Clause 7. — (Income Tax for 1930–31.)

Orders of the Day — Finance Bill. – in the House of Commons on 3rd June 1930.

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Photo of Mr Winston Churchill Mr Winston Churchill , Epping

I beg to move, in page 5, line 24, to leave out the words "and sixpence."

Before I embark on the general discussion on Income Tax which is raised by this Amendment, I should like to ask the Chancellor of the Exchequer whether he would impart to the Committee his governing ideas as to the extent to which we should endeavour to progress tonight. We have had a discussion on Clause 6, in which the Minister of Transport has been most patient and has given us very full and lucid explanations of every point that has been raised. We have now reached one of the most important Clauses in the whole Bill, and I think it would be advantageous, if the Government have any statement to make, to make it now.

Photo of Mr Philip Snowden Mr Philip Snowden , Colne Valley

I am at all times very anxious not to harass the Committee, but I cannot say that I am satisfied with the progress that has been made up to the present time. I had hoped that we might at this sitting get as far as Clause 11, but, unless the Committee sits very late, I am afraid that we shall not get so far. I think, however, that we must get to the end of Clause 9. I have no wish that the Committee should sit late. I want to take into consideration the convenience of every Member of the Committee, and especially the inability of my predecessor in this office to sit late. It is true that we have now come to the Clause which relates to the Income Tax, and which raises very important matters, but as these matters have been debated at very considerable length in the previous stages of our discussions on the Budget, important as they are, prolonged discussion upon them would not serve any very useful purpose. I do not want unnecessarily to restrict the debate, but I feel that I must get Clause 9, and I think that I might ask for the co-operation of the Opposition in trying to make that amount of progress.

Photo of Mr Winston Churchill Mr Winston Churchill , Epping

I do not think that, at first sight, anyone would say that the ambition which the Chancellor of the Exchequer has set before himself, to reach the end of Clause 9, is an unreasonable one in the circumstances, although it undoubtedly will involve very considerable contraction of our discussion upon Clause 7, which is the important Clause. I gather that it is the wish of the Chancellor of the Exchequer that we should not be kept here until an unreasonable hour. We will try our best to accelerate the discussion, while at the same time doing full justice to the many important points which arise. There is one circumstance which may somewhat facilitate our task, and that is that you, Mr. Dunnico, have ruled that the extremely important Amendments which we had put down as Amendments to this Clause would be better considered as new Clauses. Therefore, our task is lightened in that respect by your interpretation and Ruling upon the procedure. That being so I will, without more ado, address myself, as briefly as I can, to the immediate issue before the Committee.

This Clause is an extremely important and far-reaching one. The right hon. Gentleman proposes to raise the standard rate of Income Tax by 6d. That is a most melancholy event and one against which I have struggled year after year with every resource and effort open to me. If I had been told when the War came to an end that 10 years afterwards we should be reimposing 6d. on the Income Tax, and that after having gradually worked the tax down to the 4s. level we should have to retrace our steps, I should have regarded it with the keenest feelings of misfortune. The standard rate of the Income Tax is a matter which affects not only the large numbers of people who have to pay the tax but, in its way, casts its influence upon almost every form of our activities and social life. It has been explained how it affects business and enterprise. We know well how it affects the fortunes of individuals. I think the Chancellor of the Exchequer would have been well advised to make further efforts, for this year at any rate, when times are so hard and depression is so widespread, to avert the hardship of the re-imposition of 6d. upon the Income Tax.

I do not believe that this reimposition was necessary. If the Chancellor of the Exchequer on succeeding to office had set before himself, with all his strong determination, an inflexible resolve not to allow the expenditure of the country to increase by one penny, and to make sure that automatic increases were counterbalanced and more than counterbalanced by fresh savings, imposed by his energy and care; if he had been a little less rigid and rigorous in the repayment of debt over and above what is required for the purpose of the fixed debt charge; and if he had set his face against indulgences in the sphere of unemployment and widows' pensions there would not have been any case this year for the re-imposition of this heavy burden. This is the year that counts, this is the year in which we are passing through, perhaps, the most difficult stage of our immediate journey.

I have on several occasions spoken of the submerged areas of Income Tax, the large proportion of industries and businesses in which the profits yielded bear no real correspondence to what normally may be expected; businesses carried on on a much larger scale than is the yield to the Income Tax, because those businesses are not carried on upon a reasonable and profitable basis. The party opposite have, at the outset, to make up their minds whether they are going to welcome profits made by private industry and by private capitalists and tax those profits, or whether they are going, by every means in their power, to curtail and hamper those profits and then forego the consequent yield to the Excheqer. That is the choice and decision which really lies before them. But they have not clarified their minds; they have deliberately refrained from arriving at any clear mental or intellectual decision upon that point, with the result that we hear continued attacks upon the wealth of those who are called the idle rich, coupled with great regret when the yield of the Income Tax does not show its proper normal expansion. If you want an expansion of the Income Tax, so far from putting an additional 6d. upon it, the wise and shrewd course would be to effect a substantial reduction in the standard rate. No one knows what would have been the effects of a substantial reduction in the standard rate, if it were conjoined with a real re-establishment of national confidence and of enterprise throughout the country. It is quite possible that the right hon. Gentleman might have received from a lower rate of Income Tax, revenue greater than that which he will get from this additional burden.

I speak particularly of the heavy trades, but the phenomena which are present in those trades are equally to be traced in many other aspects of our public life. This heavy taxation, more than any other invisible factor, is making us share in world depression to a disproportionate extent, and when the world lifts out of the depression, as it will lift, and when the prices begin to rise and business to expand, it is this deadweight burden of taxation which may make us the last country to emerge from the dark defile, and may make us the country to emerge in the most battered and exhausted condition. Therefore, far from extolling the virtue of taxation, far from glorifying in the imposition of this heavy burden, it should be the task and duty of a Government by every means in their power to nurse the country through its difficult periods and to lighten and reduce the demands which they make upon the taxpayers for the maintenance and upkeep of the State.

The right hon. Gentleman, by so blithely placing this heavy addition upon the standard rate of Income Tax, and at the same time showing himself reluctant and unwilling to place any addition upon the indirect taxpayers, and also by restricting the scope of the Income Tax payers thus affected by the tax, has created an invidious condition and has invested his Budget with an unfair character which certainly has caused in this House and outside a distinct impression that he is not being guided by the true canons of finance and is not seeking with that broad impartiality that should belong to whoever holds his great office, to act evenly in the distribution of benefits or in the needful apportionment of hardships and evils; but, on the other hand, he is mingling politics at every step and at every stage in his financial decisions, and is vitiating the purity of the solutions which he offers us by the admixture of extraneous motives which are themselves part of the stock-in-trade of his political popularity.

When we come to an Income Tax of 4s. being raised at a time of peace to 4s. 6d., the old Gladstonian canons of finance and the old views which were taken as to the relative advantages and disadvantages of direct and indirect taxation, must be reviewed and reconsidered. In those days when we were told of the grave injury done to the consumer by indirect taxation, and of the possibility that more would be taken from the pockets of the taxpayer than would be actually gathered into the public coffers, those evils were contrasted with increases in the Income Tax of 1d., or at the outside 2d., on an Income Tax of 5d. or 6d.

