, I have always been taught, are paid in goods. It is the only economic method by which they can be paid for. Then, carry that a step further. The noble Lord does not seem to realise that the penal taxation of the present Government is forcing all of us to invest abroad, and is making it impossible to find people who will invest money in industries in this country. That 1135 is taking place on an enormous scale, and is growing, and will grow. The reason is obvious. After all, money invested abroad is not likely to be subject to the predatory operations of a Party which wishes to transfer it—finally, I take it, the whole of it—to the pockets of somebody else. I have been informed by people in the City whose opinion is of great weight that people are now beginning to transfer their property abroad, simply because they no longer think it is safe in this country, quite regardless of whether they get any income from it or not, so that there may be something they may be sure of having. That is not a vague fear but quite a serious statement. People are leaving this country; in fact, you are producing a flight from the pound, just as at one time there was a flight from the mark.
You may say: "If people do not appreciate this heavy taxation, if people who are well off do not care to cut down their standard of living to a much lower standard, and prefer to live in other countries where their money is invested and they are able to enjoy a standard of living to which they are more or less used, they are bad citizens—let them go." But do not at the same time imagine that you are going to encourage people to invest money in industry here, or that you are going to increase the exports of this country, or help the unemployment problem, which is weighing so heavily upon your minds. You cannot confine capital unless you confiscate it. You cannot prevent anybody selling English securities and buying Swiss, French or American securities, and leaving his money in some obscure place by some obscure methods which it is very difficult for even the Inland Revenue authorities to find out, whereby he is enabled to have a decent dinner from time to time.
So you are producing among citizens who have contributed to the revenues of this country the spirit of a tax strike, and that is a spirit that is daily growing. It is no use for noble Lords opposite to think that they can entirely ignore the expressed views of the chairmen of banks and big industrial enterprises in this country, to say that these people do not know what they are talking about, and that either Committees or Treasury officials are infinitely better guides in these matters than those who have to 1136 bear the burden of industry. I am not saying that as something new. I have protested against our financial policy ever since the War. We have pursued a crazy policy of deflation, a foolish policy of reduction of Debt at a time when we could not afford it. We depressed our industries, ruined our export trade, and had chronic unemployment. That is a financial picture of this country which people hold up as an example to other nations, who, whatever their financial methods have been, all seem to have been more successful than we have been. You cannot get away from the facts, and I am glad to hear that the policy of deflation, at any rate, is no longer going to be pressed as it has been.
But the policy of over-taxation is worse. There is nothing new in all this. If the noble Lord will examine the history of Empires, particularly the fall of the Roman Empire, he will see that over-taxation has been a more potent cause of the ruin of countries than any other single cause you can name. And the reason is obvious. If you make a citizen feel that it is not worth while to continue to make efforts because it is probable that the result of his efforts is taken by the tax-gatherer, he ceases to make the effort. And, after all, it is on the efforts of the citizens that you depend —and in "citizen" I include those who direct finance and industry, without whose energy, brains, and enterprise no industry would be carried on or established. And if those people begin to feel that the amount of taxation they have to pay is in excess of what can reasonably be demanded you are bound to see a decline. That is the verge on which you are standing.
After all, who are the people who have put the money into new industries? The same people whose money is to be taken away apparently, and given to people who will not put money into industry. The dissipation of wealth is very much like the dissipation of a head of water in a waterfall. If you have a hydroelectric scheme and a good head of water, you get, relatively cheaply, a good lot of power; but if that water is spread out into a shallow expanse on the level you get no power at all. It is a degradation of energy. And that is the danger of the theory of the dissipation of wealth. There may be evils in the concentration of 1137 wealth in a few hands, but in industrial communities there is an enormous advantage for all in that because enterprise is supported by small groups of people who have the money to put down themselves, who do not go to anybody else for it, and who are prepared, if necessary, to lose it if the risk is worth while.
And let the noble Lord ask himself this question: What rate of remuneration would he require on some new capital enterprise the result of which was in doubt if 12s. 6d. in the pound, should he make a profit, has to be returned to the Treasury, and he only retains 7s. 6d. in the pound of the profits, whereas he may lose the whole of his capital? If he will make that calculation he will see that the return which is required is something so big that you cannot find industries that will yield it. And the result is a growing disinclination to go into new ventures. That is natural. Financiers point out that it is absurd to run these risks because the financial reward cannot possibly be in any way commensurate with the risks which you run. It is a question of heads you lose, tails you lose. And that is one of the dangers which seems not to be apprehended by those who seem to think that it does not matter how much you take away from people who have an income or a capital of a certain size. It does matter. It is not that they cannot still have a grill somewhere and still buy some clothes and still manage to live. That is not the point. It is that the dynamic force which these people represent in every industrial State is broken, and unless you substitute another for it nothing will happen. Speaking seriously, surely it would be much better to proceed to bring about pure nationalisation or the Socialistic State because there would be some big people who would have the financial ability to go on and do something. What you are doing is to bring about financial paralysis, and that is a very serious thing. That, with uncertainty, despair and despondency, is a picture of industry in the City of London at the present day.
