BUDGET RESOLUTIONS.

§ Mr. EVELYN CECIL

We listened on Wednesday night to a very strange speech in defence of this Resolution from the Chancellor of the Exchequer, and it is one which we ought to lose no time in answering. I somewhat question whether he would have made use of some of the defences which he made that evening had certain events happened then which have happened since. But however that may be, I should like somewhat critically to-examine his remarks, which gave me a great deal of astonishment at the time. In the first place he objected that the Opposition desired some three weeks at least to discuss the first reading of this Bill, and he told us that this was his view with a certain amount of theatrical sur- 37 prise, not altogether unconnected, I suspect, with a readiness to use the closure. But is it surprising that we should wish to have three weeks to discuss the first reading? This is not one Bill. It is about half-a-dozen Bills, and anyone of them would deserve to have a considerable portion of any Session allotted to them. Why then should we not be allowed to have full time to discuss these entirely unprecedented proposals and to consider the far-reaching bearings which they have? Besides, I am rather surprised that the Chancellor of the Exchequer is so very anxious to hurry on these Resolutions. I should have thought from his own point of view that the longer they took the more time there was for Cabinet alterations in the Bill.

It appears to ore that this Bill is not unlike a jelly not quite set, and whether it ever will be properly set still remains to be seen, but if rumour is to be trusted I gather that the 60 or more clauses of the Bill are still in a very jelly-like condition, and that the right hon. Gentleman is prepared to make material alterations on them during the time the Debates on the Resolutions go on. I should like just to look at the defences which the right hon. Gentleman brings forward for these remarkable resolutions. This income tax resolution is defended, so far as income tax strictly is concerned, by him on two grounds. I would note the fact at the outset that this is a fundamental change as regards the income tax, that we have never had such proposals in peace time to deal with before, and that it is starting altogether a new precedent. What are the right hon. Gentleman's defences? He told us in the first place that preparation for war was equally important with war itself. That was one of the reasons why it was necessary to have a high income tax in time of peace—at least that is how I interpret the remarks of the right hon. Gentleman—but from the financial point of view, surely this is entirely absurd. Does anybody suppose that the amount of money spent in preparation for war is ever the same as the amount spent when war is actually going on? Why the normal condition of every nation should be to spend an adequate amount for defence in peace time, and in preparation for war, and for that purpose a certain amount of taxation should be raised and cheerfully paid, but it is quite another thing to say that we should have to pay in peace time what we should have to pay in war time. There is no analogy between the two. I 38 do not understand why the Chancellor of the Exchequer should bring forward such a defence of this particular proposal. But his second defence was even more extraordinary. The Leader of the Opposition had said that after all you ought to leave the income tax as a kind of reserve for great emergency, and the Chancellor of the Exchequer replying to that said:— Why should the income tax be treated as a reserve, as something Which is of a temporary character, while other taxes are regarded as permanent? Why should not the other taxes have their turn as temporary taxes, the taxes on the food of people, fur instance? Why should taxes on the necessaries of life be regarded as permanent, and the taxes on high incomes as purely temporary. I should think there was the best of reasons. I do not know whether the Chancellor of the Exchequer intends to suggest that taxes on the food of the people are suitable taxes to raise in time of national emergency. I should have thought it was never his desire to raise the taxes on the food of the people, and certainly, above all others, that we should not pile an enormous sum upon them when a national emergency occurred. If that is not the meaning of the right hon. Gentleman, I suppose he means that very often certain classes of the community ought not to be paying taxes at all, while other and more limited classes of the community ought to be paying them very considerably. But is that a just doctrine? Is it to be seriously alleged that a large proportion of the nation ought to be left out of taxation altogether? That savours to me very much more of the clap-trap of the demagogue than of the responsibility of the statesman. If that is a serious defence for proposing this increase of the income tax in the time of peace, I should like to answer the right hon. Gentleman out of the mouth of the Prime Minister himself. What did the Prime Minister say when he introduced the Budget in 1906? He said:— In regard to the income tax, I do not hesitate to associate myself with the declarations of more than one of my predecessors, that an income tax of a uniform rate of Is. in the £ at a time of peace is impossible to justify. It is a burden on the trade of the country, which in the long run affects not only profits but wages. It presses with excessive and peculiar severity on that large class of the community with incomes from £700 to £2,000 a year, who pay in addition their full share of the taxation on articles of consumption. It tends to destroy. or at any rate to contract, a. most readily available reserve on which the State can draw n a sudden and unforeseen emergency. I agree with every word used by the Prime Minister, and it is perfectly astounding that the right hon. Gentleman now the head of the Government, after having given utterance to these wise opinions, should be raising the income tax to Is. 2d. in time of peace.

§ The PRIME MINISTER

I adhere to them all.

§ Mr. EVELYN CECIL

I am glad to hear that the right hon. Gentleman adheres to them all. I only wish he would carry them out in practice.

§ Mr. W. P. BYLES

Did the right hon. Gentleman not reduce the income tax to 9d.?

§ Mr. EVELYN CECIL

Not in all cases. I do not quite see the relevancy of the hon. Gentleman's interruption. There is another subject in regard to the income tax on which I want to make a few remarks, and that is the question of differentiation. We hear a great deal about differentiation between earned and unearned incomes, permanent or precarious incomes, or whatever you like to call them. I think, in the first place, that differentiation in this country is already a great deal too high, as appears from the evidence of the Inland Revenue Commissioners themselves. It is higher than in any other country in Europe, and if you attempt to define it you get yourself into a number of intricacies and injustices. I personally think it is very foolish to try to carry out differentiation of this kind at all. You have the obvious case of incomes derived from savings. Why should they be considered as unearned incomes? The pensions paid to civil servants have been allowed to be treated as earned incomes. That was a concession which was made two years ago, but what is the difference between pensions paid to civil servants and incomes derived from savings of worthy citizens? Both have done much for the country. No doubt the civil servants have served the country well, and deserve their pensions, but there are many people who are not civil servants who have served the country well in many commercial or other callings who deserve also to have the incomes from their savings treated as earned incomes if the pensions of civil servants are to be so treated. That kind of difficulty arises because you attempt to differentiate, and because you try to make some distinction with respect to subjects between which it is impossible to draw the line. These hardships are likely to take place, and I would earnestly advise the Chancellor of the Exchequer to reconsider some portions of his Budget from that point of view.

Let me refer to the super-tax which is referred to in the latter portion of this Resolution. The Chancellor of the Ex- 40 chequer had three defences for that in his speech on Wednesday night. He told us that the City does not complain; he told us that he had no correspondence objecting to it; and he told us that he considered the super-tax perfectly fair. Let me take these three remarks seriatim. As regards the City not complaining I think the right hon. Gentleman will admit that he has spoken too soon. He no doubt by this time has digested the weighty letter from bankers, merchants, and business men two or three days ago which was addressed to the Prime Minister. Perhaps I may read one sentence, which contains the pith of the letter:— The great, increase and graduation of the Death Duties —already materially raised hut two years ago—and of the income tax, coupled with the super-tax, will, we are confident, prove seriously injurious to the commerce and industries of the country. The commerce and industries of the country do get some solicitude from the Chancellor of the Exchequer, and if that is likely to be the effect, as assuredly it will, of his Budget proposals, I should have thought that he might have given some consideration to this letter. I thought that as a rule in financial matters it was the practice to seek for the advice of the City and not to flout it. The right hon. Gentleman now we learn evidently did not seek the advice of the leading members of the City and of persons there engaged in business, and he has decided to flout the advice which he now receives. Even Sir Felix Schuster, one of the gentlemen who stood for the representation of the City in the Liberal interest, has joined in this letter. It is quite a non-party letter. It is purely a practical letter from business men. [Indications of dissent.] Apparently hon. Gentlemen below the Gangway consider it of no consequence at all. I do not know whether their experience is equivalent to that of the signatories of the letter. I understand their attitude is that if any further money is required in time of emergency you should clap on more super-tax. You want old age pensions, which in many respects are being scattered about like doles to the unthrifty. It was only a day or two ago that I spoke to a working man who objected to pay 1½d. a week more for his tobacco in order to give doles to the unthrifty. Hon. Gentlemen below the Gangway consider the super-tax an engine for taking out money from an unlimited mine of gold. I can assure them that it is not the case. 'They are killing the goose that lays the golden eggs, and if they find hereafter that trade and commerce 41 do diminish, and that workmen are discharged, they cannot say, at any rate, that we have not warned them.