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I remember well hearing a predecessor of the right hon. Gentleman, the late Mr. Ritchie, reducing the Income Tax after the South African war, and he made a sort of auctioneer's gesture of it and took it off "One penny," "Twopence," "Threepence," and when he uttered the word "Fourpence," the House was almost in a state of collapse from hysteria, there was such enthusiasm and relief. But in those days, when the taxation was practically non-existent, when it was no real burden, when no man making business plans or laying down his own expenditure in the immediate future could be harassed by the inroad of the tax collector, then indeed you might use all the old arguments which may be properly applied to indirect taxation; but now that the first preoccupation of most of the larger Income Tax payers in this country is to find the money to pay their Income Tax, when that is the first charge, as it were, upon their resources and the main cause in many cases of their anxieties, in these days you inflict, in my opinion, a far greater deterrent upon business and enterprise by a further addition to the tax than could be argued even by the most strict Free Trader or economist would be inflicted by a moderate addition to indirect taxation, even though the yield might not in all cases be fully reaped by the Treasury.

As I say, there are many processes which may be allowed to continue, although they have evil effects, because they are on a small scale and can be tolerated and borne, but as the burden rises, as the degree of intensity of taxation increases, so it becomes all the more important to examine all the anomalies, to dwell upon the special hardships, and to canvass with the most searching scrutiny the whole foundation, basis, and character of the tax. There are many aspects of this tax which we shall have to pass in review. Some few we shall deal with this evening, but others we shall definitely raise in the series of new Clauses which we have placed upon the Paper, and which, under the guidance of the Chair, must now be considerably extended. I trust that the right hon. Gentleman will, in his speech, address himself to the main and broad considerations which arise upon the tax. We think that we could best assist him in making progress with his Bill if we have a very full discussion on the general question of the increase of the tax. A very full discussion, Mr. Young, with your permission, would, I think, be in accordance with the wishes of the Committee and its general convenience; and then, when we come to the Amendments, we will dispose of them as quickly as we can and divide upon them, so that we may register our opinions on each point, and at the same time have had the advantage of one general, comprehensive debate.

I have only attempted to inaugurate an open and general discussion in these few remarks, which I have endeavoured to curtail as much as possible. But the right hon. Gentleman must be in no doubt about our attitude, which is one of emphatic protest against the policy of raising the standard rate of the Income Tax by 6d. at the present juncture; a policy which, we are sure, will add to our difficulties far more than it will relieve the revenue problem of the right hon. Gentleman and will, it is quite conceivable, prolong the period of misfortune through which we are passing and possibly leave us, when that period is over, definitely weakened for every purpose of domestic advance or of external progress.

Photo of Sir William Davison Sir William Davison , Kensington South

On a point of Order. Ought we to continue our proceedings in this important matter without a single Member of the Liberal party being present?

Photo of Hon. Oliver Stanley Hon. Oliver Stanley , Westmorland

The case of direct taxation has been so fully and ably put by hon. Friends of mine in this and previous debates, that there is little new that can be added from this side, but if it is difficult for us to find something new, it is at least easy for the right hon. Gentleman the Chancellor of the Exchequer to find something new to say on this topic. If he would consent to abandon the taunts, jeers, and witticisms in which so far he has answered us, he would give us great satisfaction. I am the last man to decry the merits of his speeches—I recognise how good they are—but they are the kind which belong essentially to the politics of pre-War days, the kind which in those days were held to establish the reputation of the statesman, to encourage the enthusiasm of the party, and to enhance the prestige of the Government.

But we must remember that in those days we carried on discussions such as this against a background of what we believed to be the inevitable and unassailable prosperity of this country. We might have surface commotions, this politician might be thrown out, this party might sink down, but the stream of British trade continued undisturbed. To-day things are different. To-day not even the optimists among us believe that British prosperity is unassailable, and the pessimists among us are beginning to believe that British prosperity is unattainable, but all of us are agreed that the time has gone by when there is any chance of this country muddling through, and it is no longer trusted that there is some special Providence which will see that everything comes right in the end. We believe now that things will only come right in the end if to-day we think right and do right and decide right, and one of the greatest decisions which we have to take, one of the decisions which may affect the whole of our future prosperity, is the view we are going to take towards taxation in general and the heavy increase of direct taxation in particular.

It is interesting to see how this question affects our foreign observers. A letter was brought to my attention which shows the opinion of an American in regard to the effect that the general policy of this taxation will have on our industries. I must, of course, remind hon. Members opposite that, although the opinion I am going to quote is that of a foreigner, it is not necessarily right. This statement, from a letter which was sent out by a New York broker to certain clients in this country, and dated 15th April, the day after the Budget, starts as follows: To-day the morning newspapers published the British Budget and showed the anticipated rise in taxes. After having read the Budget, it occurred to me very strongly that this should sharpen the appetite of the Britisher to want to invest in American securities.

Photo of Hon. Oliver Stanley Hon. Oliver Stanley , Westmorland

The hon. Member has given me the cue which I hoped would be given, but I may point out that, leaving aside for the moment the question of patriotism, with which I will deal later, this letter does at least show that the foreign observer believes that on purely economic grounds the investor will prefer to invest his money in America rather than here; and although patriotism may affect the investor in this country, it cannot, of course, be expected to affect the foreign investor, who up to now has found the securities of this country the safest and best means for the investment of his capital. The hon. Gentleman raises the question of the patriotism of the British investor. I wonder if he has ever considered that the patriotism of the investor may to some extent depend on the use to which the money which has been taken from him is put.

Photo of Mr John Jones Mr John Jones , West Ham Silvertown

All my investments are in this country. I have got four of them at home.

Photo of Hon. Oliver Stanley Hon. Oliver Stanley , Westmorland

The hon. Member is like the brook, he goes on for ever. But it is worth while considering whether the patriotism which you are entitled to expect from the investor in this country does not to some extent depend on the use to which you put the money. I quite agree that, if the taxpayer is convinced that the taxes, however heavy, are being taken from him for purposes of national use, which are essential and vital to the restoration of prosperity in this country, that those taxes are being used as economically as possible, and spent as wisely as possible, then patriotism does demand that he should bear his fair share of the burden; and under similar circumstances during the War, when taxation rose to even higher heights than it reaches to-day, no one had any cause to complain of the patriotism of the taxpayer. But suppose conditions have changed, suppose the taxpayer believes that the taxes are being raised from him, not to be spent in a wise development of the prosperity of the country, but raised as part of the settled scheme of a particular political party, to eliminate a class of people who do not happen to fit in with their concept of a social and economic world, can you really blame him, or accuse him of a lack of patriotism, when he does not lend himself to the gentle schemes of hon. Members opposite?

I hope that in the course of the debate this evening we shall get some reasoned statement of the case of hon. Members opposite, if not by the Chancellor of the Exchequer, then by some other Member opposite who speaks with authority on finance. I know that hon. Members have made up their minds, that they believe our case to be wrong, but I believe too that a great many of them recognise that there are two sides to the question, that although they have come down upon one side, it is well worth putting the reason for their decision and trying to get support for their case upon reason and not upon prejudice. I see that the right hon. Gentleman the Prime Minister, only to-day, in a, message to some Labour body, made use of one of those mellifluous phrases which he employs. He said: In this grave crisis the Government require the understanding support of the country. I cannot see how he can expect, in this instance, the understanding support of anybody, unless he is prepared to give the reasons and not the prejudices which force him into these courses.

There are undoubtedly a great many questions which deserve an answer and which deserve discussion, but our case with regard to the ill-effect of direct taxation falls into two parts. I am leaving aside the question, which will be raised later, on the new Clauses, of the effect directly on industry owing to the taxation of reserves. Indirect taxation falls into two parts. We say, first, that it saps the energy and dulls the initiative of the individual, and, secondly, that it reduces the possibility of saving and, therefore, the capital available for use in industry. With regard to the first question, we are entitled to ask hon. Members opposite what they consider to be that effect upon the individual. We have had a good many divergent views expressed from the opposite side of the House. The Chancellor of the Exchequer, in his Budget speech, made use of certain phrases which certainly suggested to us on this side of the House that he realised that direct taxation had a psychological effect upon those responsible for running trade and industry. It is true that since that time he has done everything he can to water down that announcement. The right hon. Gentleman shakes his head, but the little anecdote he told the House about the doctor in Yorkshire who said that poison was all right if it was administered in small doses cannot really be held to have increased the confidence of the investor or, in fact, to have upheld the prominence he gave to it in the Budget speech.

