FINANCE BILL.

HL Deb 21 July 1938 vol 110 cc1041-79

Order of the Day (or the Second Reading read.

LORD TEMPLEMORE

My Lords, when I moved the Second Reading of the Finance Bill in your Lordships' House last year, and the year before that, I had occasion to remark that the finances of the year were chiefly influenced by the overwhelming needs of rearmament. This year I have, unfortunately, to repeat that remark. Notwithstanding the better atmosphere which I think we may say exists to a certain extent, due in my opinion at any rate to the foreign policy pursued by His Majesty's Government during the last six or seven months, it would be idle to deny the existence of danger spots in Europe, which are perfectly well known to your Lordships, or to say that there is no longer need for further and for more rapid rearmament.

Your Lordships may remember that in the financial year ending the 31st March last the expenditure was below and the revenue was above the estimates made a year before. Without going into details the surplus came to nearly £29,000,000. This surplus will not be used to redeem past debt in the usual way but will be used, in accordance with the Defence Loans Act of last year, to mitigate the amount of newly-borrowed money necessary for the defence expenditure. The estimated expenditure for the current year came to the total of £1,034,398,000, which is the highest expenditure since 1921. This expenditure includes £222,000,000 for Social Services, £230,000,000 for the fixed debt charge which under Clause 53 of the Bill is increased this year by £6,000,000 above the total of last year, and the really enormous total of £343,250,000, for the Defence Services, of which the Chancellor decided to meet £90,000,000 from issues under the Defence Loans Act, 1937. The total to be met from revenue is thus £944,398,000. Coming to the revenue side the ordinary revenue received last year amounted to £872,580,000, and the additional revenue to be found was therefore roughly £72,000,000. The additional revenue which my right honourable friend the Chancellor of the Exchequer reckoned to get from the expansion of revenue from existing taxes came to £42,000,000, which left a final gap of £30,000,000.

When it came to meeting this deficit your Lordships will remember that my right honourable friend chose to do it by using three existing taxes and no others. He imposed an extra twopence a pound on tea, estimated to bring in £2,750,000; an extra tax of 1d. a gallon on oil, to bring in £5,000,000; and an extra 6d. on Income Tax, which is estimated this year to bring in the balance of £22,250,000. The Income Tax is now 5s. 6d. in the pound, only 6d. lower than in the last year of the War and until 1922, when I think my right honourable friend Viscount Home, who was then Chancellor of the Exchequer, reduced it by is., from 6s. to 5s. The Income Tax addition is, however, modified to a certain extent. Under Clause 18 Income Tax on the first £135 of taxable income remains at 1s. 8d. in the pound. This means that 2,000,000 persons, more than half of the Income Tax payers, will not pay any more at all. Another mitigation is made by Clause 22, under which an increase in the allowance for wear and tear of machinery and plant is granted which will offset the incidence of the extra 6d. in the Income Tax on the reserves of companies engaged in productive industry. There is also a provision in Clause 16, which is really consequential on the raising of the Income Tax above 25 per cent., which will prevent hardship in payment of Schedule A Income Tax in certain cases by providing for payment by instalments. The cost of that remission will be this year £2,000,000, but of course in future years it will be nothing. Both in the additional taxes chosen and in the reliefs which are given, the object of my right honourable friend has been to spread the burden which the necessity for heavy defence expenditure imposes on the country as evenly and fairly as possible.

Now I come to another part of the Bill, into which I must go in some detail. It is concerned with provisions against avoidance of taxes. These provisions are necessarily long and technical, and it is impossible to describe them accurately in a short space. Broadly, they may be divided into three classes. The first are the provisions designed to set right difficulties which have arisen owing to recent decisions in the Courts: Clauses 23, 24 and 25. The law as proposed to be enacted in these clauses is the same as the existing law was always supposed to be until these recent decisions showed that the statutory provisions were faulty. In this case there is no question of stopping tax-avoiding practices which have been resorted to in the past. The intention is merely to stop a loophole for the future which has been created by the decisions referred to. Secondly, there are provisions to prevent the improper use of revocable or accumulating trusts and settlements under which the settlor may divest himself of income and thus avoid tax on it, although he retains the power ultimately to enjoy the income which arises himself. Thirdly, there is provision to check the avoidance of tax which is possible by the transfer of income abroad.

I should like to make it quite clear, and to emphasize it here, that my right honourable friend was very careful, in the speech which he made on the Budget, to acknowledge the readiness of the vast majority of taxpayers to shoulder their proper burdens. The ingenious devices which have necessitated so much complicated legislation are resorted to only by comparatively few. The Chancellor of the Exchequer has felt it necessary to make a determined effort to stop these devices, not merely because of the loss to the revenue, but also because, at a time when the whole country is faced with demands for very high taxation, it is essential to give every taxpayer a feeling of assurance that his neighbour as well as himself is paying his full share. Confidence that the burden is properly distributed is a necessary foundation for the remarkable readiness of the British public to hear heavy taxation when convinced of its necessity.

Some of the other clauses in the Bill are of special interest, notably Clause 6, which repeals the McKenna Duties on certain important imports—particularly motor cars—and transfers the machinery for imposing duties upon them to the Import Duties Advisory Committee, which already covers the vast majority of our import duty system. This ensures elasticity in the arrangements for these imports, which previously came up for review only once a year in the Finance Bill.

Then I come to another important Clause, Clause 45, which deals with a point mentioned by Viscount Home last year regarding the liability to National Defence Contribution of certain insurance companies. National Defence Contribution is not normally levied on investment income, but the investment income of life assurance companies is so liable for reasons generally admitted as just. The Chancellor feels that other insurance companies stand in an intermediate position, and the clause substitutes partial for complete liability of investment income to National Defence Contribution in their case. Though this is not a year for tax concessions, the Chancellor was able to make two Income Tax concessions during the progress of the Bill in another place: first, in respect of children over sixteen undertaking industrial training; secondly, in respect of dependent relatives who had been denied unemployment assistance by reason of the support accorded to them by the Income Tax payer. The Chancellor has also made an important concession in Clause 17 which provides that liability to Schedule A Income Tax is not to be increased on account of works undertaken solely for air-raid precaution purposes.

I have pointed out and explained as far as I can the main clauses and features of this Finance Bill. My noble friend the Leader of the House will reply to the debate and will deal with any points that may be raised during the discussion. It is a severe Budget, and I think it was rendered more severe by the unexpected steps taken by the Chancellor of the Exchequer to meet the deficit. Your Lordships will remember how, for some days and some weeks before the Budget was introduced in another place, the daily papers all came out with the most definite assurances that the Chancellor was not going to put anything on the Income Tax. I expect we all met the incurable optimists, who had met someone who had met somebody else who had been with the Chancellor, who had definitely told him he was not going to put on any direct taxation but was going to raise all the money by loan. Certain leading London newspapers were assuring their readers up to the last morning that there would be no addition to direct taxation. Of course the Chancellor of the Exchequer could not have made any such statement to anybody, and of course the newspapers could not have known anything about it. But hope springs eternal in the human breast, and we are all optimists, and therefore I think the shock when it came was rather more severe than it would have been otherwise.

I have heard the Budget described as an unimaginative Budget. I do not quite know what that means, but I think the country, when the shock had passed, recognised the courage of my right honourable friend in preferring the hard but straight path to a more popular and possibly, at the moment, easier method of raising the money. It is a most remarkable fact, and one to be proud of in this country, that we are able in this time to support such a Budget as this with the immense amount which we are spending on our Defence Services, and yet spend no less—in fact we expect to spend more—this year on our Social Services than ever before. But, having said that, I think there is another side to this Budget which must be mentioned to your Lordships. In this Budget of £1,000,000,000 we are providing for three things. Firstly, for the service and management of debt; secondly, for the Social Services, and thirdly, and by far the largest item, for the defence of the country. I think nobody will have anything to say about the first two items which I have mentioned. The service and management of debt must go on, and we are used, in this country, to spending large sums now on our Social Services.