Let me go on to the Chancellor of the Exchequer's second defence for this super-tax. He said he had no correspondence. This letter is quite sufficient to count for a great deal of influential correspondence, but I strongly suspect that the 10,000 or 12,000 people in the kingdom who are alleged to have more than £5,000 a year are not very likely to communicate with the Chancellor of the Exchequer when they remember that he holds office in a Government which intends that minorities should suffer. As to the third defence of the super-tax, that he considers it perfectly fair, I should like to make some comments also. It should be remembered that the super-tax does not stand alone. It is a tax which must be taken together with the death duties which were raised two years ago and the succession duties. If it was standing alone it might be considered to be a fair tax. But as it taxes the same people merely in a different way from the other taxes—death duties, legacy and succession duties, and so on—it is in its incidence and its amount I consider a very unfair tax, and it is not only we on the Opposition who consider it so. I suppose anyone who speaks from these benches will be considered merely a special pleader, but I should like to read to the House the remarks of Lord Milner on that subject, who at any rate is not a special pleader as we could be considered to be, and whose eminent services and great financial experience ought to have some weight with the Chancellor of the Exchequer. He said at Bristol on 4th May:— I am absolutely convinced that these crude, repeated, direct attacks on the wealthy will defeat their own object. I am not one of the wealthy myself. I have no personal interest in the matter, but I have I hope sonic sense of justice, and I have had more than 20 years' experience of public finance in different parts of the world, and I say that the present raid is going to defeat itself. Those are very strong words, coming from Lord Milner, and I do not believe that they are a bit too strong.

But who, again, is to judge of the fairness of this super-tax, so far as its practical administration is concerned? It is not the Chancellor of the Exchequer; it is not the Treasury; it is the people upon whom the taxes will fall; and you may be quite certain that if people consider that the tax is unfair they will take it upon themselves to evade it legally—lawful avoidance is the term used by the Committee in its Report—lawfully avoid it in every possible way. 42 And small blame to them from their point of view, because, after all, a tax which is considered grossly unfair and grossly unjust naturally tempts people to evasion, and they do not consider themselves, and I really do not know why they should consider themselves dishonest, if they attempt to do so in a legal way. But is that all? The tax itself is economically unsound. No political economist of repute and standing, I venture to think, would really seriously consider it otherwise. Sir Henry Primrose, who has a great knowledge of this subject, said in his evidence before the Income Tax Committee: "I am convinced that it would be beyond our powers effectively to levy a super-tax, even on persons with incomes in excess of £5,000 a year." That is a very strong argument from a Treasury official. If the super-tax does not work effectively it is simply a fraud penalising the scrupulous, and acting in its operation irregularly and with great uncertainty. If, on the other hand, it is going to work effectively, as the Chancellor of the Exchequer argues, what justification is there for incurring the expensive machinery of two income taxes, because it is practically a second tax? The Chancellor of the Exchequer, I suppose, intends to have one staff to collect the present income tax, and to have another staff, a different staff necessarily, for the collection of the new super-tax.

Apart again from that, the Chancellor of the Exchequer is giving up the principle of collecting at the source so far as the super-taxes go, and I should have thought that anyone who read the evidence in the Blue Book would have come to the conclusion that the less you collect at the source the greater leakage there is in the amount of taxes which flows into the Treasury. I do not know whether there is any disposition to dispute that, but I saw in the main portion of the Committee's Report a very interesting piece of evidence which bears that out. The Report says: "It is interesting to recall the fact that 100 years ago we abandoned direct personal assessment, and collection at the source was substituted, with the result that the yield of the tax was almost doubled immediately. In 1803 an income tax of 5 per cent. collected at the source yielded within a very small amount as much as a tax of 10 per cent. did in 1801, when it was assessed and collected direct from each taxpayer." Nothing is more conclusive to my mind. Yet in the face of the evidence, and in face 43 of that statement in the report, the Chancellor of the Exchequer proposes to introduce all his machinery for the ineffective working of the super-tax. There is another remark to be made about the super-tax. It is very inquisitorial. Hitherto British statesmen have strongly objected to anything so inquisitorial into private affairs as the proposed machinery. Apparently this view is no longer going to be maintained, and it is not an answer to tell me that inquisition is already made into certain incomes. That is quite a different kind of thing. Inquisition there is made for the benefit of the person who pays the tax. An hon. Gentleman laughs. Of course it is made for his benefit; otherwise he would not get any abatement, and it is further a thing that is voluntary. The person who pays the tax need not make the Return stating exactly—?

§ Mr. CHIOZZA MONEY

Is not the hon. Member aware that we actually go behind the back of the employee and compel the employer to divulge the employé income to the Government?

§ Mr. EVELYN CECIL

Suppose I had an income of £630 a year and I did not choose to return it, though I could get an abatement as it was under £700, I am not compelled to do so. It is quite voluntary. The hon. Gentleman seems to forget that there are innumerable instances of that kind throughout the country, but I do consider that there is a very great difference between an inquisition which is to a great extent for the benefit of the taxpayer and an inquisition which is necessarily going to be to his prejudice. The two inquisitions are on a wholly different basis. The one, to my mind, is utterly hateful, while the other is voluntary, and is only made to secure an abatement for a lesser income. I am afraid the Chancellor of the Exchequer in all his proposals is an apt pupil of the hon. Member for Blackburn, that he is departing from the advice of Mr. Gladstone and Sir William Harcourt, and that now he is listening very attentively to the suggestions which come from hon. Members below the Gangway. I can only say that I fear his conversion forebodes national commercial disaster, and that the consequences of it will be that capital will go abroad, that wages will be reduced, that workmen will be discharged, and that unemployment will be rampant.

§ Mr. CHIOZZA MONEY

I should be very happy if I can do anything to calm 44 the somewhat exaggerated fears of the hon. Gentleman who has just sat down. Regarding in the first place the financial stability of the United Kingdom, it seems to me, that he has forgotten the ratio between the amount of the new taxation which my right hon. Friend proposes to impose upon certain classes of this country and the income of those classes. For example, the whole income which my right hon. Friend stands to get both out of the increased income tax and the super-tax in addition to that increase is three and a half million pounds. Let us suppose for a moment that three and a half million pounds is a conservative estimate, as I suppose it ought to be under the present circumstances. Let us suppose that the yield will prove to be, as I think it will prove to be, at least £5,000,000. What is the ratio of that £5,000,000 to the income of the class taxed by his scheme? Is the hon. Gentleman aware that the total income of the taxpayers whose income exceeds £700 a year is certainly not less than £600,000,000 per annum? Can it truly be said, in view of that fact—and it is a figure which can easily be verified—that if you take £5,000,000 out of the pockets of the possessors of that extraordinary income you either impose an intolerable burden upon them or weaken the resources of this country, or in any way trench upon the war reserve of this country? Even if you believe the income tax to be a war reserve, which to my mind is not the proper light in which to regard it, what is the war reserve? What is the financial reserve of this country whether in time of peace or war'? Surely it consists in the entire taxable income of the country? The means by which we get at that income merely represents the tapping of the reservoir, the means by which you draw upon the reservoir. It matters not whether you call it income tax, super-tax or petrol tax, the effect is that you take a sum out of private pockets and transfer it into the public purse. What is the economic effect of the transfer? Does it necessarily weaken the country financially at all? Consider the effect of taking £5,000,000 from the pockets of persons who possess £600,000,000 a year and spending it on the building of war ships and the provision of old age pensions. What is the exact economic effect upon the nation? It is this: You reduce the spending power of a limited number of rich persons by £5,000,000, and they have £5,000,000 less to spend. Upon what? Investments? Does the hon. Gentleman suggest that to take 45 £5,000,000 out of that vast amount of income is really to reduce substantially the means of investment of these persons? Of course it is not. The proof of that is to be found in what happened during the South African War, when we were not only imposing a war income tax up to 1s. 4d. in the pound, but in addition we were floating big loans in the public market to meet a great part of the expense of the war. Was there at that time any decrease in luxurious expenditure of the upper classes of this country? On the contrary every indication was in the opposite direction. For example, hon. and right hon. Gentlemen opposite have referred to the imports of motor cars into this country. The imports of motor cars into this country during that period went up by leaps and bounds. The import of motor cars, at about £400 each, is a typical example of luxurious expenditure, and it went up by leaps and bounds during that period. Every other test during that period shows that so far from trenching upon capital investment we did not even touch the fringe of luxurious expenditure in the United Kingdom. The hon. Gentleman referred to the speech made in my own hearing by my right hon. Friend the Prime Minister about two years ago, in which a uniform rate of Is. in the pound was referred to by him. I really cannot see that the hon. Gentleman who has just sat down has strengthened his argument by referring to the tax of 1s. It was a distinctly uniform rate of taxation which my right hon. Friend referred to. What did my right hon. Friend do shortly afterwards? He reduced it in the case of persons who earned incomes between £700 and £2,000 a year from Is. to 9d. in the £—a reduction in the case of earned incomes of 25 per cent. The hon. Gentleman says that does not cover the whole of the cases of income between £700 and £2,000 a year. It is true that there are unearned incomes between those limits, and in their case the rate is not reduced; on the other hand, it is increased by the present Budget. Has the hon. Gentleman reflected, if we are to increase the taxes to meet the national expenditure, from whom we are to take that increased taxation? I ask the hon. Gentleman whether those with between £700 and £2,000 a year in this country, who do not follow trades or professions, are not the favoured few? They consist almost of the top layer, very nearly the top layer, of the rich of this country. If we are not to tax them, I should very much like to know whom we are to tax. I should like to 46 know the proposal of right hon. Gentlemen opposite with regard to the classes who should be taxed to meet this increased expenditure. Do they really suggest that they can get the money that is required for the 13 or 16 millions out of the taxation of foreign manufactured articles?