The hon. Baronet the Member for Smethwick (Sir O. Mosley), who, I understand, to-day holds a great reputation for finance in the. Socialist party, clearly indicated in his speech last week that he recognised the taxable limit which, I rather gathered from him, had almost been reached already. I remember hon. Members on those benches who said that far from taxation being a damper upon the initiative of the industrialist it was actually a spur to his energy, and that the more you taxed the man the harder he worked. We are entitled to know which of these two views actually prevail. Surely, nobody argues that if out of every pound that a man makes you take 19s. 6d. in taxation it is really an incentive to enterprise and that, when faced with retaining for himself 6d. out of every pound in profit, he is going to make these extra sacrifices of health, comfort and leisure or run the extra risks to his capital which any extension of activity might ensure. Similarly, no one is going to argue that an Income Tax of 6d. in the or a Surtax of a shilling in the £ is going to have any effect on damping down the initiative of the business man. Surely, the effect of taxation is cumulative and it only has its ill-effect upon industry when it reaches a certain point. We are entitled to know from the right hon. Gentleman if those are his views still, and what is the limit to which he thinks direct taxation can be put before those ill-effects become certain. We want that information in order to enable us to form our view of the expenditure which is going to be met.

There is the other question of the effect of high direct taxation upon capital savings. Is the question of saving one which we have to consider? I know a good many hon. Members opposite who hold very strongly the view that too much attention is paid to saving and too little to consumption. Is that the view of the right hon. Gentleman? If saving is important, are we in this country saving enough? Is our position with regard to saving so good that we do not need to worry? If we were to discourage foreign investments, should we have sufficient for our own national uses? There is a further question. Apart from our own national uses, what is the position of world saving to-day? If we are to damp down foreign investments and to be concerned only with sufficient saving to run our own side of production, what effect will that have on the economy of the world? Who will take our place? Ts America saving so much that she can become the lender to the world? Is France, although her capital position is so good, ever likely to become a good lender in the markets of the world? Is there anybody, if we were to confine saving to this country and this country alone, who could take our part in the financing of world industry? Should we not suffer from it ourselves? Do not let us forget that we require capital just as much to buy as we require capital in order to save.

If saving is important, what is the effect of high direct taxation, of the distribution of income and of wealth by means of taxation, upon savings? Does it have a discouraging effect? If you take away £100 from one man and distribute £1 each to 100 men, does that action decrease the likelihood of that £100 finding investment in the industries of the country? Again, does not the use to which this money is put have considerable bearing upon the problem? If the taxation you raise is put to real productive use to finance national schemes which it can be demonstrated will redound to the productive capacity of the country, then it may quite well be argued, if that £100 is not to be spent upon the schemes but is to be distributed to social services and to 100 different people, you are merely gambling on the fact that some of those hundred men will save that pound and in turn invest it in industry. All these are points which should be discussed and points about which we are entitled to receive answers.

It may be said that this is academic; and in a way that is true. The right hon. Gentleman has presented his Budget and his direct taxation, and nothing said or done now will, I am sure, alter his opinion. But we have to remember the peculiar circumstances in which we find ourselves in this House. For 10 months in the year we discuss how we are going to spend the money, and for two months in the year we decide how we are going to raise it. The two things are never connected. We may spend weeks discussing a Bill which is going to entail an expenditure of £5,000,000 or £10,000,000, but we are never allowed to ask at that time how that money is to be raised. We never know whether that money is to be found out of savings or raised by this or that method of taxation. Therefore, it is essential that we should try now, during our only opportunity, to get some idea of what are the taxable limits of this country, to find out how soon all these limits will be reached, and to see if we cannot get some general survey of the financial requirements of the country and give preference to these needs which are most deserving.

The hon. Baronet the Member for Smethwick made a rather apt simile of the whole Front Bench opposite trying to get through the wicket-gate first to get something out of the Chancellor of the Exchequer. I was rather amused in the debate last week when the President of the Board of Education said how generous the Chancellor of the Exchequer had been in giving him so many millions for education. It is true that on these benches we have an antiquated constitutional idea that the money is not the Chancellor of the Exchequer's to give; that he is really the trustee of the taxpayer and that his generosity is at somebody else's expense, but it throws a light on our system of expenditure when those who are lucky in the struggle and get through the wicket-gate first call the Chancellor generous whilst those who are left in the rough call him cheeseparing. I am not concerned with any party advantage in this question of direct and indirect taxation; I am concerned with the state of the country. We are entitled to know from the Chancellor of the Exchequer if there is any limit and, if so, what, to our taxable capacity, because that and that alone will enable us to discuss Bills involving expenditure which may be brought forward during the next year on any reasonable basis and with any intelligent analysis.

Photo of Mr Edward Grenfell Mr Edward Grenfell , City of London

We have been discussing Budget matters in a somewhat different atmosphere from that which has prevailed during the last month, and it is a distinct advantage to the Committee that we should not start with fireworks and finish with fireworks. On the rare occasions on which the Chancellor of the Exchequer has visited the City of London he has gone there evidently determined to impress the people in the City not only with his wisdom but with his desire to restore the country to a state of confidence. In the peroration to his Budget speech, he stated that his one aim was to restore confidence in the country and that everyone should understand for the future what their taxation was to be. As far as restoring the confidence of the country is concerned, I would not say for a moment that he has destroyed it, but it has been severely strained. It is all very well to say that it is unpatriotic for a Britisher to send his money abroad. He has always done so in the past in order to develop fresh markets all over the world, and it would be a sad thing if to-day those who are able to send their money abroad were to send it either for safety or because they thought that industries and factories abroad would be able to develop unhampered by unfair and unjust taxation.

For a long time there has been a disinclination to put money into home industries. I am not referring to the struggles between masters and men, to lock-outs or to strikes, but to the incidence of taxation. The whole object of the Government should be to see factories and industries slowly developed, unhampered, until they had gained such a position that they were able to exist without feeling that the first little bit of profit they made would be taken from them. The difficulties of developing any industry or invention are that you may make mistakes, and ought to be prepared to make great mistakes, on the chance of making a great success, of finding some new development or invention which will bring great profit to the country and more employment. That is impossible on the lines of present taxation. I am not accusing the present Chancellor of the Exchequer any more than former Chancellors of the Exchequer, but the fact is that no one in this country to-day really understands how taxation is going to affect industry. It does not matter when the tax is only 2d. or 6d., but to-day it is four shillings and sixpence, a very heavy charge as now levied.

In his Budget speech, the Chancellor of the Exchequer said that there were two and a quarter million Income Tax payers, and he rejoiced to think that there were only 50,000 who were paying 4s. in the £. That 50,000 seemed to be the people whom the Chancellor 1S especially anxious to nobble. The tax is now to be raised to 4s. 6d., and I understand that even less than 50,000 people will be called upon to pay it. When we talk about having sent money abroad in the past, we must remember that the rich men in those days were nearly always landowners. Everyone considered that the rich landlords were the men who bought works of art and went about the country as the great financial potentates. To-day, the landowner is probably one of the poorest. He cannot send his house and his land abroad. But the rich man, with his knowledge of finance, and the fact that his assets are mobile can transfer his property abroad, and no doubt in certain cases men have done so, and will continue to do so. That is a distinct loss to the Chancellor of the Exchequer. Money invested abroad may pay Income Tax and Surtax, but I think the Chancellor will admit that there is a considerable leakage in his receipts from money sent abroad as compared with what he would get from the same amount of income if it was earned here.