Without being a pacifist, as that word is used, I must say that there is to my mind something rather terrifying in the fact that this country and others are spending, year after year, such enormous sums on armaments, and it makes me inclined to wonder where it is going to end. It is true that the expenditure on armaments gives employment to a section, and a very large section, of our countrymen, and no doubt the same applies on the Continent and in other countries, but there is also no doubt that expenditure such as this causes nervousness and alarm, and must prevent the nations of the world from getting down properly to their business of developing their trade, by which, in the end, we all live. I know that is the opinion of His Majesty's Government, and that is the reason why, led by the Prime Minister and my noble friend the Secretary of State for Foreign Affairs, they have tried by every means in their power to bring about friendship among nations.

The country has responded magnificently to the call for recruits, and I am sure we are all very glad. It reflects great credit, I think, on my right honourable friends the Secretary of State for War and the Secretary of State for Air, that recruits for the Army and the Air Force should be coming in as they are. But make no mistake, I think these young people realise the seriousness of the state of the world, and they are just as anxious as His Majesty's Government for the day when we can get together, and call a halt to what I can only describe as this fearful expenditure on armaments. I can assure your Lordships that His Majesty's Government are fully alive to this feature of the case. But that day is not yet, and in the meantime I present this Bill to your Lordships as an honest effort to distribute, in the fairest way possible, the huge burdens which we are asked to meet. I beg to move.

Moved, That the Bill be now read 2^a.—(Lord Templemore.)

VISCOUNT SAMUEL

My Lords, the Leader of the Opposition, who would normally have followed the introducer of this Bill, has been good enough to invite me to precede him, as I wish to bring to the attention of your Lordships' House one particular matter on which I understand Lord Snell desires subsequently to address you. I therefore do not wish to follow the noble Lord who has just spoken in a general survey of national finance. I would merely observe that it can be satisfaction to none of us, no member of either House of Parliament, to be concerned in the passage of a £1,000,000,000 Budget. Within the lifetime of most of us the annual British expenditure was in the neighbourhood of £100,000,000. I well remember that the year in which, as a very young man, I was first a candidate for Parliament, 1895, was the year in which for the first time the national expenditure reached that figure of £100,000,000. Now it is £1,000,000,000. The Income Tax was then at a low level, and a few years before that was at an even lower level. Not long ago I happened to see a political cartoon, published in the St. Stephen's Review, in 1884, which pictured John Bull as a huntsman in a landscape, with great looming storm clouds filling the sky. By his side were Gladstone and Chamberlain (then Mr. Gladstone's principal Radical lieutenant) in the guise of donkeys. From the sky descended a downfall of rain, and on the lowering clouds were written the words: "Radicalism, War, Bad Trade, Revolution, 6d. Income Tax." Truly the times have greatly changed!

Perhaps, in view of this great national expenditure, the moment is not very propitious for bringing to your Lordships' attention the matter on which I wish to address you—namely, the outstanding obligations of this country to the United States in respect of War Debts. If I were intending to propose any immediate action, involving additional burdens on the Budget, the moment would be not merely unpropitious but impossible. However, my purpose to-day in bringing forward this subject is to prevent, so far as one can, the idea arising in this country, and in the United States, that this question of the British Debt to America is a closed chapter of history. If, year after year, no mention is made of this matter in any quarter, it will be regarded in course of time, both here and in America, as though we considered this to be, as I have said, a closed chapter, and had no intention at any time of fulfilling the obligations which we undertook.

I have often heard in this House in the course of debate, expressions of gratitude to members who had introduced some subject, for the useful service which had been rendered in bringing it before your Lordships. I do not expect any such compliment to-day. On the contrary, I imagine that many of your Lordships will wonder why anyone should wish to raise so uncomfortable a topic. But I hope in the course of my observations to convince your Lordships that it is advisable, for many reasons, that this subject should be brought under review. Your Lordships will perhaps think that the chief reason I had in mind is the general position of international politics, the importance of Anglo-American co-operation, and the hindrance which this question is to such cordial co-operation. On that, which is indeed of importance, I shall have something to say, but I submit that it is not the chief reason why we should take this matter under our consideration. The chief reason is the fact that a representative of the British Government, Mr. Stanley Baldwin as he then was, Secretary to the Treasury at that time, put his name, on behalf of the British Government, to an Agreement with the United States in 1923, by which we assumed certain obligations. That signature was ratified and confirmed by the British Cabinet.

We are continually told, and all of us believe, that it is essential to the smooth working of the comity of nations that countries should honour their signatures, and that if in any international agreement a change is to be made it must be made by the concurrence of both parties to that agreement, and not unilaterally. For years we have been impressing that doctrine whenever occasion required upon other countries—upon Germany in particular, upon the Irish Free State, and recently in connection with the Austrian debt. It is true that sometimes there is force majeure, and the country is compelled against its will to break some undertaking that it has given. When this country went off the gold standard in 1931 that was essentially an occasion of that kind. Every five-pound note, every one-pound note is a contract between the nation and the holder of that note. The holder of the note is a creditor of the British nation, and when we went off the gold standard we infringed undoubtedly the previous terms of the contract between the parties. But we resisted that to the utmost. I was a member of the Cabinet at the time, and I can testify to the fact that the Government of that day, as is well known, did the very utmost that they could to avoid being forced off the gold standard. But the conditions were too strong for us in this tug between the British Government on the one hand and powerful economic forces on the other, and we were pulled away from our standpoint, having incurred immense costs in the effort to fulfil our obligations.

And undoubtedly when the American Debts ceased to be paid by the nations of Europe in 1933 it was economically impossible to transfer on the scale that was then in practice, and under the conditions that then prevailed, the sums that were due from Europe to America. But it does not follow that we should quietly accept the position that therefore in no circumstances and at no time are we under any obligation to pay anything. I have no patience with those who say that after all some of the Southern States of the American Union after the Civil War defaulted on their obligations. For fifty years we condemned them, and to say that we are now to imitate them and to regard their default as a justification is, I think, beneath the dignity of the British State. The present Foreign Secretary, Lord Halifax, a few months ago, shortly after his assumption of his present office, speaking in the country and engaging in a general survey of our international relations, used these words: This country never goes back on its word. That is a very proud declaration. It is a declaration which must apply not only to diplomatic and political matters but also to financial matters. And, after all, the whole foundation of the position of London as the greatest financial and commercial centre of the world is not any adventitious circumstance but the fact that the world has faith in the constitutional stability of this country and in its financial trustworthiness.

I happened to be in New York in 1933 at the time when the Leith-Ross Mission was there discussing the American Debt, and I cut out of a newspaper one of the late Will Rogers's paragraphs, which had an immense circulation and very great influence on public opinion in America, a paragraph which related to this matter. In his pithy sentences he said this: The British are over here now talking to us about Debts. That's one thing you got to say for them.… We dislike their tea, we kid their poor English dialect and we think they are snobbish, but we know that their honour all over the world is recognised. Sentiments such as that give a glow of satisfaction when they are read, but when, a couple of months ago, we received a Note from the Government of Mexico in the course of a controversy about financial matters, and we complained of their defaulting on certain undertakings, the situation was not so pleasant. The Minister for Mexico, having received orders to close his Legation and to return, did so, but before leaving he sent a Note in the course of which, after making a certain payment of sums immediately due, he said this: I permit myself, since I deem it pertinent, to call the attention of your Excellency to the fact that even powerful States, which have abundant resources at their command, cannot pride themselves upon always having met all their monetary obligations. To read that is, as the Prime Minister would say, "not nice."

We have been proud all through the generations of our unsmirched record in the fulfilment of our financial obligations, and many British people cannot endure the thought that other States may point to the record of the non-payment of our acknowledged Debts to America, whatever the reasons may be for their non-fulfilment, and point out that in fact they have not been fulfilled in whole or in part, and that there is no definite assurance that they ever will be. That is the first and principal reason why I submit that this matter ought not to be left where it is, and by itself it is a sufficient one.