§ The CHAIRMAN

I do not think the hon. Member can embark on that line of argument without opening up a general Debate on the Budget. We are now dealing with this one solitary Resolution.

§ Mr. CHIOZZA MONEY

I bow at once to your ruling in the matter, but I do think that hon. Members opposite, who tell us that we ought not to tax those who possess wealth to raise the money required at this particular moment, ought to inform us, on the other hand, by what means they propose to raise the money. Otherwise we shall need a new definition of the word patriot: "Patriot: a person who won't pay." I think myself that the Debate we have had on the land tax has cleared the way for a discussion of this particular Resolution. May I remind the Committee what occurred when we discussed the land tax of my right hon. Friend? We were then told by hon. and right hon. Gentlemen opposite that there were many other forms of unearned increment besides the unearned increment which attaches to the land. I fully agreed with them. I did my best to cheer my hon. Friend the Member for Preston, the Leader of the Opposition, and the Noble Lord who spoke subsequently in the Debate, I cheered those hon. Members when they showed most conclusively that unearned increment, or social values as they are sometimes called, attach not only the land but to other forms of property. I am most thoroughly in agreement with the views given by hon. Members opposite on that subject. May I remind them what was said One hon. Member said:— If thirty year ago £100,000 had been invested in land and 0100,000 in gas; lad water shares, made concurrently that the increase in the value of the shares which has taken place was quite independently of any effort or skill on the part of the owner, and, therefore, it may lie argued that this unearned increment—.

§ Mr. FELL

Will it be in order, Mr. Chairman, if we discuss the question of unearned increment?

§ The CHAIRMAN

I must confess that I fail to see the relevance of the hon. Member's line of argument to the Resolution with which we have to deal. I was listening to the hon. Member to see whether his observations would really apply to it. So far I cannot see the relevance.

§ Mr. CHIOZZA MONEY

I beg most respectfully to submit that I am in order in referring to unearned increment in order to develop the point that graduation differentiates the tax. Really the subject we are discussing in this particular Resolution, inherently involves the question of unearned incomes and unearned increment, and I say the discussion on the land values Resolution really cleared the way for this Resolution, and made very clear, out of the mouths of hon. Gentlemen opposite, the justice of the proposals of my right hon. Friend with regard to the graduation of income tax. I do not at all complain of the interruption. I was pointing out that another hon. Gentleman said:— There is unearned increment, but asked would anyone deny that a big trader doing business is profiting enormously with the general advance of the community. In the matter of communications, for instance, he gets tremendous improvement owing to the fact of there being a cable or telegraph service. That is unearned increment to him, and that applies to almost every form of industry. The Leader of the Opposition also referred to cases of unearned increment in regard to railway companies and other enterprises. What does this lead to? It leads to this: I think the more we examine the sources of incomes the more we see that as incomes rise in the scale the more social values, if I may use the expression, attach to those incomes. In other words, the amount of an income, the degree of an income, is also a rough measure, not an exact measure, of the unearned increment which attaches to it by the growth and the activities of the community. It is upon that proposition, which I beg with all respect to submit, that I found my support of the Resolution which is now before the Committee. And I would say to hon. Gentlemen opposite who hold that land ought not to be taxed more heavily than any other form of property that in this Resolution they can find a corrective of the land tax which has already met with approval of the Committee. I do not disguise my own opinion from the Committee that I do not think property and land ought to be taxed more heavily than other forms of property. I find myself in agreement with hon. Gentlemen opposite on that point, but I am astonished to find that they adopt what I may call the academic Socialist view. When they come to discuss the question of graduated and differentiated income tax they find themselves rejecting the principle that other social values than land should be taxed. They reject altogether the principle that income should be 48 taxed progressively according to their degree. At any rate the right hon. Gentleman the Leader of the Opposition did not subscribe to that idea; he distinctly expressed disagreement with John Mills' idea. I really think when the right hon. Gentlemen opposite come to consider the matter a little more thoroughly they will accept this Resolution. I would point out that it is perfectly clear from the facts so far as social values attach to income—and I do not think anybody can deny that they do—those social values are certainly expressed to a greater degree in regard to interest than they are expressed in economic rent. I think that can be most easily proved from the statistics that are available. The facts show that the landowners' share, even when you have added an estimate of hypothetical income from un built sites, is only a, very small fraction of the income of the country. In other words, the unearned increment which attaches to property, to salaries, professional fees, and other forms of property is chiefly expressed not in economic rent, but in interest.

From these considerations I repeat that as incomes rise in the scale they should be progressively taxed. The graduation of income really means a differentiation of the income tax, and when that is once seen, the way of the Finance Minister is largely cleared. He need no longer worry himself about differentiating between earned and unearned income. If he applies a practical scheme of graduation of Income tax he may be satisfied that he has also done his duty very largely to the principle of differentiation. I am in general agreement with the object of this Resolution. I wish I could say that I am as fully in agreement with the method expressed by this Resolution. I have so many times pleaded in this House for a plain scale of income tax that I feel almost reluctant to do it once more to-day. But the facts when they are examined bring to light so many anomalies, they show so many cases of injustice between one income and another, that I do think it is worth the while of the Committee just to look at the chief points for a moment. I will not go into detai1s. We have got the abatement system; we have got differentiation between earned and unearned income, and now we have got the super-tax. I do not suppose there is one man in ten thousand in this country who could take pen and paper and give a clear idea 49 of what the present system means. I say the tax ought not to be levied in that way. It ought to be levied in a way clear and understandable to the average man. I have suggested in this House on several occasions the plan of a graduated income tax. I suggest that there should be a plain scale, that you should collect at the source, say, one shilling in the £, that you should have, whether it is earned or unearned income, a personal declaration from the taxpayer, and that in cases where the amount payable is greater than the amount collected at the source, you should collect the balance from that person. I do submit to the Committee that in what my right hon. Friend is now doing he is carrying that system into effect, but only roughly. He does tax at the source; he does get a personal declaration; he does collect the balance which is called the super-tax after collecting the first income tax; but the effect of the theory, when it is worked out, is to create a very large number of cases of hardship. For example, the scale rises too rapidly in the early part. The graduation up to £700 is very rapid indeed, whether we take earned or unearned income. Suppose we take earned incomes; a man pays l¾d. on £100 a year, and 5½d. on £400. Take unearned incomes, and take the widow—we had better call her a widow—with £200 a year. She pays 2¾d. in the pound, while the widow with £400 pays 8½d. in the pound. Of course, the rise in the graduation there is much too rapid. Then after this rapid rise in values we come to a, sudden stop. If we take the case of unearned incomes the injustice is very apparent. £701 per year pays fourteen pence in the pound, and so does £5,000. The scale goes up for certain incomes, and then remains at a standstill. If you attempt the principle of graduation, why cannot we carry it out better than that, and if we give a lip-service to the principle, why not carry it out in practice? Then, of course, there are a large number of steps in the scale where the temptation to evasion must be very great indeed. It is scarcely equitable that while a man with £2,000 per year pays £75 per annum, a man with an income of £2,001 per year should pay £105, or £30 more. Exactly the same case arises when we come to the man with an income of £3,000. Thus, £3,000 pays £150 and £3,001 pays £180. Take the £5,000 income, where the super-tax comes in: the man with £5,000 income pays £291 and the man with £5,001 pays £350. I will not weary the Committee 50 with any more examples of the class of anomalies I refer to, and which my right hon. Friend could easily sweep away if he would construct a plain scale of income tax and carry out the same system on which he proposes to embark now, but basing it on a plainly graduated scale.