I challenge the right hon. Gentleman to say that he does not lose a great deal in that way. I am to a certain extent a banker and almost daily I am asked by customers about foreign loans and bonds, and how they can escape taxation. I will not tell the Committee what my answer is, but it is certain that clever people will devise methods for their clients to send their money abroad; and you cannot blame them. The Committee must remember that in the past, when there has been political oppression, the inhabitants of almost every European country have endeavoured to send their assets abroad and eventually have gone themselves. A large measure of prosperity was brought to this country by the Hugenot families who escaped oppression at home and provided us with some of the greatest industries we have to-day and some of our most honourable names. When there was oppression here certain people took themselves, not their assets because they had none, and went and founded our Colonies. If financial oppression continues here, or gets worse, there will not only be an export of capital, but an export of many of our citizens, and they will not be the poor element but the rich men. They may be no loss to the country, but I think the country will suffer greatly if they feel that they prefer to go and live abroad.

I do not think that many people, especially hon. Members on the other side of the Committee, realise what a great asset the financial centre of London is to this country. The shipping trade just now is in strong competition with the foreigners. The banks in the same way are in strong competition with American and French banks. If there is the slightest distrust of our credit or the slightest dislike of sending funds here and using London as a great financial centre, irretrievable damage is done to this country. No one would challenge the statement of the Chancellor of the Exchequer that to encourage the spirit of confidence and enterprise it was right that so far as was humanly possible the people should know the probable full extent of their tax burden in the immediately ensuing year. But the people do not know it now. They are unable to compute the sums that they will have to pay. We all realise, after the answer given yesterday to an hon. Member, that the authorities have failed after three years to devise a scheme of taxation that can be understood.

A few years ago when the Income Tax was sixpence in the pound people did not mind, but to-day no one can understand the Income Tax forms, and they have to employ professional people to provide an explanation. So intricate is the system of taxation that expert accountants are lured away from the Inland Revenue at high salaries to explain the methods under which the Board of Inland Revenue works. No one believes that the Chancellor of the Exchequer or the Treasury or the Board of Inland Revenue intentionally cheats the poor taxpayer, but they are open to the criticism of obtaining money under false pretences when they send out forms that the taxpayer cannot understand, and when it is necessary to employ people to explain them.

For many years the firm with which I am connected had no professional audit. The thing was simple then, merely a question of addition and subtraction, but when the taxes became extremely heavy and the intricacies so great that we could not understand them, for the first time we employed a professional man to help us. The result was extraordinarily satisfactory. We found that for several years we had been paying far more than we ought to have paid. An honest Government such as ours promptly repaid us. But that is not right. It hardly seems possible that officials should not be able to explain clearly what the taxpayer has to pay and how the taxpayer should have kept his accounts in the past. I would like to hear from the Chancellor of the Exchequer what are the great difficulties that have prevented the Committee which has sat for three years from arriving at some simple story that can be understood. This extra sixpence of Income Tax falls on comparatively few people. Not all of them are wildly extravagant, or useless to the nation, but are people whom it would be a great loss to lose.

Photo of Mr Philip Snowden Mr Philip Snowden , Colne Valley

I appreciate the speech of the hon. Gentleman who has just spoken. It is a most agreeable change to find ourselves discussing this important matter in a serene atmosphere. I appreciate as much as any hon. Member on the other side of the Committee the importance of this question, and I find myself in considerable agreement with some of the arguments which have been advanced in the course of the debate. The hon. Member for Westmorland (Mr. O. Stanley) referred to a remark which I made, I believe in my Budget statement, about the psychological effect of increased taxation. There can be no doubt about that effect. There seems to be an assumption on the opposite side of the Committee that we take delight in imposing new taxation. I believe that my predecessor in office has said more than once, in the course of the Budget debates, that this is a penal charge in the imposition of which I have taken an almost fiendish delight. I want to assure hon. Members opposite that nothing could be further from the truth. I cannot imagine any Chancellor of the Exchequer taking a delight in putting on new taxes. A Chancellor's task at all times is very difficult. If he happens to be in a position to reduce taxation, he may please the people who are the recipients of his bounty, but he certainly gives dissatisfaction to those who do not benefit.

I have been compelled to increase taxation this year under the dire necessity of meeting expenditure which has been incurred either by this Parliament or by the preceding Parliament, and I have done it in a way in which I believe the least injury will be inflicted. I have never believed that the mere imposition of taxation in itself is a desirable thing. The hon. Member for Westmorland gave expression to sentiments which I have repeated time after time during Budget debates. No one has denounced more strongly than I have the mere imposition of taxation in order to spend money on wasteful or unremunerative objects. I agree with what the hon. Member said —that we must judge taxation and increased taxation by the purposes to which it is to be applied. We must convince the people who have to pay the taxes that the purposes are not merely necessary, but desirable. Taxation is not justified when it is wasteful and unremunerative.

The hon. Member for Westmorland repeatedly addressed to me in the course of his speech a question as to when I would consider that the limits of taxation had been reached. It is obviously impossible to give an answer in categorical terms to a question of that kind. I remember Budget debates in this House before the War when the Conservative party leaders, then in Opposition, urged that the limits of taxation had been reached with an Income Tax of 9d. and 1s. in the £. The limits of national taxation obviously must be determined by the needs of the National Exchequer or, in other words, by the expenditure of which Parliament has approved. The illustration which was given by another speaker as to what would be the effect of a tax of 19s. 6d. in the £ on saving and energy is, of course, reducing the argument to an absurdity, because I am sure that nobody would work hard to earn £1 if he thought that the State was going to take 19s. 6d. of it. I wish to put the matter in rather more reasonable terms, and I wonder if the Committee will bear with me while I illustrate this argument from my own experience of practical affairs. In the days when I earned an honest living by honest work, I had a certain expenditure to meet, and, therefore, I made an income which, after the deduction of taxation, was sufficient to meet that expenditure. If taxation went up or if my expenditure went up, then I undertook more literary commissions and worked harder in order to meet the increased taxation or the increased expenditure. I think a great many people are in the same position. I do not want to deny, and I have never denied, that there is a limit to taxation, but I believe that that limit can only be determined in relation to the needs of the State.

The right hon. Gentleman the Member for Epping (Mr. Churchill) gave expression to economic principles to which I think nobody could take exception. I should be in a much more fortunate position if he had put those principles into practice when he was in charge of the national finances. I do not wish in the least to deny whatever share of responsibility we may have for the increased taxation which has been necessary, but the fact is that a great amount of the taxation, by far the greater amount of the taxation which I have found it necessary to impose, is due to the deficit and to the financial position generally which was left to me by the right hon. Gentleman. I do not want to go into details about that matter. We have threshed it out across the Floor over and over again. Nevertheless, I must say this. The right hon. Gentleman said that he had struggled for years to avoid the need for reimposing the 6d. in the £ on the Income Tax. But he did so by methods the consequences of which are now coming home to roost, and I have very often regretted that the right hon. Gentleman did not remain in office sufficiently long to have to deal with the financial situation which he created.