The noble Lord talks gaily about the Coal Mines Bill. I should like to hand over to him the task I have had of trying to raise on first-rate debentures some money for collieries at the present time. I assure him that the Coal Mines Bill is the one thing which has killed the 1138 chance of my ever doing so. If the noble Lord opposite thinks that the Bill is a bull point I should like to take him with me to some underwriters in the City and get their views as to whether they think it is a bull point. It is not a bull point; it is a bear point. For noble Lords to come and tell your, Lordships that a Bill which proposes to increase the cost and practically destroy the profits of the coal industry is a splendid advertisement with which to go to underwriters and the public in order to get an investment in collieries—
§ LORD MARLEYIt has been difficult to raise money for the coal industry during the last four years; indeed, long before the Coal Mines Bill was thought of.
§ LORD MARLEYThe point is that the Coal Mines Bill was brought in in order to put the coal industry on a better basis financially so that money could be raised for the industry.
LORD MELCHETTThe noble Lord seems to me to forget that by the shortening of hours, which has nothing to do with the reorganisation of the coal industry, you will so deprive the industry of profits that, however you reorganise it, it will be worse —
§ LORD MARLEYThe shortening of hours has nothing to do with the necessity for the reorganisation of the coal industry. That was made clear by an article in The Times.
LORD MELCHETTThe noble Lord was talking about the Coal Mines Bill. If he will take the hours clause out of the Bill he might be right. Is he prepared to do it? Is he prepared to give us even the small Amendment we have asked for?
§ LORD MARLEYThe Party is not prepared to take the hours clause out, but we are prepared to say that the Bill as originally introduced would have put the industry on a sound financial basis, including the hours.
LORD MELCHETTThe noble Lord knows very little about the coal industry and still less about its financial side. I am giving him not theory but practice. I am inviting him to put those arguments forward in the City to see what answer he will get. It seems to me to be terrible 1139 that the industry of this country is subject to government by people who seem to live entirely in vacuo, who are entirely out of touch with reality either in industry or finance. It is appalling and it is really the most serious thing which we have in front of us. I do not meet one leader of industry, I do not care what industry it is—and I meet dozens of them every day—who does not share the views I am expressing. If noble Lords opposite and their Party really wish to do something serious for this country surely it would be much better for them to consult from time to time some of us who have the interests of the country as much at heart as they have, and who have the advantage of long and trained industrial and financial experience.
Surely, that would lead away from some of these entirely theoretical points and arguments which you always hear advanced; for instance, that heavy direct taxation does not affect industry. I have heard that for years and it is entirely incorrect, as I have pointed out on previous occasions. If, in a limited company, you have very heavy Income Tax, obviously two things can happen; either the amount which you put to reserve is diminished or the amount of the dividend has to be diminished. If you diminish the amount you put to reserve the company suffers in future in regard to renewals of plant and so on. If, on the other hand, you diminish your dividend too much your shares go down and your chances of raising future capital are seriously impeded, if not made impossible. That is a very serious position for a progressive enterprise. All these are theoretical doctrines which I had to read when I was a member of a Government. Probably the same gentlemen hand them out to the present Government to-day—I disagreed with them just as intensely then as I do today—but they never see the point. They say that it does not matter in the least; it is all passed on to the shareholders. That is not true. It is not all passed on to the shareholders. That is why this particular form of taxation, of very heavy Income Tax with no reference paid at all to the actual position, is seriously jeopardising the stability of industry to-day. It is true that these are old points, but they are none the less true for being old, and they really cannot be passed by or 1140 glossed over with the facile assurances of good intentions which the noble Lord has given us.
I do not admire the present Budget. It is one of the most injurious and worst Budgets the world has ever seen. It imposes heavy taxation in this and that direction without any idea of the economic consequences, and seems to be based on the idea, "I am paying my way, blank the consequences." That is not finance. It is not statesmanship. I agree as little with the idea that it is a good thing to say by law what is to happen to deficits in Budgets. After all, surpluses in Budgets automatically go to Sinking Fund. If you occasionally have a deficit why should it not be allowed to be taken in balance against your surplus of other years? These pedantic methods of dealing with these things are to my mind hampering and choking enterprise and creating difficulties. Besides Mr. Snowden, virtuous as he is, is not paying the deficit off in one year. He is spreading it over three years. So that he is not meeting his obligations in quite the open-handed manner which was referred to by the noble Lord, Lord Marley.
He is also incurring further obligations. The Government are engaged to bring in a new Bill to raise the school age. It is the disadvantage of most of those schemes that their full financial effect will not be felt for four or five years. I do not believe that we can afford some of these very excellent things at the present time. The noble Lord, Lord Monkswell, is right in raising this Question. I am not afraid of inflation. What I am afraid of is that we shall reach a point, among the countries of the world, where, if you do not get tax-reduction, you will never get out of the difficulties you are in to-day; you will never help to solve the unemployment problem that we are all so anxious to solve; and you will merely descend from a higher to a lower pinnacle by a continuous orgy of Expenditure without any regard to the capacity of the country to pay for it.
Loan MONKSWELLMy Lords, may I begin by congratulating the noble Lord who replied for the Government on the courageous, not to say reckless way in which he made the best of a bad case. I am deeply flattered that so many most interesting speeches should have been 1141 made on my Motion. Tongues abler than mine have torn to pieces the courageous efforts of the Government spokesman of which I spoke. I think it is clear from what he said that no plan whatever exists for regulating our finances so that we shall pay our way, and that his answer amounts to saying that we are continuing our merry rush towards bankruptcy. I know that there is much business coming on, and I beg leave to withdraw my Motion.
§ Motion, by leave, withdrawn.