I feel that my right hon. Friend in the Estimates of his Budget given to Parliament on such an occasion as this, when we. must have elastic revenue, should be more than usually conservative, but I think there is scarcely any excuse for putting as low as £500,000 the yield of this super-tax. I think it will be a very conservative estimate to anticipate a million and a half or two millions. I think, before the year is past, we shall see very clearly that, so far from the super-tax yielding only £500,000, it will yield several millions, and if not in this year then certainly next year. But even in the present year, unless the officers are more than usually inefficient, we shall get a much larger sum than is put down in the Budget. Something has been said by the hon. Gentleman with regard to inquisitorial methods. We have heard that before in the House, and I really think it has been disposed of. I do not think the hon. Gentleman attaches sufficient weight to the principle upon which we work in this matter. The abatement is not a gift to the middle class man. The abatement is simply to graduate the tax of the middle class man, and the middle class man's taxation is not the amount which he would pay if he did not declare, but it is the amount which is exacted from him after the declaration is made. That is the amount he is supposed to pay. He is not supposed to pay the other amount.

The difference is not a gift to him; it is simply a recognition on the part of the State that he should not pay more than the lower of those two amounts. When, therefore, you go to him and make him declare his income before you tax him, you really impose a pecuniary penalty on him if he does not declare. It is a heavy penalty for not declaring. May I explain by a concrete case what I mean? If you imagine the case of a clerk or a manager with £400 per year—if he does not declare he has to pay £15 income tax. If he declares, he pays £9. The difference is £6, which is a. virtual fine. It is not a gift to him because he does declare, but it is a fine if he does not declare. What you do, in fact—whatever you like to call it in an Act of Parliament—is to fine him £6 if he does not declare. What we are doing now is to apply exactly the same principle to larger 51 incomes. I presume the right hon. Gentleman will exact a heavy penalty from a man of high income if he does not declare his income. If he does declare, he will only be doing what is done in the case of all the moderate incomes of the country.

§ Mr. EVELYN CECIL

One is fined if he does not declare, the other if he does.

§ Mr. CHIOZZA MONEY

It is fining him if he does not declare in both cases. I now pass to a more important point, and it is this: Need there be any apprehension at all that the amount of taxation raised by the increased income tax plus super-tax will diminish capital savings. I should be the first to agree that in our society, as now constituted, with an industrial system as it is now, you ought not to do anything to decrease or risk the decreasing of the amount devoted to capital savings. Whatever fine ideas any hon. Member may entertain as to collective enterprise, collective enterprise does not exist now. We have the individualistic system; employment of the masses depends upon the investment of capital by the few. As that is the case, you must not, of course, do anything to diminish the capital savings or capital investment. It remains to ask: Is there any probability that the amount which these taxes will raise will in any way seriously impair or even trench upon those capital savings? Professor Marshall said, I think it is worth repeating, that probably a hundred millions is wasted by the lower classes of this country every year, and that, probably, three hundred millions by the upper classes upon forms of expenditure, which are not or, at any rate, do not make for national advancement. If there is any truth in this statement, and I believe myself there is a good deal of truth in it, I do not think it is uttered lightly, then what is the ration between this amount of expenditure, this extra amount of expenditure, which we propose to raise and the amount which, according to such an authority as that, is wasted upon things which do not make for national advancement? The ratio obviously is as five to three hundred.

If Professor Marshall's figure is not credited, may I refer the hon. Gentleman and those others, there appear to be many, who believe we are trenching on capital savings, may I repeat to them once more the extraordinary growth of assessed incomes in the last 10 years. Make what 52 allowance you will for increased stringency of collection, and I believe that has been quite exaggerated, especially in the ten years, but make an allowance for it, and what are the figures? During the period when our expenditure went up by leaps and bounds on account of the war, during the period when it rose from 118 millions to 162 millions, that is between 1899 and 1909, you find that the gross income reviewed by the Inland Revenue Officials rose from 763 millions to 1,040 millions, that is to say, that while national expenditure rose by 44 millions, the income of the classes, not of the masses, rose by 277 millions. The proportion of increase in the ten years is almost precisely the same in national expenditure on the one hand and in assessed income on the other. National expenditure rose by 37.2 per cent., and incomes rose by 36.3 per cent.

As I pointed out previously the national expenditure of this country is exaggerated by the inclusion of the entire outgo of the Post Office. That is not true national expenditure, because it is balanced, and more than balanced, by the income of the Post Office with five millions profit over in relief of taxation. That exaggerates these figures of expenditure, and with the growth of the Post Office increasingly exaggerates them year by year. If allowance were made for that it would be found that the increase in assessed income has gone on at a greater rate than the increase in national expenditure. I venture to say in conclusion that that shows most clearly that in imposing an income tax plus super-tax, bringing in additional taxation of three and a half millions, possibly rising next year to five or six, we need not be under any apprehension whatever that we are trenching even upon the margin of the capital savings of the country.

§ Sir FREDERICK BANBURY

I would like to draw the attention of the hon. Gentleman to two or three remarks which I understood him to make. I understood him to say that an income tax and a tax on tea, sugar, and suchlike are practically the same, that they all take money out of the people and give it to the nation. That is precisely what we have been saying, that if you impose taxation on high incomes and a super-tax that you were, taking it from the poor. We have always held that those taxes, wherever you take them from, recoil eventually on the poor. I am glad the hon. Gentleman is a disciple of that opinion. The hon. Gentleman also 53 said that he was going to support the Budget, and believed in the proposals of the Chancellor of the Exchequer with regard to the income tax. Then I gathered that we should hear a eulogy of the proposals with regard to the income tax of the right hon. Gentleman the Chancellor of the Exchequer. What was my astonishment when the hon. Gentleman said that in his opinion a simple method of collecting the income tax was right. He then read out, I think he said, three different forms of collection. I think I can give him five or six, and he read out a number of cases of hardship, during which all the right hon. Gentlemen on the Front Bench shut their eyes, every single one of them. I noticed that particularly. Having read out those instances of hardship, and having said it was not the way he would arrange the graduation, then he wound up by saying he is going to support that which he strongly disapproves.

I do not congratulate either the Chancellor of the Exchequer or the Prime Minister on their supporters in this Debate. Over and over again hon. Gentlemen opposite have risen and said they are going to support the particular Resolution before the House, and over and over again, though they say in their speeches they are going to support, they disagree with it as heartily as we do on this side of the House. The hon. Gentleman told us that we ought not to do anything to deplete capital in this country. With that we agree, and we are glad he falls in with our views on that matter. He weft on to say that he did not think this tax would tend to operate in that direction, because during the war, when high income tax was imposed, the luxuriousness of the rich did not decrease, and a larger number of motor cars were imported. May I point out first of all that motor cars were new, and naturally people would buy them, because they had not got them before, therefore the motor cars increased. I would also point out, by his own confession, the result was not to encourage savings but to allow luxury to go on. Does the hon. Gentleman think that by these taxes luxury will be stopped and that people, instead of spending any money, will save it'? The exact opposite is likely to occur. People will say, Why should we save when, for all we know, a great portion of our capital may be taken away from us? The tendency is to spend, not to save. I have an apt quotation on this point from Mr. Lecky, which I will read later on, to show that all these taxes, and especially the super-tax, tend to dis- 54 courage thrift and industry, and penalise especially the thrifty and industrious for the benefit of the unthrifty and the lazy. The hon. Gentleman said also that while motor cars were bought, and the luxuriousness of the rich did not decrease, neither did investments decrease. May I ask where he thought the money came from? Apparently it comes froth nowhere. If you do not decrease either your luxuries or your savings, where on earth does the money come from? It must come from somewhere, either out of curtailing luxuries (which, after all, employ people) or out of savings. If it comes out of neither it can come from nowhere, and I suggest that the hon. Gentleman should study that problem a little more carefully.