He said that there was, of course, a fundamental difference between our views of the true methods of taxation and those of hon. Members opposite. He said that in seeking to impose this additional Income Tax I have been guided by no sound canons of taxation. I am afraid that the right hon. Gentleman is not very well acquainted with the classical canons of taxation laid down by Adam Smith more than a century ago which have been accepted as orthodox by every economist of our time. One principle of those canons is that taxation ought to be levied in accordance with the ability to pay. We have put this point before the House of Commons very often, but I may be pardoned if I repeat it. Taxation, in spite of the heavy taxation of the rich, is not generally levied in accordance with ability to pay. I admit that at once. If that were the only test, the poorer classes of the community, those who pay taxation through indirect taxes, would be relieved of a considerable part of the taxes which they now pay, and correspondingly increased burdens would be put on the wealthier sections of the community. To take 6d. or 1s. from a man with an income of £2 or £3 a week is a very different matter from taking £500 or £1,000 of additional taxation from a person who has an income of £10,000 or £20,000 or £100,000 a year. That increase in taxation may have some of the indirect consequences in regard to saving and the like, to which the hon. Member for Westmorland referred, but at any rate such an increase upon such a large income will not deprive that person of any reasonable comfort or necessity. That cannot be said in regard to the taxation which is imposed on the poorer part of the community.

I believe that I mentioned in the course of one of our earlier debates on the Budget proposals that something like four-fifths of the Customs and Excise Duties are paid by the wage-earning and the lower middle classes. That amounts to more than £200,000,000 a year, a sum which is nearly equal to the yield of the Income Tax. This has a double bearing, and it touches another point made by the hon. Member for Westmorland. We have to raise £355,000,000 a year for the Debt services and, assuming that the whole Debt is held internally, as of course by far the larger part is—I suppose the amount held abroad is a relatively small proportion—that payment is practically equal to the yield of the Income Tax, the Surtax, and the Death Duties. Let us assume for a moment—it is not so in all cases—that the people who hold War Debt are people who pay Income Tax and Surtax and Death Duties, then that sum of £355,000,000 which they pay goes back to them in interest upon their own holdings in War Debt and, therefore, in a sense, it is taken out of one pocket and put back into another. But this cannot be said of taxation which is paid in Customs and Excise Duties.

That is the fundamental difference between ourselves and the party opposite. With increasing emphasis, the right hon. Gentleman my predecessor has in the last 12 months been advocating indirect taxation in preference to direct taxation. The right hon. Gentleman has not always held those views. If he held them 12 months ago, I should like to ask him why he abolished the Tea Duty, and thereby relieved indirect taxation by something like £6,000,000 a year? It is a mistake, too, I think, to assume that direct taxes are a burden on industry and that indirect taxes are not such a burden. My own view is, and I think a great majority of traders will agree with me, that indirect taxes are a heavier and more direct burden on industry and do more harm to industry than an addition to the Income Tax which would give an equal yield. I cannot, of course, say this in regard to the liquor and tobacco taxes, which I have always put in a special category. If we carried out the suggestion which has been made by the right hon. Gentleman during the last few weeks on several occasions, and stopped this movement that has been going on for the last 50 years to raise a larger proportion of taxation by direct taxes and correspondingly less by indirect taxes; if we reversed that, and ceased to impose additional direct taxation and raised any revenue that might be necessary by means of indirect taxation, do hon. Members possibly maintain for a moment that this would not be a heavy burden on industry?

The right hon. Gentleman has altered his views very radically during the last year or two if he would not agree that an indirect tax, a tax based upon commodities, takes out of the pockets of the taxpayer more, and imposes a burden upon the consumer, very much higher than the revenue that it brings into the Exchequer. I had some very remarkable figures given to me a week or two ago by an importer of an article which is taxed. He gave me the minutest details of the whole transaction. He gave me the price of the article in America, and the price that was paid by the purchaser in this country after the duty had been paid, after the transport charges had been paid, after allowance had been made for the insurance and the profits to various people through whose hands the article went before it reached the purchaser, and the price was more than double the price at which it had originally been bought. Indirect taxation must have this evil result among many other evil results, that it reduces the purchasing power of the people.

Photo of Mr Dennis Herbert Mr Dennis Herbert , Watford

Will the right hon. Gentleman tell us what the article was?

Photo of Mr Brendan Bracken Mr Brendan Bracken , Paddington North

Would the right hon. Gentleman hold that view if the article were a foreign-made article providing no employment here?

9.0 p.m.

Photo of Mr Philip Snowden Mr Philip Snowden , Colne Valley

I am not going to enter into an argument which involves King Charles' head. Nobody who knows anything about it, and least of all my predecessor in office, will deny that if you put a tax upon an article you raise the price, not merely by the amount of the duty, but by the profit which has been put upon the article in its various stages. I well remember the right hon. Gentleman saying, when he imposed the Silk Duty, that he expected that the consumers would pay; and in the following year, when he was giving in the Budget speech the effect of the taxation, he said that there had not been an increase in the price, but that no doubt the duty had intercepted a fall in price. However, I need not argue that, because the matter is beyond all argument. The point I made is that it is a mistake for the party opposite to maintain that direct taxation is a burden on industry, whereas indirect taxation is no burden at all. The opinion of the Colwyn Committee with regard to the effect of Income Tax upon industry has often been quoted in the House.

I made a few rough notes of the speeches of hon. Members who preceded me, and I think that I have dealt with most of them; I have tried to deal with them in the spirit in which the speeches were delivered. I will conclude with what I said at the beginning of my remarks, that I am imposing this taxation this year under necessity. I do not contend for a single moment that it is going to have a stimulating effect upon industry in the present state of industry, but I maintain that the means by which I am raising the revenue which is absolutely necessary is, taking everything into consideration, certainly the least injurious. I dealt with the point of the hon. Member for Westmorland in regard to the future of taxation, and I can only repeat what I said then, that it is impossible to say what would happen. I repeat a statement which I have made more than once in the last year or two, that at a time like this the available resources of the nation should be directed to the encouragement of industry. We do not abate one item in our programme of social reform, but the carrying out of that programme must be determined by the circumstances. What I want to do is to get industry going again. I want to get industry making big profits, and then increased taxation would not be felt so much by them.

Photo of Mr Arthur Samuel Mr Arthur Samuel , Farnham

They would be further taxed as "the idle rich."

Photo of Mr Philip Snowden Mr Philip Snowden , Colne Valley

What I said just now is in words which are almost identical with those in a memorandum issued by the Federation of British Industries a few weeks ago in which they point out that it is only by increasing the income of the country that we can provide the means of revenue for the social reforms which are being undertaken. I have dealt fairly, I think, with the arguments which have been advanced, and, as we have got to some understanding as to how far we are to get to-night, I hope the further discussion on this particular Amendment will not be unduly protracted.

Photo of Mr Samuel Samuel Mr Samuel Samuel , Wandsworth Putney

I wish to emphasise what has been said already in reference to the effect which this taxation is likely to have upon the industry and the prosperity of the country. There is an old saying, which no doubt everybody has heard, that money begets money; but this country is being slowly but surely bled to death by high taxation. We have gigantic Death Duties and very heavy taxation on incomes, and I would ask the Chancellor of the Exchequer to have an audit made to ascertain how long it will be before the surplus revenue or, rather, the accumulated mass of money there is in this country, will be exhausted. It would only be a matter of actuarial calculation to arrive at the answer. Under present discouragements it is utterly impossible for anybody ever again to accumulate money. Large incomes are taxed to the maximum. In the case of large fortunes, Death Duties claim 50 per cent. for the State, and 50 per cent. is retained by the relatives of the man who dies. Take the case of a man who leaves £1,000,000. That man would have had an income of £50,000, he would have been a very wealthy man. Out of that £50,000, however, the Government would to-day take £26,000 and leave him with £24,000—of course a very handsome income; and when the man died the Government would take from the estate £400,000.