But there are others, which may appeal to some noble Lords who demand more practical considerations. When we survey the conditions of the world to-day we see a conflict between two sets of ideas—between the advocates of freedom and the advocates of force; between those who believe in the sovereignty of law and justice in international affairs and those who believe in the sovereignty of military power. The struggle is doubtful, the battle sways this way and that, but everyone can see that in the ultimate resort the co-operation of Great Britain and the United States as the two greatest democratic countries is of supreme moment, and the population and resources of the United States make them perhaps the most decisive factor in the long run. I do not know whether your Lordships realise the fact that during the present century, during this twentieth century—and we are only about a third of the way through it now—the increase in the population of the United States is more than the whole of the population of Great Britain, built up in the course of our long history. I submit therefore that from the point of view of international politics this question of Anglo-American relations is ultimately more important than any other. Without minimising the urgency or the gravity of such questions as the present conditions in the Mediterranean or Czechoslovakia, in the long run this question of Anglo-American relations is the most important factor in our international politics. And in America more than in any other country public opinion is supreme, and there is no doubt that American public opinion has been profoundly alienated from Europe.

After the War the United States, which eschewed all questions of territorial gain, saw Britain and France adding vastly to their Colonial Empires under the Mandates system. While we insisted upon the disarmament of Germany, we did not proceed to the general disarmament to which we had been pledged. Americans found they had lent enormous sums of money to assist the rehabilitation of Europe, and almost all of that money was lost. In the meantime, while there were definite obligations by European States to repay Debts incurred in the United States, these obligations were not being fulfilled. The American Government had issued bonds to their own people in order to provide the money they lent to Europe, and the American taxpayer to-day is paying interest on these bonds, while the European debtors do not recoup him the funds that are so expended, and the American Treasury remains under the obligation to pay the principal of the bonds that were issued.

Many of your Lordships are in touch with the trend of opinion in the United States, and we know that although this question of European Debts is not in the forefront of American politics, the consciousness of it is always there in the background. I can cite many witnesses in support of that proposition. I will give only two. In The Times a few months ago there was an interesting account of American conditions of to-day, and these articles were followed by a letter from Mr. Steele, for twenty-five years one of the principal correspondents of the American Press in London. In the course of this letter he said this: Your correspondent writes that the solution of the Irish question and the Naval Agreement removed the last stumbling blocks in the way of Anglo-American friendship. I would submit that there are still one or two left. The most important of these is the War Debt situation. An attempt to arrive at a settlement or even the resumption of token payments would do much to remove a potent ca use of irritation in America. The other witness whom I would cite is a distinguished English journalist, Mr. Aylmer Valiance, who was lately in America and who wrote this a few weeks ago: Anglo-American friendship may be a well-rooted plant, but it requires tending. The Trade Pact now under negotiation will, one hopes, be a step in the right direction; but good relations between Britain and America will never be perfectly secure so long as the uneasy ghost of unpaid War Debts still walks in Congress. To suppose that the War Debt controversy has been forgotten in the United States is a profound mistake. It is a very live issue, which will continue to furnish American critics of Britain with ammunition, until it is settled. We know that in America detachment from European politics is a very strong influence, and I dare say it will be thought there that anyone here who raises again the question of War Debts to America is animated by some subtle. and sinister motive, and is trying to lure America back into what they call European entanglements—that we are proposing to throw a very small sprat in order to catch a very large whale. But none of us, I think, has any expectation of active intervention by America in European politics at the present time. Nevertheless, it is becoming more and more recognised there as well as here that complete isolation of any country, anywhere, from world politics is impossible. President Roosevelt has himself declared that in emphatic language not long ago, and so also has Mr. Cordell Hull, the Secretary of State. Whether American public opinion is friendly or unfriendly to this country may have a very important effect, if troubles should come, in many indirect ways. The question of supplies, of finance, of the interpretation of neutrality—these may become matters of prime importance. I submit to your Lordships that while it is undoubtedly of great importance to try to remove the causes of friction between ourselves and possible enemies, it is as important, possibly even more important, to try to remove causes of friction between ourselves and those who are our potential friends.

I do not propose to trouble your Lordships with any discussion of the details of this Debts question or its history, infinitely complicated and technical as it is. It is enough to say that all questions relating to the origin and prime nature of the War Debts were disposed of when the Funding Agreement was signed. It was too late afterwards to say that War Debts are different to commercial debts or that all the Allied and Associated Powers were engaged in a common enterprise during the War and ought, as partners, to have pooled all their resources, or that our expenditure was largely to the benefit of America in employing American industries in war supplies. These may be cogent arguments and may perhaps influence greatly opinion in this country. The fact remains that the United States did not concur, and was not willing to cancel the Debts on these grounds, and that we did, in fact, come to an agreement with them for certain measures of repayment.

We advanced the argument that others did not pay us, and therefore it was unreasonable to expect that we should pay America. Your Lordships will remember the Balfour Note of 1922, in which the British Government declared that we would pay over to America everything that we received from our own debtors, and would not demand from our debtors more than America demanded from us. We envisaged a kind of all-round cancellation of all these Debts. Superficially it would appear that that was an equitable arrangement, everybody being affected in the same way, all cancelling their obligations to one another, but of course, very naturally, America did not look at it in that light. They were the ultimate creditor, and they would have lost something in the nature of £2,000,000,000 had the Balfour Note been acted upon, while we ourselves would have been the losers to the extent of about £700,000,000.

But the principal fact is this, that the Americans lent this money to us and not to our Allies, for the very reason that our credit was better and that they had a better prospect of repayment. Often a man will plead, when he is called upon to honour an obligation that he has undertaken on account of a friend, "When I backed my friend's bill I never for a moment expected he would not pay." But that is no answer. The money was lent to the friend for the very reason that he had backed the bill, and we are precisely in that position vis-à-vis the obligations of the Continent of Europe for war supplies and other war charges. Money was lent to us and not to them for the very reason that we were believed to be in a position to repay, and when they default to us that is no valid reason why we should default in turn to the United States.

The fact that the original moratorium in 1931 on all Reparations and War debts was initiated by Mr. Hoover, President of the United States, is no reason for assuming that a general cancellation of all obligations is due to American initiative. At that time it was made perfectly clear that this was a moratorium for one year, in order to enable Europe to take breath during the economic blizzard that had descended upon us. It was to give a breathing space, and it was made quite clear that it was not intended as a cancellation of any obligations. Far more important is the plea that it is or has been economically impossible to transfer such vast sums from Europe to America. I think that plea was valid at that time. During the years that repayments were going on to America—the years 1922 to 1930—America was at the same time lending money to Europe, therefore there was no difficulty in the transfer of sums from Europe to America. During those years America received from her debtors a sum in the neighbourhood of £500,000,000, of which, by the way, about £400,000,000 came from this country, but at the same time America was lending to Europe more than double that amount, so there was no difficulty of transfer.

There was also a great flow of gold from Europe to America on account of those Debts, and that flow of gold was one of the main reasons for the upset of the paper currencies of so many of the countries of Europe. Goods also had been sent to America until, in 1930, the American Congress passed the Hawley-Smoot tariff which raised tremendous barriers against imports into America and was undoubtedly one of the major causes of the intensification and prolongation of the great economic depression. Now, to-day, there is an adverse balance for this country, which is at the moment increasing, and in dealing with this question we must never lose sight of the fact that we have our own monetary and financial system to safeguard. We must do nothing which would endanger such stability of sterling as we have so far attained.