The Chancellor of the Exchequer stated on Wednesday that he had had no protests about the super-tax. The super-tax, by his own showing, will be paid by about 10,000 people, and those 10,000 people, who are in receipt of incomes of over £5,000 year, are not the class of people who go in for writing letters to Ministers, unless they happen to have the pleasure of their acquaintance. Therefore the fact that he has not received letters from this particular class of persons does not at all prove that-they do not regard the super-tax with dislike. On the contrary, every single person I have met, both in the City and elsewhere, has regarded the super-tax as a step in the wrong direction. The letter from the City which appeared in the papers on Saturday tends to show that the super-tax is regarded unfavourably by some of the greatest living financial authorities in the City, including the hon. Baronet who stood for the City of London at the last election as a Liberal, and who, when it suited them, was held up by hon. and right hon. Gentlemen opposite as one of the ablest financial authorities in the City. What attention are they going to pay to his opinion now? I should like to point out to the hon. Member for Paddington one serious objection to the super-tax. I do not know if it is a doctrine which will meet with commendation on the other side of the House, but it has always been held that a tax should be imposed for purposes of revenue. Possibly in a Protectionist country it might be imposed for the protection of the industries of the country, but that is abhorrent to hon. Gentlemen opposite. I have never heard any statesman who has said that a tax ought to be imposed as a punishment for any particular class. The danger to my mind of imposing the super-tax quite regardless of 55 whether or not it is just is this. Why 6d. 7 Why not Is.? [Cheers.] I am glad that hon. Gentlemen below the Gangway cheer that. May I suggest that they should not wear their hearts so much on their sleeves. They give their own case away. Why not 1s.? Hon. Members cheer. That is the next thing, because there is no reason why Is. should not be imposed just as well as 6d., if the object is to get money out of the pockets of a few rich people for your own advantage. As the hon. Member for Preston said the other day, Members below the Gangway desire to keep their cake and eat somebody else's. If they want to eat the cake of the rich, why stop at a little bit? Gradually they will go on and take the whole.

It may be said that my argument applies to any income tax: Why not 1s. 1d. or 1s. 2d? But the great protection is that there are a large class of people who pay income tax, and if they find that they are unjustly treated they will turn against the Government and take steps to protect themselves. But with the super-tax is it possible for that to be done? I have here the statement of the Chancellor of the Exchequer that incomes of over £5,000 a year are enjoyed by 10,000 people, and it will be within the recollection of the House that the right hon. Gentleman said that he did not impose the super-tax upon incomes over £3,000 a year, because they were enjoyed by 20,000 people—a very naive confession I thought, and one which bears out the truth of my argument. The income of these 10,000 people, according to Sir Henry Primrose, is £121,000,000, and the income tax and death duties on that amount come to over £20,000,000, or one-sixth. But the total income of the country is between £1,600,000,000 and 21,700,000,000, and only contributes £25,000,000. Therefore, the danger is that this small number of people with a large amount of money may have such a tax put upon them which they will be unable to resist, because they have not much voting power, that their money will be taken from them, and the tendency to thrift, investment, and enterprise will be destroyed. The following is the quotation which I promised to read from Mr. Lecky's book on "Democracy and Liberty ":— It is obvious that a graduated tax is a direct penalty imposed upon saving and industry, a direct premium offered to idleness and extravagance. It discourages the very habits and qualities which it is most in the interest of the State to foster. It is at the same time perfectly arbitrary. Highly graduated taxation realises most completely the supreme danger of 56 democracy, creating a state of things in which one class imposes on another burdens which it is not asked to share, and compels the State into vast schemes of extravagance— I should like to draw particular attention to that— compels the State into vast schemes of extravagance under the belief that the whole cost w ill be thrown upon others. Yet no truth of political economy is more certain than that heavy taxation of capital w ill fall most severely upon the poor I do not know that I could have brought forward better arguments than those to justify my position.

Let me say one word upon the question of income tax as a reserve. The Chancellor of the Exchequer told us on Wednesday that he did not approve of the income tax being treated as a reserve for time of war, and he asked why should not other taxes, such as those on tea and sugar, be treated as a reserve. That seemed to me to be a very peculiar statement to come from a Chancellor of the Exchequer, because the reason why the income tax has always been held to be a reserve in war, ever since 1798, when it was first imposed by Mr. Pitt, is that it is easily collected and requires no new machinery. Up to the present time it has always been collected at the source. If a war breaks out, it is easily collected without additional expenditure upon fresh machinery, and without pressing very heavily upon the people who have to pay it. In answer to the statement of the hon. Gentleman opposite about capitalists, I venture to say that the tax has been paid willingly whenever the necessity has arisen. But if you are going too impose taxes upon articles imported from abroad, such as tea, sugar, etc., they will press upon the poorer classes, as well as the richer classes, just at the wrong time—in time of war, when one does not want to put additional burdens upon the poor. Moreover, this sort of tax in war time would be extremely difficult to collect. It is obvious that if our shores were invaded, taxes upon imports would be difficult to collect. I was astonished that the Chancellor of the Exchequer should advance the doctrine that he should use what has hitherto been regarded as the only real reserve in time of war, and consoled himself with the fact that when war comes he may be able to put duties upon imported articles which in all probability the foreign fleet would see did not come to our shores. The right hon. Gentleman said that until 20 or 30 years ago no Chancellor of the Exchequer had used the income tax as a reserve in time of war. What is the history of the income tax? It was imposed in 1798, 57 when we were at war, taken off in 1801, reimposed in 1803, when we were again at war, and taken off again in 1816, when peace came. It is true, as the right hon. Gentleman told us, that between 1803 and 1816 it once touched 2s.—

§ The PRIME MINISTER

The whole time.

§ Sir F. BANBURY

It is very presumptuous for me to contradict the right hon. Gentleman, but—

§ The PRIME MINISTER

It was 2s. when Lord Henry Petty was Chancellor of the Exchequer in 1806. From that time it remained at 2s. until the end of the war.

§ Sir F. BANBURY

I think perhaps the right hon. Gentleman did not hear me. I said that it was imposed again in 1803, and it rose to 2s. in 1906, but it was not 2s. for the whole time. It is a very curious thing —I do not know whether the right hon. Gentleman can tell me why it was—that Scotland and Ireland paid less. In 1816 the tax was taken off. It was imposed during those years on all incomes above £60, without any graduation.

§ The PRIME MINISTER

dissented.

§ Sir F. BANBURY

Except in the case of Scotland and Ireland, where there was a different scale.

§ The PRIME MINISTER

The hon. Baronet is quite inaccurate. It is quite true that all incomes under £60 were exempt, but, speaking from memory, there were abatements up to £200, and there was differentiation between earned and unearned incomes.

§ Sir F. BANBURY

I have looked the matter up, but "Whitaker" does not state those facts. From 1816 to 1842 there was no income tax at all. It was reimposed in 1842, when the corn duties were about to be abolished. ["No."] That is where the question of the corn duties arose. It was then levied upon incomes above £150. In 1863 the limit was reduced to £100, and it remained on all incomes of £100 and upwards until 1876, when the amount was raised. My point is that if the right hon. Gentleman had imposed an income tax of 2d. upon all incomes he would have received £6,000,000—I think the exact sum is £5,800,000—whereas he now proposes, with all his different graduations, to take only £5,500,000. Well, ultimately, and he said in his Budget speech, 5½ millions.

§ An HON. MEMBER

This year.

§ Sir F. BANBURY

This year. Well, but he could get £5,800,000 now if he had made it 2d., and saved a great deal of trouble, and very much unnecessary opposition.

The right hon. Gentleman the Chancellor of the Exchequer also went on to tell us that there was income tax in foreign countries. I think the right hon. Gentleman the Member for the City alluded to the investment of capital abroad. The right hon. Gentleman the Chancellor of the Exchequer said: "Take Japan. There is an income tax of 5s. in Japan." There may be in certain instances, but as a matter of fact there is no income tax on the Japanese people or in any other country, with two exceptions, which I will tell the House later. There is no single country that I know of —I have looked it up here to-day—no single country in the world, with the exception of Italy and England, in which there is a tax of any sort upon their National Debt. Therefore, it is absurd for the right hon. Gentleman the Chancellor of the Exchequer to come down and say that there is an income tax of 5s. in Japan. There may be some sort of an income tax, but he does not tell the whole story. In order to make it clear you have to tell the whole story. There are two exceptions, Austria and Russia. Austria, in some of her earlier loans, does make a deduction as a tax, but it is only in her earlier loans—her silver loans of 1894. Russia in one or two of her loans does the same. But all Russian later loans have been on the prospectus described as being absolutely free from income tax that may be now or hereafter imposed in Russia. That is not limited to foreigners. There is no condition that the stock must be held by foreigners. Anyone can hold it, and in that case they get their interest free from income tax. Therefore, the statement of the right hon. Gentleman that it is income tax that is imposed is incorrect. The right hon. Gentleman is inaccurate in his belief.