Photo of Lieut-General Edward Fitzroy Lieut-General Edward Fitzroy , Daventry

We are not dealing with Death Duties at this moment. We are dealing with Income Tax.

Photo of Mr Samuel Samuel Mr Samuel Samuel , Wandsworth Putney

I was only pointing out the necessity for an actuarial calculation to ascertain how long it will be before we have exhausted the funds at the disposal of wealthy people from which the Government derives the large sums it receives in Income Tax. When the Chancellor is making up his Budget, when the various Departments which spend the money of the taxpayer bring their estimates to him, I ask the Chancellor to consider how he can get anything like the income which he has at the present time from the remains of fortunes which have been dissipated by the extravagance of the Government. [Laughter.] It is easy to laugh, but the Government ought to take heed of this warning in considering the interests of the nation, which, after all, are the interests of the working class. Money has been dissipated by extravagance, and as a nation we must see how we are to live in the future. The Chancellor of the Exchequer and the Treasury ought to remember that this "Rake's Progress" cannot go on for ever. It will be the duty of this Government, indeed, of any Government, to keep a very strong hand on the spending Departments, because while they spend the money we have to provide it, and if the task of finding the money exhausts the resources of the country we prevent that revival of industry upon which we so much depend.

We have, unfortunately, reached the stage where, owing to the extravagance of the Departments, unemployment is becoming greater and greater. We have to provide for unemployment, and with the wastage of the capital of the country which is going on we cannot make provision beyond a certain point. The only way in which the country can get the necessary revenue for this purpose is through an improvement in industry and in commerce. I do not wish to detain the Committee, but I felt constrained to call the attention of the Government to the grave danger in which our industries are as the result of the extravagance on the part of the Government Departments not only under the régime of this Government but previously.

Photo of Mr John Tinker Mr John Tinker , Leigh

While listening to those who have been talking about dissipation and extravagance I have been wondering how they would raise the money necessary to meet the expenditure of the country. [HON. MEMBERS: "Speak up!"] An hon. Member opposite spoke about the addition of 6d. to the Income Tax raising nearly £30,000,000, and I was asking how otherwise hon. Members would have procured the money? No one has yet put forward any suggestion. If the burden has to be borne, where else could the money be found? The burden has to be placed on somebody's shoulders. The expenditure of the country must be met. Hon. Members sitting on this side of the House agree with the methods which have been adopted by the Chancellor of the Exchequer to find the money, and the right hon. Gentleman has adopted the only way in which the money could be obtained effectively. Hon. Members opposite have argued that the Government have spent money extravagantly. Do hon. Members opposite use that argument in regard to the great advantages which are being enjoyed by the unemployed, or in regard to the money which has been spent in providing widows' pensions? The Chancellor of the Exchequer has had to find the money for these objects by additional expenditure. Is it the opinion of hon. Members opposite that we have been giving too great benefits to the unemployed and to the widows of this country? If that is their view, they had better face the issue and tell us plainly what they mean. If hon. Members opposite agree with us that the unemployed and the widows should be treated as generously as possible, then they must admit that the only way to find the necessary money is by higher taxation. All this talk about driving capital out of the country does not trouble hon. Members on this side very much. [HON. MEMBERS: "No."] In times gone by it suited wealthy people who support hon. Members opposite to invest their money overseas, and no question of patriotism was raised at that time. Large sums of money were invested in India and China—

Photo of Lieut-General Edward Fitzroy Lieut-General Edward Fitzroy , Daventry

Perhaps the hon. Member will address his remarks to me.

Photo of Mr John Tinker Mr John Tinker , Leigh

One is inclined, at times like this, to get rather warm, and speak directly to hon. Members opposite. That is a habit we have, and I agree that it is not in keeping with the Rules of the House. I will, therefore, address my remarks to you, Mr. Chairman, and through you I hope they will get to hon. Members on the other side of the House. The point I was dealing with was that in the past hon. Members opposite, and wealthy people, did not hesitate about investing their money overseas and no question of patriotism was raised at that time. The hon. Member for the City of London (Mr. Grenfell) argued that if the burden of taxation became too great for the wealthy to bear patriotism would go by the board, and they would invest their money abroad.

Photo of Mr John Tinker Mr John Tinker , Leigh

I do not want the Chancellor of the Exchequer to be upset by any argument of that kind, and I want the right hon. Gentleman to realise that on this occasion he has pleased hon. Members on this side of the House by the manner in which he has dealt with taxation. When the other side get into power there is no question as to where they will place the burden of taxation. In 1923 the then Chancellor of the Exchequer remitted 1s. from the Income Tax, and in 1925 he remitted another 6d. On this occasion we want the money, and it must be placed on the broad shoulders of those who can afford to pay the Income Tax. If the time comes when those people cannot bear the burden of taxation any longer then we shall have to try some other method. By that time the money will have been distributed more evenly in the country, but until that time arrives I hope the Chancellor of the Exchequer will proceed on the lines which he has adopted in this Budget by direct taxation in the shape of the Income Tax, the Super-tax and the Death Duties.

Photo of Sir Gerald Hurst Sir Gerald Hurst , Manchester Moss Side

I support this Amendment inasmuch as I represent a district which lives by trade, and in my submission the proposal to increase the Income Tax by 6d. is not only dangerous to trade, but it is totally unjustified by the conditions under which we are living to-day. The Chancellor of the Exchequer addressed the whole of his argument to the issue as to whether the class that was going to pay the extra Income Tax was the class best able to bear the burden of taxation. That, however, is not the real issue raised by this Amendment. The real issue is whether or not this increase of taxation is necessary. Taxation is, ipso facto, a bad thing, and, unless it is absolutely necessary there can be no virtue in saying that we are putting it on the people who are best able to bear the burden.

The Chancellor of the Exchequer has to satisfy the Committee that this increase in taxation is necessary. At the present time, nobody who knows the condition of our industrial districts can help realising that what is wanted as much as anything else is the provision of ample capital. A few weeks ago I happened to be in the corner of the Colne Valley Division which looks down on the great plain of South Lancashire between Oldham and Manchester. It is an area covered with mills, and at the present time there are scarcely any mills at work there. The whole district is absolutely desolate, and it is a necessitous area if ever there was a necessitous and destitute area.

One way in which industry can be partially restored there and employment found for those who are out of work is by refitting and replacing the old-fashioned machinery in a great many of the mills in order to make them better able to compete with the newly-equipped and better equipped mills of their Continental competitors. Another and more important way to deal with that problem is by providing new industries, because there is no doubt that, at the present time, the Lancashire cotton trade has to support a greater population than the industry can bear, and the starting of new industries to provide more employment is the only way out of the difficulty. The only way in which we can find capital to replace the old machinery and to finance new industry is to utilise that margin of income which remains after a man has met his ordinary expenditure and his ordinary taxation. The real question which the Committee has to ask is whether this margin of income is best devoted to re-equipping industry, starting new trades and adding to the reserves of our trade, and whether that is not the better way of utilising the margin which is now diverted by taxation into unproductive expenditure?

The last speaker has very truly said that we must see to what purpose the money is to be applied. Nobody can say that the additional need for taxation which has been created by the Socialist Government has in any way been productive expenditure. We know quite well why these new taxes are required. There is £14,000,000 required for increased unemployment pay, £4,000,000 to enable persons to draw unemployment benefit even if they cannot show that they are genuinely seeking work, and £5,000,000 to meet the cost of the new widows' and orphans' pensions which are given to people quite regardless of whether they need them or not. All this new source of taxation is, no doubt, very welcome to the recipients of these doles and bounties, but nobody can suggest that it is reproductive in the sense of giving life-blood to industry. It is a diversion of money from trade and industry to outlets of national expenditure for which there is no national return whatever. At the present time we need rigorous economy. If we have that, there is no need for any increased taxation.