But the point I would submit to your Lordships is this, that the United States are fully aware of all these facts, they also are keenly interested in maintaining financial stability and currency stability, not only their own, but in assisting to maintain the stability of British currency and of the exchanges of the whole world. Our course would be, I submit, when the time comes to embark upon these discussions, to ask what proposals they would make in order to overcome the difficulty of the transfer of the sums incurred under Debt Agreements. Will the new Trade Treaty which is under negotiation with the United States increase the volume of exports to America? Do they suggest that bonds should be issued by the British Government in New York, and, if so, how do they think that the transfer of interest and sinking fund can be effected? Do they think that the large increase in the world output of gold in recent years may contribute to facilitate payments of this kind?

Certainly the position is much easier now than it was in 1933 owing to one cause. At that time the pound was very much depreciated in relation to the dollar, and, therefore, any financial transfer would be extremely onerous to this country. At the present time the dollar is about equally depreciated. Furthermore, there are many indications that the United States would be prepared, when the time came for negotiations, for an equitable reconsideration of the amounts of obligations. One point which I believe has not hitherto been taken into account is the fact that a considerable part of the sum owing to America has been indirectly recovered by the American Treasury in this way. Very large sums indeed were spent by Great Britain in America during the War for supplies. The American Government levied a heavy Excess Profits Duty upon the producers of those supplies, and no small percentage of the sums spent by Britain in America has been recovered by the American Treasury in the form of Excess Profits Duty, and they may not be unwilling to take that into account when we come to a final settlement.

Further, it is quite clear that the terms imposed on Great Britain were much more onerous than those imposed upon any of the other debtors. Again, at the time when our Debt payment ceased—I am not quite sure what the position is at this moment—the national debt per head was five times as great in this country as in the United States. Lastly, I feel sure that the people and Government of the United States would take into account the enormous burdens for armaments which now press upon our shoulders. They will recognise that these armaments are not being undertaken in any spirit of aggression or imperialistic ambition, that they are sincerely and genuinely intended as a safeguard of peace, and, therefore, that British armaments are to the interest of the whole world, including the United States herself. All these matters, I feel sure, would be taken into account. But the United States are not ready to take any initiative in raising this question. They regard it as unseemly for them to dun other nations for debts which they are not willing to pay, and they realise the difficulty and the danger of the present situation in Europe. I suggest that we ought not to enter upon any negotiations until there is reason to believe that they are likely to be successful. To enter upon another negotiation which should prove abortive would unquestionably leave the situation even worse than it is to-day. All that I am pleading for is that it should be stated that this is not a closed chapter in the history of Anglo-American relations, and that when a settlement can be arrived at it ought to be arrived at.

Every half year there is a White Paper headed "Papers Relating to the British War Debt." I hold in my hand one that was issued a few weeks ago, in June. It begins with a letter from the American Secretary of State to the British Ministry in Washington giving a statement of the amounts due under the American Debt and ending with this sentence: In presenting this notice of amounts due under the agreements signed by the British Government, I take the occasion to reiterate that this Government is fully disposed to discuss, through diplomatic channels, any proposals which your Government may desire to put forward in regard to the payment of this indebtedness, and to assure you that such proposals would receive careful consideration with a view to eventual submission to the American Congress. To that the British Ambassador replied: I am directed to express the appreciation of His Majesty's Government of the assurance that the Government of the United States is fully disposed to discuss any proposals which His Majesty's Government may desire to put forward in regard to the payment of this indebtedness; and in return I am to assure you that His Majesty's Government will be willing to reopen discussions on the subject whenever circumstances are such as to warrant the hope that a satisfactory result might be reached. This White Paper is issued in exactly similar terms every half year and has been so issued since 1933. This is the eleventh edition. I do not know whether these paragraphs are kept in standing type. The only difference is in the amount of the figures which steadily increase year by year.

I have heard of a negro who once said to another, "Do you refuse to pay me that two dollars I lent you?" to which the other replied, "Oh, no, I don't refuse, I just refrains." If you refrain continually it is difficult to observe any clear distinction between that and refusal. The question which I wish to address to His Majesty's Government today is this: Does this formula in our correspondence with the United States Government mean something or nothing? Are we to forget the signature of Stanley Baldwin to the document signed in 1923 on behalf of the British Government, or are we to observe the proud rule expressed by our Foreign Secretary, "This country never goes back on its word"? I submit that this matter cannot be left to official negotiations between Governments, but that nation must speak to nation. I have raised this matter in your Lordships' House to-day in the hope that public opinion in America and also here will realise that not every one on this side of the Atlantic regards this as a finished question to be dismissed from our minds, but regards it as a matter merely kept in abeyance to be effectively resumed whenever the conditions may allow.

LORD SNELL

My Lords, the noble Lord who presented the Finance Bill for your consideration did so with complete frankness and he presented the melancholy facts attached to the Bill. He had to recount that there had been increases in the taxes on tea and on oil, an increase in the Income Tax, and so on. Yet, if I understood him aright, he drew a kind of negative satisfaction from these figures in that the situation was not worse than it is. The reason for that he said was of course the enlightened and altogether defensible policy of His Majesty's Government in relation to foreign affairs. That is a field of controversy into which I will not this afternoon venture to walk. Other opportunities for doing so will be provided. I will only say that the taxpayer-citizen may not get the same satisfaction as that which the Government seem to have.

My purpose in speaking to-day is to emphasize, if I can, the importance of the subject which has been presented to your Lordships' House by the noble Viscount. This is obviously a question that should be discussed with the greatest care and with the sole purpose of helping towards a solution of the problem, which is a thorn in the flesh of two great and friendly peoples. I have long held the opinion that the Opposition in your Lordships House might be neglecting a responsible public duty in not drawing attention to the present unsatisfactory state of affairs. I ought to say that my Party have no declared policy in regard to this problem of the American Debt. It is a matter, of course, for which they are not responsible. That must be the responsibility of the Government of the day, and until their policy is published naturally an Opposition Party has no final policy upon the matter. But it is permissible to say, without any Party feeling at all, that this problem is a source of irritation and a real barrier in the middle of the road which should lead to mutual respect and good will.

In the twelve visits that I have paid to the United States of America since this Debt was contracted I have had private talks with men whose names if I could mention them would be recognised as people of quite responsible position, and I have been led to believe that this question of Debt does constitute a barrier which both countries would wish to see removed. I would remind your Lordships that in Congress speeches are made on this question which are ignored by the British Press, and therefore our countrymen are not aware of the kind of irritation that exists on this matter in the United States of America. We have come, as it were, to he no longer conscious that the problem exists at all. I am not criticising in the least His Majesty's Government in this matter, because all of us desire to get this problem settled if we can see our way to do so.

The noble Viscount has given the history of this matter and details, which I will not restate. Sufficient for me to say that in 1932 we found ourselves unable to continue to pay upon the scale which had been agreed and for six years nothing has been done. Every six months we receive this gentle reminder from the State Department in Washington, and every six months we return a polite answer which is, in effect, that if circumstances arose we should be glad to reopen the matter. That kind of answer does not really please the American people. They say that our undertaking to them did not depend upon the good faith or ability of Continental nations to meet their obligations. It was an undertaking which was unconditional and complete on our part. I am aware that the position of England in this matter can be defended with very potent and, possibly, conclusive arguments. I do not wish to go into the problem this afternoon, except that I could say in passing that the Debt was contracted after America had actually entered the War. It was spent upon goods produced in America, and it was in some kind of way a contribution even to America's preparation for the great part that she afterwards took. For instance, in Congress in 1917 the Chairman of Ways and Committees said, speaking of the British Army: They will be fighting with our money their battles, and they will be fighting with our money our battles also. So that at that time they did recognise the very special position in which Great Britain was placed. And he said: If not one penny of it is returned, I wish to say that every penny of it will be expended for the benefit of the United States, whether spent by us or by the Allies. There are many other generous statements by American statesmen on the part that we played in circumstances of very grievous difficulty. So a case, and a strong case, can be made out for the attitude which we have hitherto been compelled to assume.