There are two or three other questions which I should like to mention. I am glad the Prime Minister is in his place. Perhaps he would give his attention for a moment or two. The Prime Minister will perhaps remember that some two years or so ago I asked him some questions in the Debate on the income tax about decaying businesses. Some two years ago, I think in 1907, the Prime Minister abolished the right of the income tax payer, if he found 59 that he had returned his income at a larger figure than it was, to go to the Commissioners and claim the difference between the sum actually earned and the sum which he had paid upon. The Prime Minister, when he was Chancellor of the Exchequer, abolished that. In answer to my request that he should reconsider that abolition, that he said that the three years' system of averages was in force, and that the people who might consider themselves aggrieved by the abolition of this right to claim back money paid in excess would find themselves righted later on. If they had a good year one year they would get it hack a little bit later; and the system of averages adjusted all these inequalities. That, no doubt, is quite correct. I agree with that statement. Then I put this question to the right hon. Gentleman: "What about a decaying business, a business which has been earning £20,000 a year, and is gradually on the downward line—it does not have an up-and-down scale; it is gradually going down and never gets better? "The right hon. Gentleman replied that there was some truth in my statement; he thought it was hard in that case, and he hoped that there were not very many instances of that sort; but that, of course, lie could not legislate for every hard case. I venture, however, that now, when you are going to increase the income tax to the extent which you are proposing, and when you are going to put on a super-tax on the top, the case of the decaying business, which may be a large one, though decaying, and liable to the super-tax, that the point I have made, or that I made two years ago, is one for consideration. Because it is evident that if it was a hardship then it is a greater hardship now, when the amount claimed is so very much larger.

With regard to earned and unearned incomes, I have had a large number of people complaining about the hardships and anomalies which arise. It is extremely hard where a man has been working for 20 or 30 years, and has been earning, we will say, £700 or £800 a year, and has not spent that money, but has put away £300 or £400 per annum in order to provide for himself practically a pension when he is old, that he should be subjected to this extra impost. He has invested, say, safely and well, and he finds that after 30 years or more he is able to retire. What is his reward? He has to pay income tax on a higher scale because he has an unearned income. Take, on the other hand, the man 60 who has been earning £500 or £600 per year, and has spent everything upon himself. He has saved nothing. What is the reward of the State to him? Five shillings per week at the expense of the gentleman who has saved and has got a small capital set aside. I think that alone shows the hardship of this differentiation between unearned and earned incomes. Of course, the mere fact is that it sounded very well to say earned income ought not to be put in the same category as unearned; but when you come to look into the matter you find that it is extremely difficult to differentiate as to what is earned and what is unearned income. Take the case of a Civil servant who receives a pension. The Civil servant has to pay his income tax upon his pension if it is under two thousand pounds—9d.—and the man who has saved it has got it to pay too. There cannot be any possibility of justice in the matter. Any man who has saved has to pay. The Civil servant, whose income has always been assured to him so long as he did his duty, is different to the professional man or the tradesman, who is not sure whether he will be able to keep his business together, and who has to make his savings out of an uncertain income. The tradesman and professional man has to pay if he has been thrifty and industrious. That cannot be justified. The differentiation becomes doubly hard when the tax is increased in the manner in which it has been increased.

Let me in conclusion draw the attention of the Committee to a small quotation of only a few lines which was brought to my notice the other day, and which I think very opposite to the present situation. It is from Indian prophecy concerning the last days of the Kali Yug, or present age, and is out of the Ruranas, a portion of Hindu Scripture, and dates from 1000 B.C. This is what it says:— The man who owns most gold mid lavishly distributes it will gain dominion over Religion will consist in wasting alms at large, and self-willed women will seek for power. They who rule the State will rob the people and abstract the wealth of merchants on the plea of raising taxes. And in the world's last age the rights of man will be confused, no property be safe.

§ The PRIME MINISTER

I do not know that I fairly apprehend the relevance of the hon. Baronet's peroration, or, indeed, a large part of his speech to the Resolution which is now before the Committee. I say that, as he will understand, with no sort of disrespect. We have-often crossed swords over the matter of the income tax. But when I venture humbly to 61 question the appositiveness of a considerable part, at any rate, of the remarks which he has just addressed to the Committee, it is simply upon this ground—though they were perfectly relevant to the general question—as to whether an income tax is or is not a desirable impost, and whether our system of levying and collecting in this country is or is not ideally just. His remarks do not appear to me to bear upon the particular subject before us, namely, whether the tax should be increased in the case of normal incomes from 1s. to 1s. 2d., and whether there should be added to it a super-tax on incomes of a larger amount. That is the point, I apprehend, and the only point. I am not going to intrude upon the Committee for more than a very few minutes, because the general consideration bearing upon the subject seemed to me to be exhaustively stated by the right hon. Gentleman the Chancellor of the Exchequer at our last sitting. Yet I should like, if I may, to make one or two criticisms upon some matters which have since emerged, and particularly I think it only respectful to take the first opportunity of referring to a document which has been already cited more than once in the course of this afternoon's discussion, but which I only received late on Friday night or early on Saturday morning, and which I found in the Press on the same day, and before I had the opportunity of replying to it. I mean the memorial signed by certain very eminent firms and individuals in the City of London. It is addressed personally to myself. I make no complaint either of the spirit or the terms of that memorial. It is couched in very moderate language. It purposely and advisedly refrains from passing any criticisms on the larger part of the proposals in the right hon. Gentleman's Budget. It confines itself—I am not saying that by way of reproach or even of criticism—confines itself, as the signatories to the memorial naturally regard themselves as in a special sense the custodians of the capital—to the two proposals of the Budget which in their view have special reference to the interests of capital, and in particular the capital of the City of London. One of them is the proposed rise in the scale of death duties, which would, of course, not be in order upon this Resolution to make any reference to, but in regard to the other—the language which is used is this:— The great increase and graduation of the death duties and of the income tax, coupled with the super-tax, will, we are confident, prove seriously injurious to the commerce and industries of the country. 62 That, I am glad to see, is prefaced by a statement of the eminent persons that:— We realise that the increased and increasing expenditure of the country necessitates additional taxation. And of this they are prepared to bear their full share. Well, if that be so, if you are to take it for granted, as you must for the purpose of this argument, that the 16 millions or the 13 millions, whichever you like to call it now, has to be provided for, the sums which we have allocated to indirect taxation—to liquor duties, to tobacco, and also sums allocated to land—are to be taken for granted, I want to ask in what other way can the capital which these Gentlemen rightly claim to represent be called upon to contribute its share to the necessities of the country than by such proposals as are now before the Committee. I am not going to travel outside the range of the Resolution now before us. I will not, therefore, ask whether you are going to supply the gap by some readjustment of your tariff. I will not ask whether it is to be filled up by duties not protective duties, but duties upon the necessaries of life, like tea and sugar. I will assume that capital recognises that it has a duty in this matter which it may rightly be called to discharge —a duty which it cannot shift on to the shoulders of the consumers of the country and the payers of indirect taxation, and if that be so I do not think anyone will allege that the share of the total which we are proposing to allocate to capital is excessive in proportion, having regard to the share which other classes of the community are required to pay. I leave out the death duties for the moment, and I repeat the question: Is there any other way than that proposed by my right hon. Friend which will be more equitable and less injurious to the trade and commerce of the country?

The hon. Baronet who has just sat down has spoken in reply to some observations of the Chancellor of the Exchequer of the burdens imposed in the shape of income tax by the Legislatures of other countries. I will not go as far afield as Japan, because I do not profess to be intimately acquainted with the provisions of the Japanese law in that matter. I may say incidentally that I fail altogether to perceive any relevance in what the hon. Baronet said in regard to the taxation of the National Debt. Income tax has always been imposed on Consols in this country. Every buyer and seller of Consols, every person who has invested in our National Debt has done so upon the under- 63 standing that he will be called upon to pay income tax. I cannot conceive the hon. Baronet with his commercial and City experience even to suggest—

§ Sir FREDERICK BANBURY

The reason I made that remark was this: The Chancellor said where will capital go? In Japan there is an income tax of 5s., and so on.

§ The PRIME MINISTER

I do not think that that is very relevant to the subject now under discussion, but let me pursue the matter a little further with the hon. Baronet, not with regard to the incidence of the income tax on the National Debt, but with regard to its incidence on the general wealth of the country. The hon Baronet speaks as if the demand which my right hon. Friend is now about to ask Parliament to sanction was something abnormal and excessively burdensome, even unprecedented in amount such as, to use the language of the eminent signatories of this memorial, would tend to discourage the accumulation of capital in this country and promote its emigration into other quarters of the world. I think I am correctly construing the hon. Baronet's argument. I will not go through all the cases cited the other day. I will take two crucial cases. I will take two great European countries with which we are in the most acute commercial and industrial rivalry—France and Germany. How does this matter stand? In regard to France the eminent Finance Minister in that country, M. Caillaux, has passed his Bill through the Chamber of Deputies. I do not think it has yet passed the gauntlet of the Senate, but Senates as we know are difficult people to deal with. But. M. Caillaux has passed through the Chamber, with the assent of a large majority, his income tax law. What is the effect of that income tax law? Take an income of £4,000 a year—this is one of the class of incomes that most appeal to the hon. Baronet opposite; they appeal to him with a degree, I will not say of intimacy, but with a degree of sympathy—

§ Sir F. BANBURY

I have not got so much.