The Chancellor of the Exchequer often seeks to place our party in a dilemma by asking to which, if any, expenditure we object, because if we do not object to any we cannot logically reduce the taxes. I suggest the answer is that we believe that a great deal of this adventure in expenditure on so-called social services is unwarranted by the conditions of the times in which we are now living. The Prime Minister has deprecated a great many of the adventures in the nature of social services upon which his party suggests that the Government should embark. Those which he does not like he calls the "flashy futilities of Socialism in our time," and those which he likes he calls "social services." They are all really in the same category, and none of them can the country afford at the present time. The hon. Member who spoke last asked how otherwise could we provide for this new expenditure if we did not do it by 6d. on the Income Tax? As I understand it, this increase of Income Tax brings in a little more than £20,000,000. At the present time we have a revenue of £14,500,000 from the McKenna and Safeguarding Duties. If we doubled those duties, we should have £29,000,000, and that is the answer to the question. The view which is taken by people most concerned in industry is that that is a much better way of finding money. Hon. Members will have seen with pleasure the decision of a very large majority of the Manchester Chamber of Commerce on this subject. That is the conclusive answer to the question which the hon. Member asks. That is the way in which we propose to find the money.

Photo of Mr John Tinker Mr John Tinker , Leigh

Would the hon. and learned Gentleman then place the tax on the shoulders of the consumer?

Photo of Sir Gerald Hurst Sir Gerald Hurst , Manchester Moss Side

The hon. Member knows quite well the consumer does not always pay. In the case of fully-manufactured foreign luxuries, it really does not matter if he does, because if he cares to buy such foreign articles he can very well afford to pay. I should like to point out what is really an illusion in the speech of the Chancellor of the Exchequer. He asked how could Income Taxpayers complain, seeing that a great many of them had lent money to the Government during the War and got interest on their War Loan. What they paid out in Income Tax they got back again in interest on War Loan. That means that people have to be content to have lent their money to the State for nothing. If that argument were carried to its logical conclusion, it could justify repudiation, because it would mean that the State, having obtained loans, would be justified in giving no interest on them. That is an absolutely untenable argument.

Quite apart from the effects of this increased Income Tax upon industry, I suggest that it is a bad thing to have brought it forward and supported it by the dialectics with which it is supported not only in this House but in the country. It is supported on a plea founded entirely on an illusion—that it is a bad thing in this country for a man to become rich, and that a man who obtains wealth for himself is doing an injury to the poor. That is preached up and down the country, and it really represents the argument upon which this increase in Income Tax has been justified in this House. There are no doubt bad types of rich men. It may, perhaps, happen that a man who acquires wealth in business may be selfish, and be a man who grinds the faces of the poor. There may be such types, but I would remind hon. Members that where men have acquired wealth through industry, they have not only acquired wealth for themselves, but for the people whom they employ.

Up and down Yorkshire and Lancashire you may find hard types of wealthy employers, but the fact remains that it is they who have provided means of livelihood for a large portion of the working classes. Hon. Members must not forget that the desire to get on in the world may not be the highest motive, but it is certainly one which has made for the good of the people. The hope of the industrial world is that self-help should not die out, and that a man should still wish to get on in the world, because by getting on he will provide opportunities of well-being for those around him. That is a commonplace which hon. Members opposite are apt to forget. If you destroy the motive for getting on by penalising a man because he has gained a certain amount of capital, you are really destroying the root of those activities and ambitions which have led to all progress in industrial England. Quite apart from the immediate effects of high taxes upon industry, I suggest that these arguments which have been put forward are detrimental to the best interests of the whole country.

Photo of Mr John Jones Mr John Jones , West Ham Silvertown

To those of us who are not experts in finance, it has been very interesting to listen to some of the speeches we have heard this afternoon. The main burden of the speeches has been "Pity the poor rich." All these burdens are placed on them, and yet they still manage to escape taxation. One hon. Member representing the greatest financial centre in the world told us that if we dared to go so far we must not go any further, and that in certain eventualities they would take their capital abroad. They mean by "capital" simply the amount of money they may possess in the banks, but really the capital of this country is not the amount of money in the banks but the material, the land, the mineral wealth, the means of transport, all the amenities of living and the brain and sinews of the people. They are only gamblers in these things, which are the real capital, and they come to us with a lordly manner, with their pince-nez on and their big banking accounts, and talk to us as though they were the only people who counted—they are the only pebbles on the beach. But the ordinary workman in this country has done far more than they have to make the country what it is. [Interruption.] I am only answering the so-called arguments of hon. Members opposite.

I am not well up in figures; I only know the figures in the streets. The figures in the books do not appeal to me very much, because anyone who is a good figure-twister can make them mean what he likes. In this case the question is, who has got to pay? What form of taxation are we to adopt, whether direct upon the people who have got the money, or indirect upon the people who have not? The hon. and learned Member who has just addressed the House—I wish I had learned so much and knew so little—has just informed us that we cannot afford to tax the people who have got it. The obvious alternative is that you must tax the people who have not got it—you must tax their brains and their bodies, you must tax their boots and their clothes. "Tax my father and my mother, my sister and my brother, but for God's sake don't tax me." I do not always agree with the Chancellor of the Exchequer. In some things he differs from me, but all great minds do not always think alike. I agree with him, however, in this, that if you want any money you have got to go where it is. It is no good coming round to my house after it, when we have honourable millionaires sitting on the benches opposite. They object to paying another sixpence in the pound, but they will pay sixpence to-night for a cigar[Interruption]—putting it at the lowest possible price. They do not object to paying guineas for a dinner. I should have to look twice at a guinea before I could afford it for a dinner.

Always, when it is a question of wanting money for national purposes, they say it cannot be done, that you are ruining the country and the people. Who are being ruined? They are the people who every year on the average increase their income by £100,000,000 per annum. Who is going to have to pay on the basis of this Budget? Nobody with an income of less than £2,000 will pay it a penny piece more than they paid before. Who is going to pay? The handful of people in this country who have got their hands round the necks of everybody else. They talk about transmitting their capital abroad. Lancashire has been mentioned by the hon. and learned Member. He talks about the capital in Lancashire. What has been the main cause of the Lancashire situation? Lack of capital? As a matter of fact, the Lancashire cotton industry has been the most over-capitalised industry in Great Britain. It is not for lack of money, but because they found it easier and more profitable to transfer their capital, as they call it, to other countries where labour was cheaper and profits were greater. Therefore, we found Japan, and China, and India, where labour is down to practically next to nothing as compared with Lancashire. All these places are being financed by the very people who are talking about the collapse of Lancashire in industry. How in the name of all that is reasonable can you compete against labour under these conditions? People talk about Imperial Free Trade. Are we going to bring India within the Empire from the standpoint of competition in the cotton industry? You know as well as I do that the Lancashire cotton operatives could not possibly compete against Indian labour in the production of cotton goods so far as the Indian market is concerned.

What is the good of talking to us like this? I am only a labourer. I do not pretend to be an economist, except so far as I have had to practise economy. All the economics that I have ever learned has been the economics of having to tighten my belt and look for a job in London, and that has taught me more economics than hon. Members opposite ever knew anything about—the economics of how to live within your means. This country has the means if it has the will. All that we are doing now is just asking you for a little to save you from taking the lot. We say the time has arrived when taxation must be based on this principle: "Those who have got it will have to dub up." It is the truth now, as it always has been as far as I have been able to understand it, that the people who pay most taxation are the people who have the least to pay it with. Consequently, the screams from the other side do not upset me in the slightest degree. From the way in which millionaires opposite have been shouting, one would think that they were not going to the Derby to-morrow, just to show how economical they are; but to-morrow this House will be half deserted by gentleman who cannot afford to pay their Income Tax; and when they have exhausted the possibilities of luxury, they will come back and talk to us about economy. [Interruption.] I shall not be there. As far as I am concerned, I would rather go and see a football match.