The whole question now is: What is to be done in regard to the future? There is not one American who to-day thinks or desires that the old scale of repayment should stand. Personally I think that the average American does not care ten cents about the money itself, but Americans feel that in a business transaction they have been let down, and their attitude towards European affairs is shaped by a sense of disappointment and of frustration. They say, in effect, "Why do not these people say, 'Let us talk it over, let us see if anything can be done'?" That is what they expect from a country in the position in which we find ourselves. I venture to say, before I close, that American good will for the principles and purposes for which our nation stands is something valuable beyond all price. There is always a danger of clouds gathering on the horizon, and it may be dangerous to continue to encourage the belief in the mind of the average Briton that this is a closed chapter. So the noble Viscount has stated (and with it I agree) his belief that the time is overdue when this most difficult problem should be discussed with the American Government. I believe that if we could get a Financial Agreement to follow what I hope will be a satisfactory Trade Agreement, it would be satisfactory to an immeasurable degree to the people of both countries.

THE MARQUESS OF LOTHIAN

My Lords, I want to intervene in this discussion for a few moments only in support of what has been said by my noble friend on my left (Viscount Samuel) and the last speaker in regard to the importance of the Government and the Chancellor of the Exchequer taking seriously the problem of reopening the question of the American Debt. I have been in the United States, as the last speaker has, on a good many occasions since the War, and I have discussed this matter with many representative Americans—as indeed I have discussed it with many representative people in this country. The difficulty arises fundamentally from the fact that there is now an entirely different approach to the whole question in the public opinion of each country. You may argue for days and hours in the United States for the British view; it will produce not the slightest impression on the American mind. When an American comes over here and argues his national point of view, it makes equally no impression on the British mind. That is the substantial fact of the case. Therefore I agreed with Lord Snell when he said that he did no: believe that any good would follow from formally reopening the question, from sending bodies or individuals to negotiate publicly. That is not really of any use. Everybody on both sides who has studied the matter knows to the very end the arguments which can be adduced on either side.

The question is going to be settled because the President of the United States on the one side, and the Prime Minister and the Government on the other, by those informal channels which are always open to them, come to the conclusion that settlement is possible, are agreed as to what it should be, and are each of them confident that they can carry it respectively in their own Congress and their own Parliament. That is the essence of the problem. Fundamentally, I think, the problem is psychological. I think Lord Snell was right when he said that the desire in the United States to-day is not for the money. See the prodigality, shall I say, with which the President of the United States pours out the national resources in dealing with relief and reconstruction. It is obvious that the element of the British payment cannot form any very large or conspicuous part of his Budget. But there is a deep and bitter feeling in the American mind that we have taken advantage of the moratorium, of the real difficulties of the situation, to say, "Well, it is cancelled, and that is the end of it." There is going to be no settlement on that basis. That is really the essence of the case.

The essence of the case is to make the American people feel that Great Britain is not merely a defaulter, that she acknowledges her debt, and that she is willing to make as generous a settlement as possible, taking into account not only the difficulties of transfer but also rearmament and everything else. Until we are willing to say that, you are going to have what happens every half-year: a flood of bitter editorials, a flood of speeches on political platforms, a flood of radio addresses, pointing to the fact that Great Britain is a defaulter and is simply taking advantage of American generosity; that, having got her money and that help without which the War could not have been won, she has turned aside and said, "Well, carry your own burden." We have our own answer to that, but that is the feeling in the United States, and I think it is imperative that we should do everything in our power to remove that impression.

I rose, not perhaps to repeat what has been so well said by my two noble friends who preceded me, but to make a suggestion. Would it be possible—I do not want any answer to this, because obviously the Government cannot answer it now—for the British Government, without any negotiations at all, simply to resume the token payment—simply to resume paying £2,000,000 a year every half year as evidence that we admit the Debt and as evidence that when circumstances are favourable we mean to make a settlement? I believe that in itself would make a very considerable impression on the American public mind. Admittedly it does not in itself produce the conditions under which a final settlement is possible, but I think it would do a great deal to bring about the necessary change of sentiment about the whole matter—both on this side, where people are inclined to think that it is all settled and cannot be discussed, and on the other side, where the bitterness which I have described exists—in which you might by the private channels that I have described make it possible for the two Governments to say: "Well, we are agreed. We will settle it this way, and we are confident that this settlement will be approved by Congress on the one side and by the British Parliament on the other." I put that forward as a suggestion, not for reply today but in the hope that the noble Earl who leads the House may convey it to the Chancellor of the Exchequer.

LORD ARNOLD

My Lords, I have the greatest respect for Lord Samuel, and I always listen to his speeches with great interest and profit, and on occasions with a good deal of agreement, but I cannot help thinking that on this particular occasion notice might have been given, public notice, that this very important matter was going to be raised on the Finance Bill. After all, although technically I suppose it is in order to raise it on the Finance Bill, it is getting rather wide of the discussions which we usually have on the Finance Bill, particularly as it has not been discussed for some considerable time. My feeling was that if it was going to be raised in this way notice might have been given, so that noble Lords who do not see eye to eye with the noble Viscount, and other noble Lords, might have an opportunity of refreshing their memory about certain important considerations. Thus we might have had a more useful discussion.

VISCOUNT SAMUEL

Perhaps I might interrupt for a moment to say that the Press were informed, some few days ago, that I intended to raise this subject, but apparently the editors did not think it of sufficient importance to draw particular attention to it.

Limn ARNOLD

I do not wish to enter into controversy with the noble Viscount, but that does not alter the fact that the House generally did not know that the subject was going to be raised. For my part, I do not regard the bringing up of this matter at this moment as very opportune. I am not going to say very much about it, but I do want to say this, having regard to certain of the observations of the noble Viscount, that for my part I get rather tired of these certificates of character which we keep giving ourselves in this country: that we are so much better than other people; that we always keep our word and never go back on our word. Yet in the same speech the noble Viscount told us that we had broken Article 8 of the Covenant of the League, which is one of the worst breaches of treaty ever made. He said that whereas we had insisted upon the disarmament of Germany we and other countries did not proceed to that general disarmament to which we were pledged. It is very easy for us, in our strong position and with difficulties less than those of other countries, to say how good and admirable we are, but my own view is that if we were in the same position as other countries we should do much the same as they do.

It really does not do any good in international relations constantly to suggest that we are so much better than other people. Even the noble Viscount this afternoon is not willing that we should honour the Baldwin Agreement in full, but has suggested that in consultations it might be very much whittled down. If it cannot, I am certain that no settlement can be possible. That is all I wish to say about the subject this afternoon, but if there had been notice of the noble Viscount's intention to raise it I should have had more observations to make. I question very much whether the noble Viscount and Lord Snell and the noble Marquess, Lord Lothian, do not exaggerate the position and the importance of this subject. I question very much whether it does, as a matter of fact, after all these years, secure the amount of attention and thought and discussion in the United States which they seem to think. So far as this country is concerned very little has been said about it for a very long time, and I am of opinion that the noble Viscount, Lord Samuel, in that part of his speech, was rather wide of the true perspective of the matter, even in the United States. No doubt he can quote letters and articles from newspapers. You can always quote them at any time, in any country, but we have to look at the matter as a whole, and I venture to suggest that it is a matter for consideration whether in fact the position is as it was stated, perfectly honestly I know in every way, as he sees it, by the noble Viscount.

I had proposed to say something about the Finance Bill itself, but I shall not say a great deal, because the time available is not too long and up to the present practically nothing has been said about the Bill. It is true that on these occasions in this House we do discuss general considerations and general principles, rather than more detailed points in the Bill itself, and I shall not depart from the general rule. In any case the present Finance Bill cannot be regarded as highly contentious. The chief controversy has been in regard to the raising of this £30,000,000 which the Chancellor of the Exchequer decided to raise by new taxation. The controversy has been as to whether that has been raised in the right way. Before, however, I come to revenue raising I would like to say a very few words about the expenditure side of the Budget. Lord Templemore told your Lordships, and we all know, that the total expenditure is £1,034,000, which is an enormous sum, and it gives all the more food for thought because there seems to be small prospect of our getting back to Budgets below £1,000,000,000 for a considerable time to come. Nevertheless we must not be frightened by figures unless we are quite sure that we have got the right perspective of the figures.