§ The PRIME MINISTER

Then, I must say the hon. Baronet is a most disinterested champion of the campaign against the super-tax. I am not speaking of him personally, but of those whom he represents and those whom it is only 64 natural, sitting here as the Member for the City of London, he feels called upon to protect. How is an income of £4,000 treated in France under the new income tax as compared with the predatory and oppressive proposals of my right hon. Friend the Chancellor of the Exchequer? An income of £4,000 in France will have to pay income tax of 1s. 5d. in the pound. An income of £4,000 here, under my right hon. Friend's proposal, will have to pay income tax of 1s. 2d., and if you go a step lower down in the scale and take an earned income of £3,000, it will only pay one shilling. When you come to the higher incomes, if you take an income of £20,000, in France it would pay 1s. 7d. income tax under the new law, which is practically the same sum as it would pay under my right hon. Friend's proposa1s. [An HON. MEMBER: "There is no death duty."] I am talking about the income tax. I am quite prepared, when we come to the death duties, to compare the scales of death duties. For the moment I am dealing with income tax, and I think I have conclusively shown, as regards France, at all events, that the larger class of incomes will be at least equally taxed under the proposals of the French Parliament as those of my right hon. Friend.

Now let us come to Germany. Take Prussia, which is, after all, the premier State in Germany. In Prussia, on an income of £5,000, income tax is already payable at this moment to the State and the municipality amounting to 10 per cent., or 2s. in the pound, on an average in 30 of the most important cities. [An HON. MEMBER: "That is rates and taxes."] My right hon. Friend the Chancellor of the Exchequer has disposed of that matter about rates in his speech the other night. The income tax to which I have referred is 10 per cent., or 2s. in the pound, and further additions to this will be due under the finance law of the present year, and, in all probability, further additions will be made under the finance law of the Empire which is now under discussion. I do not think those well-to-do people with incomes of three, four, five, six, and up to twenty thousand, will find themselves better circumstanced if they emigrate to France or Germany, but will find themselves in much less advantageous circumstances than under the proposals of my right hon. Friend.

§ Sir F. BANBURY

There is no duty on German stocks. I hold myself, and I know.

§ The PRIME MINISTER

I am rather astonished to hear that—

§ Sir F. BANBURY

I need not say I sold them after the right hon. Gentleman the Chancellor of the Exchequer had introduced this Budget.

§ The PRIME MINISTER

I am bewildered to hear that. These German stocks, according to the hon. Baronet, do not pay income tax. What the hon. Baronet received from them here I assume he always returned.

§ Sir F. BANBURY

That is English income tax.

§ The PRIME MINISTER

Yes; the income tax here, I agree, is going to be raised twopence.

§ Sir F. BANBURY

If I lived in Germany I should not pay it.

§ The PRIME MINISTER

I hesitate to contemplate such a bereavement as the public life of this country would sustain; it would be with great reluctance I could even in imagination contemplate such a prospect. If the hon. Baronet migrated to Germany in order to escape an extra twopence he would find himself liable to a 2s. in Germany on every pound of income he enjoyed in that country. My impression is he would soon make tracks, and we should all be prepared to welcome him back, though I am afraid he would return with an impoverished pocket. Seriously, what is the argument, assuming the money has got to be found and assuming that capital has to bear its fair share and make its just contribution? What is the objection from the point of justice or equity to this particular proposal? The hon. Baronet gave us—he said we could glean it from the pages of "Whitaker's Almanack "—a singularly superficial and in many respects inaccurate account—an account of the income tax. The income tax was imposed by Mr. Pitt, it is perfectly true, in the first instance as a war tax, and it was imposed upon incomes which exceeded £60 a year. It was dropped at the peace of Amiens; and it was reimposed by Mr. Addington when the war broke out again, and it was placed, two or three years later, by Lord Henry Petty, Chancellor of the Exchequer, upon a footing on which it remained for the whole of the next ten years of the war. It was a tax of 2s. in the pound; the only persons exempt from it were persons whose incomes were less than £60; there was a small abatement up to £200, and differentiation in this sense, there was an abatement up to £200 with respect to earned 66 incomes. Everybody with unearned incomes exceeding £60 had to pay, and to pay for the whole of these ten years at a rate of 2s. in the pound. That was a war tax. There was an abatement for children, but I am not quite sure whether that was continued. That was a war tax imposed with great stringency upon everybody with incomes over £60. It remained in abeyance from 1816 to 1842, and it was then revived by Sir Robert Peel, not for the purposes of the repeal of the Corn Laws—Sir Robert Peel was a strong supporter of the Corn Laws at the time—it was revived by Sir Robert Peel, not for war purposes, but for the purpose of reconstructing the tariff. That is what in those days went by the name of Tariff Reform. At that time it meant taking away, but what passes by the name of Tariff Reform now means to put on. The fact remains that the income tax was revived by Sir Robert Peel not as a war tax at all. It was revived at, the rate of 7d. in the pound, which was a very high rate in those days, for the purpose of reconstructing the tariff, and it remained, and was retained by successive Chancellors of the Exchequer—some with honest and more or less cheerful acquiescence, some, like Mr. Gladstone, who was always an opponent of the income tax, and some with very great reluctance—from the time of Sir Robert Peel down to the present day. That is the explanation of the quotation from my speech which was made by the hon. Member for Aston earlier in the Debate. The effect of the income tax in those days having always been professedly and ostensibly regarded as a mere temporary instrument is that it can never be brought to anything like a position of absolute justice. I claim for myself that when I was Chancellor of the Exchequer, in defiance of the opinion of every great authority who preceded me, including the right hon. Gentleman the Member for East Worcestershire and almost every previous Chancellor of the Exchequer and the Commission presided over by the right hon. Baronet the Member for the Forest of Dean—I do not say we brought the income tax into anything like an ideal position, but at any rate we removed the most glaring of its inequalities and anomalies by establishing a distinction between earned and unearned income.

I confess that I now look upon the income tax as a permanent part of the fiscal machinery of the country with an untroubled conscience. I quite agree, if I may say so incidentally, with what the hon. 67 Baronet said about the hardship inflicted. It might well be so, but it does not specially arise in regard to this particular income tax. There are a number of other matters which the Chancellor of the Exchequer has admitted with regard to the incidence of the income tax under schedule A, which undoubtedly call for readjustment and reconsideration. All these things are capable of being put right. I think we have removed by far the greatest injustice of the income tax, and I believe that by a proper system of legislative improvement and wise administration it can be made a tax which everybody wild regard as being on the whole the fairest of all taxes, and one which is capable still of very wide expansion in times of public emergency.

There is another point with which I should like to deal. The hon. Member for Aston quoted some words of mine to the effect that the income tax is one which we ought to regard as our principal reserve for times of national emergency. I thought there was great force in what my hon. Friend said the other night when he stated that you must give a large definition to national emergency, and include not only the actual outbreak of war but also preparation for war. The latter is much cheaper, and I do not think it would be a wholly illegitimate expansion of the term "national emergency" to include in it the present requirements of social reform. But let us assume that the income tax is one which ought not to be raised even under such circumstances as now exist beyond the point which will admit of its further expansion in case of emergency. I want to ask the attention of the Committee to what are the actual facts. The income tax has been described as it stands at the present time as a tax upon incomes of 1s. in the £, but it is nothing of the kind. What is the average per pound for the year of income tax in the year that has just closed? It is 9.6d., or just over 91d. That is the actual tax which the 1,100,000 who are the only people who contribute to this tax, that is the average rate upon which they have been paying during the past 12 months.

§ Mr. LEVERTON HARRIS

Is that calculated on the actual income of last year?

§ The PRIME MINISTER

It is calculated upon the average. There are, of course, always ups and downs; but I am taking it on the average, and last year it 68 amounted to 9½d. in the pound. The question I am going to put is, How much will it be if the proposals of the Chancellor of the Exchequer are acceded to, and if it is raised as it is going to be raised from Is. to 1s. 2d., remembering at the same time the additional abatements which my right hon. Friend proposes in the case of incomes of £500 and under for children, and further that this extra tax is not to apply to incomes unless they exceed £3,000? I am only giving an estimate, but this is the best we can frame. The average, taking all these things into consideration at 1s. 2d., will be 10.8d., or rather more than 10d. That is my second figure. My third figure is taking into account the super-tax above the 1s. 2d. which is going to be imposed upon incomes over £5,000 a year to the extent to which they exceed £3,000 a year. If you take that into account, also the average rate of the tax-that is, of the 1s. 2d. plus the super-tax-in a full year is estimated to be 11d. in the £. I venture to say that that is an extremely moderate sum.