It is, for instance, most misleading broadly to compare the present Budget expenditure with pre-War Budgets. It is a complete misconception of the position to emphasize, as some people do, that the present Budget expenditure of upwards of £1,000,000,000 is about five times as great as the pre-War expenditure of about £200,000,000. It must be remembered that since pre-War days the national income of the country has a good deal more than doubled, and therefore an expenditure of £1,000,000,000 to-day is no greater burden on the country than an expenditure of appreciably less than £500,000,000 in pre-War days. But there is a great deal more to be said than that. Lord Templemore referred to the debt charge. The debt charge is now £230,000,000 as against £17,000,000 in pre-War days, but that debt charge, which is practically all for interest, cannot be regarded as expenditure in the ordinary sense of the word. It is money taken from the general body of taxpayers and paid over to other taxpayers, and those taxpayers who get it can spend it; it is income for them. That is not really expenditure in the ordinary sense of the word, as it used to be understood before we got into these big debt charges. Then there is the point that a good deal of the social expenditure which is going on is in the form of a redistribution of the national income. An appreciable proportion of it was going on in pre-War days but was not going through the national accounts. That should always be borne in mind.

Of course, the truth is that the big increase in expenditure, when the whole matter is properly analysed, is largely due to armaments, as the noble Lord, Lord Templemore, very frankly said; and he spoke, if I may say so, very solemn and admirable words about the burden of armaments and the terrible position into which we have drifted in regard to them. All I want to say about that today is this. The noble Lord, Lord Templemore, did not err in this direction today, but some Ministers take upon themselves a terrible responsibility in giving the country to understand, or the man-in-the-street to understand, that this big expenditure on armaments is making the country safe. The Chancellor of the Exchequer in his radio talk on the Budget, said "Britain must be safe," the implication being that "If you spend this money you will be safe." Ministers know perfectly well—and nobody has been more eloquent about this than the noble Earl, Lord Baldwin—that there is no safety, no security, for any country in the next war. As the Prime Minister himself said only three weeks ago, in the next war, if unhappily it comes, all will be more or less losers. I suggest that Ministers ought to choose their words more carefully. I could give many more quotations if I chose to do so, but it is really not in accordance with what will happen, so far as we can foresee, that there will be safety for any country.

In what I have been saying about the expenditure of £1,000,000,000 and trying to put it in a truer perspective, I have gone to the limit of what I think is compatible with honesty in trying to temper the prevailing pessimism in regard to the national accounts. But, with every desire to look upon the brighter side, the outlook is bleak, and it is bleak in almost every direction. And it is particularly bleak owing to the fact that we appear to have got near the limit of the country's taxable capacity on present lines. It is difficult to see how our tax system can be changed, and what new methods can be devised. I do not say we have got to the limit, I say we have got near the limit, and that is a very serious matter. More revenue is required. Where can we look for it? Income Tax can no doubt do a little more. I suppose next year we shall have a 6s. Income Tax, and the Surtax limit might be reduced to £1,500 and one or two other changes might be made in the Surtax. But it must be remembered, on the other hand, that trade will not always be as good as it has been, and if the present trade recession should go considerably further the yield of the Income Tax will fall appreciably.

Next, more money could be got from the Beer Duty. In 1932 a penny was taken off beer, which cost £15,000,000. I do not say that the re-imposition of the penny will bring in as much as £15,000,000, but it will bring in a large sum of money, and there are many reasons, apart from financial reasons, why that should be done. The consumption of beer has gone up gradually since 1932, and drunkenness has gone up gradually. The prosecutions for drunkenness have increased over 5o per cent. since 1932. There is a strong case, therefore, for re-imposing the penny on the Beer Duty. Then there is the Tobacco Duty, which now brings in £83,700,000—nearly as much as the whole expenditure of the country in the early 'eighties; and it will take a great deal to convince a great many people that rather more could not be got from tobacco. I think certain changes could be made there which would make the yield even larger.

I now come to the last item which I wish to discuss, and that is the Death Duties. First I would like to express satisfaction that the estimate for the Death Duties has at last become almost correct. Out of a total of £89,000,000 for Death Duties during the last year the estimate is only out by £20,000. It is to he hoped that this improved state of things will continue, because year after year, with one or two exceptions, since the War, I think the Death Duties have been underestimated. The yield of £89,000,000 from the Death Duties is of course a large one, but there has been a considerable growth in the capital wealth of the country in recent years, and I think that the Death Duties could do a little more. I think by various changes in the scale even more could be got from the Death Duties.

I want next to suggest that the time has come to increase the three years period after which gifts inter vivos cease to be liable for Death Duties. This period of three years is not a long one, and if it were increased to five years, or even seven years, the revenue would obviously benefit. It must be remembered that the present system—and the practice has become so common that it is not going too far to call it a system—the present system of giving away a considerable proportion of a rich man's estate to his children or others during his lifetime means a loss of revenue, not only in respect of Death Duties when he dies but in respect of Surtax while he is alive. Obviously if the single large income of the head of a family is divided up to some extent among his children the Surtax yield suffers. If income is split up in that way there is a loss in the amount payable for Surtax. How much the total loss to the revenue is through what is going on both in respect of Surtax and Death Duties, I cannot say, but I think it would be a very desirable thing that the Chancellor of the Exchequer should have an estimate made. Not very easy no doubt, but not impossible. The brains of the Inland Revenue are quite equal to that, with the information that they have. There should be an estimate made of what the country is losing, and of how much the country would gain if the inter vivos period were increased from three years to five or seven years.

I also think that if the Chancellor of the Exchequer should not look with a favourable eye upon this proposal, he will give full reasons to Parliament why this period of three years has been retained and continues to be just three years. If it is said that what is done by one taxpayer in respect of gifts inter vivos can be done by others, and that what is legal for one is legal for all, then the reply is that the circumstances of taxpayers differ. It may in one case be a comparatively simple matter for an estate to avoid a big claim for Death Duties because there have been large gifts inter vivos. In another case the family circumstances may be very different, and gifts inter vivos may scarcely be practicable. The result is that the incidence of the Death Duties has in practice come to be capricious, and this is opposed to one of the first principles of taxation. One of the first principles of taxation, as your Lordships know, is that taxes should be equal and fair in their incidence as between one taxpayer and another. In fact the noble Lord, Lord Templemore, in introducing the Bill emphasized that. He said—I think I have his words right, but he will correct me if I am wrong—that it was essential to give every taxpayer full assurance that his neighbour was paying his proper share. That is not happening at all.

Some people are avoiding a very large amount of Death Duties by distributing their estates during their lifetime provided it is done more than three years before the death of the person in question. The noble Lord, Lord Templemore, expressed an admirable sentiment, but the position is that all these persons who divest themselves of a large amount of their property during their lifetime, and in this way avoid both Death Duties on their estate at death and to a certain extent Surtax when they are alive, do so at the expense of their fellow citizens. The amount of taxation which they have avoided has to b made up by other people. More than 99 per cent. of these other people are poorer than the fortunate persons who are in a position to give away large amounts of money or property to their families during their lifetime. In fact this system of gifts inter vivos as it is now practised is contrary to the principles on which Death Duties were first imposed. I do not say that it has not been allowed from the first, but the principle was that Death Duties should be equitable and should be in proportion to every man's means. That principle has, generally speaking, come to be accepted by all Parties as just and right.