§ Mr. PIKE PEASE

Can the right hon. Gentleman give us the figures?

§ The PRIME MINISTER

No, Sir; but I can supply them to the hon. Member. The Committee, however, may assume that my figures are correct, because the estimate has been very carefully prepared, and the average is a little more than 1d. in the £.

§ Mr. CHIOZZA MONEY

That is based upon revealed income?

§ The PRIME MINISTER

Yes. One of the results of differentiation was to show that the previous disclosures by no means corresponded with the income which could be and actually was brought in. It is said, "You have got a 2s. income tax at present, and here under these iniquitous proposals you are going to drive capital away from the City of London." The total average of the income tax under the present Budget does not amount to 11½d., and I venture to hope that that fact when brought home to the eminent gentlemen who have signed this memorial may afford them some consolation. I do not know that I need say anything more, but there is one point to which I ought perhaps to refer, and it is what is called inquisition. I do not see myself that there is anything more inquisitorial in a super-tax than in the income tax levied in its present form. I notice the attention of the right hon. Gentleman 69 opposite is being drawn to a quotation, and I think that what the right hon. Gentleman is going to read refers to my Budget speech two years ago. Am I not right?

§ Mr. AUSTEN CHAMBERLAIN

Yes.

§ The PRIME MINISTER

I was then arguing in favour of differentiation, and I said that for a man to make a declaration-when he had the hope and expectation of obtaining an abatement was quite a different thing from making a declaration which might have the effect of increasing the charge upon him. That is absolutely true, but it does not really affect what I was going to say. It is not directed at the probable accuracy of the return, but the inquisitorial nature of the methods applied. Take, as my right hon. Friend pointed out, the case of an ordinary tradesman with £1,000 a year. He has got to be assessed. He makes a return in which he says he is earning £1,000, and he returns £1,000. He sends that return into the surveyor of taxes, who, observing that he is. a man living in apparently comfortable circumstances and of very good repute, suspects that he is making more than £1,000 a year. Now what is the procedure that is followed? Anything more inquisitorial could not be imagined. He is brought up before the commissioners of taxes, probably his own neighbours. He is required to give evidence, his books can be examined, and the whole machinery of his business can be overhauled and investigated in order to determine whether he has made an. accurate return or not. I agree that this is a great deterrent to those who would not be inclined to make honest returns, but at the same time it is an inquisitorial proceeding, and nothing more inquisitorial is provided in our proposals in regard to the super-tax. In fact, something much less offensive is provided than under the present system. What is it? Suppose he makes his declaration and the authorities at Somerset House believe that he has understated his income over £5,000, or suppose he says he has not got £5,000 a year when he has? The same process is gone through, with this difference: that instead of being haled before his own competitors and rivals in business, who probably are local men in the City of London or elsewhere, with whom he is every day brought into contact, the investigation is to be conducted by a special body of Commissioners without any chance of there being any revelation at all. 70 I claim both in regard to the principle of the tax itself and the method in which it is levied that there is no ground for saying that there is anything in the least degree oppressive to any class in the community. I am most anxious that the public outside should realise that we are proceeding in this matter in no spirit of levity, still less in any spirit of vindictiveness, but that we are acting with most equitable and considerate regard for all interests concerned.

§ Mr. AUSTEN CHAMBERLAIN

I suppose that the speech of the Chancellor of the Exchequer is a. reply to the address of the bankers and financiers which has been presented to the Chancellor of the Exchequer. I must say that the remarks which he has made can hardly be accepted as an adequate reply to those representations. The Chancellor of the Exchequer sought to show, in the first place, that even if the proposed taxations were unfair the persons taxed would be no better off by going elsewhere. That is a matter on which those who presented the communication to the Chancellor of the Exchequer can express an opinion quite as valuable as that of the Prime Minister or that of the Chancellor of the Exchequer. The Chancellor of the Exchequer has shown by some argument that the proposals of the Government were not unfair. I will come to his argument later on, but I wish to make some reference to a speech which was made by the Chancellor of the Exchequer about 12 o'clock at night when the subject was under discussion. He has made a number of statements very light-heartedly, but he has made them on insufficient information, and on insufficient inquiries as to the real facts of the case. The right hon. Gentleman complained of the length of time which the Committee was occupying in the discussion of these Resolutions. He repeatedly said that these Resolutions are only a formal stage of our procedure and are intended as the basis of a Bill, and he seemed to expect us to do what our predecessors in opposition 'nave never done—still less what the right hon. Gentleman and his colleagues did when they were in opposition. He wants us to defer the discussion of these Resolutions until we get to the Bill. At this stage we have been discussing large principles, and our complaint has been that we cannot get information from the Chancellor of the Exchequer. Does he propose that our financial procedure is in many respects obsolete, and that it would be worth while to consider the procedure de novo? Does he 71 propose that the whole procedure should be confined to obtaining information from the Notice Paper? If he and the Government are prepared to move in the direction of the reform of our financial procedure they will not find me an irreconcilable foe to such a change. I have on more than one occasion pressed upon them to take the whole subject into consideration and bring forward a well-considered system of reform. As long as we have the present procedure we must do what our predecessors did, and we must discuss the Resolutions at this stage. We must attempt to elucidate points which the Chancellor of the Exchequer has left obscured in his statement. The right hon. Gentleman seems to think that he has done an unprecedented thing by putting the terms of the Resolution on the Paper. That procedure is not unprecedented. It has been customary to do it. It began in 1869, and it existed in 1896, and yet he says there is no precedent for it. A little later in his speech the right hon. Gentleman said that the Opposition was unreasonable in discussing these Resolutions at length, because the coal tax passed in a single night. That is a half truth. The whisky tax and the petrol tax were passed in one night because they were new duties, and their speedy passing was intended to prevent fraud, and they came into force at once. There were five Resolutions, and on the report stage they were discussed for three days. As regards my first Budget the right hon. Gentleman said that I kept the Committee sitting continuously from the meeting of the House until half-past four o'clock of the next day in order to get the Budget through, including the position of the coal tax. May I remind the right hon. Gentleman that the coal tax was not imposed by my Budget. It was already in force. [Here Mr. LLOYD-GEORGF shook his head.] It was not imposed by my Budget; I say that it was already in force. Surely my memory is as likely to be as good as anybody else's on the subject. It is perfectly true that we discussed the coal tax at nine o'clock in the morning, but what we were discussing was not a new tax but the repeal of an old tax. He also says that in any case I moved the closure six times during the evening. It is quite possible that we did so at that stage. After we had passed the Resolutions in Committee there came the introduction of the Bill, its second reading, and then the Committee Stage, and the Committee Stage lasted 72 two days. That was on a Budget which contained no new taxes of any kind, and with reference to which the real Opposition was concentrated on a single tax between stemmed and unstemmed tobacco. The Chancellor of the Exchequer says that the Opposition at that time gave me a great deal more latitude than we are giving to him. I wish to recall the attention of the Prime Minister to the tobacco duty. The Prime Minister speaks of a prolonged and bitter controversy, and he also refers not merely to days but to weeks. That was one Budget, but here we have half a dozen Budgets. It foreshadows not one Bill but a dozen Bills, some of which we have not seen, and some of which I am afraid we are not likely to see. On the very day that the Chancellor of the Exchequer closured the Debate he referred to our intentions. Yet at that time not a soul in the House or out of it had any conception of what the tax really was. He kept the elementary knowledge which we were entitled to have up his sleeve until the last moment. He really must not expect that we shall meet him in a more conciliatory way under these circumstances than we should a Chancellor of the Exchequer who might be more courteous to his opponents than he has been. Every previous Chancellor of the Exchequer proposing a new tax has sought to defend it, and to assure as many people as possible that they need not worry over it. But the right hon. Gentleman has pursued a policy which is exactly opposite. He seems to seek to keep as many people in suspense as possible. I do not think that is a good policy.

§ Mr. CHIOZZA MONEY

I rise, Mr. Chairman, on a point of order. I wish to ask you, Sir, if the remarks of the right hon. Gentleman have anything to do with the Resolution under discussion

§ The CHAIRMAN

The hon. Gentleman has put me the question whether the right hon. Gentleman is in order in the remarks which he has been making. I must say clearly he is absolutely out of order. The reason I allowed him latitude was because he is replying to remarks made the other night. Those remarks, made by the Leader of the Opposition and the Chancellor of the Exchequer, were out of order also, but I allowed them because I thought it was convenient to the Committee that I should do so. As I am now asked whether this is in order or not, I certainly think that it is out of order, and I hope that the right hon. Gentleman will not purs