Quite obviously, if this system of gifts inter vivos were to be extended distinctly further, and were to be generally resorted to, the whole scheme of the Death Duties would break down or, at any rate, its operation would be very largely vitiated. Such being the case, it is difficult to understand why gifts inter vivos continue to be permissible on what I may call such easy terms. There is a great deal to be said, as I have suggested, for increasing the inter vivos period to five years or seven years, or, alternatively, there is a great deal to be said for a gifts tax—that is, a tax to be paid when there is a gift of property during life to children or others, to be paid at the time when the gift is made. I hold, and have held for a long time, that there is a strong case for such a tax as I call a gifts tax. In these days when we are told that we have all got to make sacrifices, and when the Chancellor of the Exchequer is at his wits' end to know where to get money from, I suggest that here, by either of these proposals, is a source from which a considerable revenue could be got. That could be done without real hardship to anybody and with, at the same time, an improvement in the justice and equity of our tax system. What is going on at the present time is not just and equitable, and in my submission it ought to be stopped.

LORD STRABOLGI

My Lords, I rise to say only two things. One is to apologise to my noble friend Lord Arnold for not letting him know that this very important subject of the American Debts was being discussed by the noble Viscount, Lord Samuel. I would have let him know out of courtesy, knowing that my noble friend always makes an important contribution to this annual discussion of the Finance Bill. But he will understand why I thought he would not be here and the unfortunate reason why I thought that. Otherwise I certainly would have let him know. The noble Viscount was good enough to arrange this debate through the usual channels, and I am sorry the noble Lord was not advised.

Having said that, I just want to mention one matter with which my noble friend Lord Snell did not deal, but to which my Party attach great importance. It touches on the matter introduced by the noble Viscount—the question of the American Debts. We are very conscious of the attitude of the American political leaders at the time when we had to suspend payments, when the moratorium was declared and we went off the gold standard. Your Lordships will remember that at that time my friend (as I am happy to call him) Senator Borah was Chairman of the Senate's Foreign Relations Committee. He made a very important statement which the noble Viscount will remember. While repeating the general disappointment of the American public at the action we had to take on the Debts, he went on to deal with the question of disarmament. At that time there was a hope of saving the Disarmament Conference at Geneva, and Senator Borah, undoubtedly voicing a very large section of opinion in the United States of America—and this has a bearing on what Lord Templemore said in his introductory speech about the weight of armaments—said that if there could be a real agreement to reduce armaments all round, by treaty or other arrangement, that would alter the attitude of the American people towards the Debts question, not only referring of course to British Debts.

I thought it worth while to remind your Lordships of that very important announcement, which I have reason to believe still holds good in the United States of America. When, perhaps, this great rearmament programme has got to such a pitch that every Finance Minister in the world is complaining, to the point of resignation, then if we could call a conference, as I have once or twice suggested, of all the Ministers of Finance, without any admirals or generals, and lock them in a room like a jury, and leave them there until we get a disarmament programme, we should be doing something for the benefit of all humanity.

Before bringing these few remarks to a close, let me refer for one instant to the matter raised by Lord Arnold with regard to Death Duties. I always take this occasion once more to protest against the use of the revenue from Death Duties for current expenditure. Death Duties are a tax on capital, and should be used for paying off national debt; they should not be used for income purposes. If we continue on these lines we are heading straight for national bankruptcy. Another thing I want to say about Death Duties—and here I am speaking for myself—is that I have always been doubtful of the wisdom of our Death Duties' practice. The Duties have already destroyed the system of land holding in this country. They have ruined so many landed estates that the land-holding system in this country has broken down, and one day—I hope soon—a Government will be in office which will have to take the land system in hand very radically, as hinted to your Lordships last week by my noble friend Lord Addison. The State will have to step in and do what the landlords in the old days used to do, otherwise the whole system will continue to languish as at present. I feel that that is a very appropriate statement to make on the annual discussion of the Finance Bill, and I make no apology for making it.

May I join with my noble friend Lord Snell in thanking the noble Viscount, Lord Samuel, for introducing a very important subject? As he says in regard to our Party, we have no desire to associate ourselves with the Government if it is their attitude that this matter is closed. Without the advice and assistance of the experts we are not in a position to suggest a solution, but we do not want it to be thought, in the United States or anywhere else, that what was a temporary suspension of payments should be considered permanent.

LORD REDESDALE

My Lords, I had no intention whatever of intervening in this debate and it is the last object on which I should wish to address your Lordships in any case, but I agree heartily with what my noble friend Lord Arnold said about having had no sort of notice that the question of the American Debts w as going to be discussed. Some years ago I initiated a debate in your Lordships' House about the debt which America has owed to us for many years and still owes. Unfortunately, I am not able to refer to the documents and papers now, because, of course, I have not had an opportunity to consult them, not knowing that this subject was going to come before your Lordships until I was actually in the House. Had I known previously I could have produced figures which would have been more appropriate than doing what I can only do now—namely, merely draw your Lordships' attention to the fact that America owes debts to us. I think it is a pity that no one should have pointed out that we are not alone in owing money to America. In fact she owes a very large sum of money to us which has never been repaid and which she has repudiated.

EARL STANHOPE

My Lords, my noble friend opposite Lord Arnold and I used to make it a habit once a year of crossing swords over the question of the Finance Bill of the year. When I understood that I should have to make some reply to your Lordships this evening, I looked up one of the last speeches that I had made on the subject in order to see the usual subjects that we discussed. Therefore I was not surprised that the noble Lord, Lord Arnold, once again raised the question of the Death Duties. I know that year after year he used to complain bitterly that they were very much under-estimated. I was hoping to get home on him on this occasion, but he has safeguarded himself in the usual able way that he has and therefore that avenue is blocked to me. But I always feel that the noble Lord takes the occasion to express a pæan of misery. He always likes to say that the country has got to the edge of its resources, that the Budget is unbalanced, and that all sorts of ills will befall us. Still we carry on. But I am bound to admit that in this case I should have to agree with him in many respects. One is bat the Budget is by far the largest we have had to consider since the end of the War, and that the expenditure is very serious. I am bound to admit also that so far as I can see we are approaching the limit of our taxable resources.

There is one thing that I should like to point out to him. He remarked that the Death Duties as at present levied are often entirely capricious. Of course they are. He forgot that the Death Duties do not fall on the person who dies but on those who come into the property; therefore wherever the property is distributed in a capricious manner the Death Duties must automatically become capricious. There is this further difficulty. Supposing a rich man gives property to a number of persons, each of those benefactions is, if the giver dies within three years of the gift, taxed at the very high rate at which the rich man's property has to pay; therefore, although it may be a poor person to whom it is given, the slice taken out of it on those occasions is very much greater than would be the case with a gift from someone much less well off. That is the capricious side of the Death Duty question. However, I must not at this stage go into a long dissertation about these taxes, because I should soon find myself out of my depth. I shall certainly represent what the noble Lord has suggested to my right honourable friend the Chancellor of the Exchequer. I have no doubt that he has turned the matter over in his mind as to whether it is wise to extend the period in which gifts inter vivos can be made liable to a claim for Estate Duty.

I think the noble Lord rather at one time implied—I am sure he did not think so himself—that you lost Surtax by taking this short period. Of course, it is exactly the other way round. The earlier the rich man distributes his property amongst a number of people the sooner does the State lose the Surtax which that rich man would pay individually. But when once his property is distributed, probably the Surtax payable by the recipients is much less than his would have been. It is a matter which no doubt the Chancellor of the Exchequer will think over and he has far better means of knowing about the subject than have I. As regards the suggested gift tax, I personally must say that I foresee many difficulties in that direction. For instance, it might be said that money spent on the education of children would be within the scope of such a tax, although in point of fact the spender is merely fulfilling what many of us would feel to be the duty of a parent—namely, seeing that his child has the best possible education that the parent can afford.

I was rather expecting some of the remarks made by the noble Lord, Lord Strabolgi, but I really am beginning to wonder more day by day why he sits on that side of the House and does not sit here. The remarks he made in regard to the effect of Death Duties is one I have certainly heard made constantly by noble Lords who sit on this side of the House and who are looked upon as being by no means progressive Conservatives.

LORD STRABOLGI

I have been saying it for years myself.

EARL STANHOPE

I am delighted to hear it. No doubt when the noble Lord becomes a little more logical he will realise that he is sitting on the wrong side of the House, although I should be extremely sorry if the noble Lord, Lord Snell, were to lose one of his greatest supporters.

May I now turn to the question of the American Debt? I say at once that the noble Viscount, Lord Samuel, is quite right in saying that I should not welcome the raising of this question, because it is a subject on which it is easy to say something which might possibly be misunderstood on one side or other of the water and which might perhaps make the question even more difficult of solution in the future than it has been in the past. I can say this, however, that I think in both countries we have made considerable progress. It is perfectly true, as the noble Lord, Lord Strabolgi, said, that not very long ago Senator Borah was saying that the whole question of the American Debt might be reconsidered if disarmament was carried into effect. My recollection is that when I was at the Admiralty there was a sort of feeling in the United States at that time, as I understood it, that the more countries were released from their war debts, the more money would they have available to spend on armaments, and therefore the worse off would the United States be from the safety point of view. That, I am glad to say, is certainly no longer the case as regards many of the countries concerned.

I do not think anybody in the United States would now say that the effect of our being released from some part of our Debt would be that we were going to increase our armaments or that that would be against the interests of the United States. I think we are beginning to realise that we have many things in common, although we have not a common foreign policy, unfortunately, as many of us in this country would like us to have. As regards ourselves and the United States the existence of armaments in one country is not now thought to affect the other country to its detriment. In one further respect I think also we have made an improvement. I think at one time the United States felt that every penny that we succeeded in escaping paying to them was retained in our own pockets. That of course is quite untrue. The fact is that if every nation had paid what it owed we in this country would be very much better off than we are.

It is quite true, as the noble Viscount has said, that the United States quite justifiably from the legal point of view say there is no connection between the amounts that are owed to us and the amounts which we owe to the United States. But of course we on this side naturally have to take into consideration that if we are going to pay the whole of our Debt to the United States it obviously would hardly be fair to expect the taxpayer in this country to raise the whole of the money, when he has said to his other Allies in the War that he does not feel it to be possible for them to pay their debts, that, if they did try to do so, international trade and international exchanges would be completely upset, and that therefore he feels those Debts should be cancelled. I quite agree with what the noble Lord, Lord Snell, said, that of course these Debts remain very much a thorn in the side of this great and friendly people and that they have led to unfortunate feelings and perhaps on occasion to unfortunate speeches. I can certainly say that so far as His Majesty's Government are concerned the question has never become one that is thought to be closed and finished in any way. I am anxious not to upset the situation, which is by no means easy; and as perhaps this is not the best moment for discussion in view of the negotiations we are having with regard to trade matters with the United States, from which both of us hope to obtain an early and satisfactory agreement, your Lordships will forgive me if I make a statement, not so much in my own words as in words prepared for me by the various Departments concerned, who have this matter of course under constant consideration.

In the British Note of December 11, 1932, His Majesty's Government set out at some length their conviction that the continued payment of Inter-Governmental obligations was a fatal barrier to the recovery of the world. The instalment due on December 15, 1932, was paid with the explanation that it "was not to be regarded as a resumption of the annual payments contemplated by the existing Agreement." His Majesty's Government had been informed that the United States Government would be prepared to review the whole situation with us without loss of time and we were assured that the "prospects of a satisfactory approach to the whole question would be greatly increased" by payment on December 15. The Government decided to make a token payment on June 15, 1933, and again on December 15 of the same year, in the hope that it would pave the way to a settlement before another payment became due. The view of His Majesty's Government was that if full payment were again made there would appear to be no reason why His Majesty's Government should not continue to be called upon to make payments of a similar kind indefinitely. But it seemed impossible to contemplate that this country should continue to make payments of that magnitude while we had suspended the corresponding claims upon our own debtors to which I referred just now. Further payment in full would, therefore, have necessitated reopening all the vexed questions of Reparations and War Debts which had just been provisionally settled at the Lausanne Conference.

The system of token payments was therefore adopted, as an indication of our responsibility for this Debt and both on June 15 and on December 15, 1933, the President of the United States expressed the personal view that he would not regard His Majesty's Government as in default. His Majesty's Government would have been prepared to make a further token payment on June 15, 1934, on the assumption that they would again have received the President's declaration that he would not consider His Majesty's Government as in default, but they understood that in consequence of the Johnson Act then recently passed in the United States such a declaration was no longer possible, so that the procedure adopted by common agreement in 1933 could not be followed in June, 1934. I think that if we were again to take up the suggestion of token payments now, it would be a matter which would require not only careful consideration on the part of His Majesty's Government, but consideration as to whether those payments would be welcomed by the United States, where, as the noble Marquess said, there is some difference in the situation in view of the Johnson Act.

His Majesty's Government were, therefore, faced with the alternative either of paying the full sum of £50,000,000 demanded in June, 1934, and of paying a further sum of over £20,000,000 on December 15, 1934, or of suspending all interim payments pending a final revision by agreement of the existing War Debts settlement. The first of these alternatives would have necessitated a corresponding demand by His Majesty's Government from their own war debtors, and thus the resumption of full payments to the United States would have revived the whole system of Inter-Governmental War Debt payments and would have postponed indefinitely the chances of world recovery. After full deliberation, His Majesty's Government came to the conclusion that they could not assume the responsibility of adopting a course attended by such disastrous consequences. Accordingly His Majesty's Government addressed a Note to the United States Government in which it was stated that His Majesty's Government, while deeply regretting the circumstances which had imposed on them the necessity for such a decision, had concluded that they must suspend further payments until it became possible to discuss the ultimate settlement of Inter-Governmental War Debts with a reasonable prospect of agreement. It was made clear that His Majesty's Government had no intention of repudiating their obligations and would be prepared to enter into a further discussion on the subject at any time when such discussion would be likely to produce results of value.

Accordingly, the position of His Majesty's Government in regard to the American War Debt is that stated in the Note addressed to the United States Government on June 13, 1938, and on previous occasions—namely, that His Majesty's Government will be willing to reopen discussions on the subject whenever circumstances are such as to warrant the hope that a satisfactory result might be reached. There is not much that can be added to this statement; but it may be well to contradict the suggestions sometimes made that His Majesty's Government fail to recognise the great importance of this question or that the Debt has been repudiated: such suggestions are entirely unfounded. The noble Lord the Leader of the Opposition, I think, expressed the hope that this matter could be discussed between the Governments concerned, but I am sure the noble Lord will appreciate that before the Government of the United States can put any agreement into operation they will have to obtain the assent of Congress. Therefore I am quite sure that both he and the noble Viscount who raised the question will appreciate that it is necessary to consider not only the opinions of the Governments but of the peoples concerned. Nothing could be more disastrous than to raise the question at a moment when there cannot be certainty of getting a settlement acceptable on both sides of the Atlantic.

The question of the British War Debt is bound up with the question of Inter-Governmental Debts as a whole, and the debts due to us are considerably greater than that due from us. The question also has to be considered with reference to our balance of payments and to the stability in international exchanges, which it is the desire of both the United States Government and His Majesty's Government to maintain to the greatest possible extent. I think the noble Viscount will certainly corroborate my statement when I say that this question is perhaps of even greater importance than any payment of debt due by us to the United States—the question of maintaining the exchanges and the stability of the sterling and dollar area, and of course the franc area on which the three Governments recently came to an agreement. It would require very careful consideration of the attitude of the public mind in that respect. That and other aspects, such as the exchange of trade, cannot be ignored in considering whether circumstances are such as to warrant the hope that fresh negotiations would lead to a satisfactory result. But I hope I have said enough to convince your Lordships that the statement at the end of the White Paper, which, as the noble Viscount said, passes twice a year between us and the United States, is by no means a form of words, but one which has left the question open for consideration at a moment when both Governments feel that we are likely to arrive at a solution satisfactory to each of us.

On Question, Bill read 2^a Committee negatived.