I want the Committee to remember that, after all, we are not so foolish as we look. When we are discussing matters of taxation, we know just as much as you do about them. We know economics as well as you do. We know that all wealth is the result of human energy applied to the raw materials provided by God and Nature for the use of mankind. That wealth is not the product of the people at the top who think themselves clever; it is the result of the human activities and social abilities of all the people working for a common end; and we claim that that wealth which is the result of the activities of all the people is a social product which must be socially controlled in the interests of all the people. At the present time all the chance that we have is, by Budgets such as this, to divert back to the stream that wealth which up to now has been ostracised into the hands of private individuals under their own control. [Interruption.] It is perfectly true to say that it has been ostracised. Some of those who have been talking have not been ostracised; they have been looked upon as products of the community, of which they do not form a part. They are parasites upon the back of industry, yet they think themselves absolutely indispensable. Nobody is indispensable. We say that here we are adopting the principle of taxing those who can afford to pay. Can anyone object to that? I would like you to come down to my constituency and talk to the people there. I would like some of those hon. Members opposite who have spoken to come and face an audience of dock labourers. They are not people who would attack you; they would listen to you. I could get young men of 25 or 30 who would beat you in argument on any platform in that constituency, who would show you something about economics, and teach you the facts of the industrial and political situation. Therefore, we are supporting the Chancellor of the Exchequer as far as he goes. Our only regret is that he has not gone far enough.

Photo of Mr Henry Haslam Mr Henry Haslam , Horncastle

My hon. and learned Friend the Member for Moss Side (Sir G. Hurst) showed how this increased burden of direct taxation was going to prevent a very important industrial area in Lancashire from recovering in the way that otherwise it might do. I desire to draw attention to another aspect of heavy direct taxation—to the effect that it would have on British industries abroad. The party opposite have always treated this taxation as if it rested entirely on the individual, and as if it were simply and solely the putting on the individual who had the income the appropriate tax, but the Income Tax, as it is at present applied, is very much more than that. It does not only rest on the individual. The Income Tax, as applied to public companies, falls as a burden not only on the amount which they distribute in dividends to the shareholders, but it rests also on that amount which, as prudent managers, they feel obliged to apply to reserve. I do not suppose there is a single public company which does not place to reserve very considerably larger sums than are allowed by the Income Tax regulations for replacement and the various objects that are mentioned in those regulations.

Mention has been made of English capital going abroad. English capital has gone abroad. It has established industrial works and enterprises in almost every country in the world. I doubt if there is a single country in which British brains and enterprise have not established one form of industry or another. Those industries established overseas provide a very considerable income coming into this country. They have to pay Income Tax not only on the money they transmit here as profits for their shareholders, but they have to pay the same tax on all those profits which they put to reserve for the purpose of expansion and holding their own in the countries in which they are established, and it is a very material point as to how this increase of Income Tax is going to affect them. In practically none of the countries where they are established is there any taxation comparable to that in this country, and the result is that they are bearing a burden which their competitors in this country do not bear. But they have a method of escape. If they are registered in this country, they pay British Income Tax. They can register themselves in the country in which they are, in which case they would immediately be relieved of British tax. Of course, a company in a foreign country has not only to bear British Income Tax, but the taxes of the country in which it is operating, as is obviously fair and just.

It seems to me that this question should be studied from the point of view of arriving at some idea as to the point up to which they can be taxed before they begin to think of registering themselves outside this country, in which case the Revenue will lose quite a considerable amount. Private individuals who have built up businesses, when they return to England, in many cases take care not to domicile themselves in this country. They take care so to comport themselves and to live that they are not liable to Income Tax. I do not think those who have built up these businesses all over the world can be accused of lack of patriotism. It is a magnificent achievement that Englishmen have gone all over the world and established businesses in almost every country under the sun. It is one of the evils of this system of direct taxation that we may very likely deprive ourselves of the very large income that we are getting from those industries if we drive them to register themselves in a foreign country.

Photo of Mr Frederick Pethick-Lawrence Mr Frederick Pethick-Lawrence , Leicester West

I rise to make an appeal. I think it is the wish of Members on all sides of the Committee that we should not sit unreasonably late. It is understood that we have still a considerable number of Amendments to cover, and, though I do not complain of the tone or spirit in which the Amendment has been discussed, I hope the Committee will now bring the discussion to a close.

Photo of Mr Samuel Hammersley Mr Samuel Hammersley , Stockport

One quite appreciates the tone in which the debate has been carried on, and I am sure we should be anxious to expedite the course of business, but this is probably the most important Amendment of the whole Bill, and it seems to me to be asking a little too much to suggest that we should not be given some freedom of discussion on a matter which is of vital importance to the industries of the country. The, Chancellor of the Exchequer in his compendious reply, indicated that the policy he was pursuing was one that was, in his opinion, going to be to the advantage of the industry of the country. The case for the Government is simple. They say taxation has to be raised because of expenditure caused by the action of previous Parliaments. If this expenditure has to be raised, in their view it can best be raised by taxing that class of the community which can most afford to pay it. They say, further, that this form of direct taxation is of a character which will not hurt industry. It is that statement of defence which I should like to examine. They base their case almost entirely on the Colwyn Report, where it says that direct taxation does not enter into prices. That may be true, but we have to consider from the point of view of industry whether or not direct taxation enters into costs of production. In a competitive trade where your selling price is controlled by outside costs of production, you may not be able to sell in accordance with your costs of production, because you cannot pass the increased costs of production on to your selling price.

Therefore, the result of direct taxation in this case may very well be that prices do not go up; you have not affected the general level of prices, but you have seriously affected the amount of profit that is being made. Competitive trades cannot carry forward their increased overhead costs on to prices, and any policy which this Government puts forward which does in fact increase the costs of production can rightly be condemned. The Government say that this policy does not do that. Let me take the general case of the basic industries. Hon. Members have been sent a pamphlet entitled "An Analysis of Rationalisation," published by the "Times." In that analysis there occur these words: The three most vital needs of British industry to-day are the elimination of excessive competition by means of amalgamation, the reduction of the burden of debt incurred during the short-lived "boom" and the long years of depression which followed, and the provision of fresh capital for re-planting and reorganisation. It is this important point of the provision of fresh capital for re-planting and reorganisation to which I wish to draw the attention of the Committee. The "Analysis" from which I have quoted goes on to say: These three needs are all mutually interdependent and unless they can be satisfied simultaneously, little progress can be made. Quite clearly, the effect of very heavy direct taxation, at a time when the industries of the country are depressed is to narrow the field from which new capital can be taken for the essential process of reorganisation which, in the words which I have quoted, is so dependent upon our being able to draw new capital. The effect of this taxation is to prevent that new field of capital being drawn upon, and to prevent the reorganisation of these industries. The Lord Privy Seal is depending upon this new capital coming forward. This taxation, in the special circumstances of the time, is interfering with the work which the Lord Privy Seal still says is necessary in the policy which he is putting forward to deal with unemployment.

Let us take the position of the trade with which I am so closely associated, the Lancashire cotton trade. I am addressing myself to the particular point of whether or not direct taxation is carried forward on to the costs of production. In the Lancashire spinning trade the production is financed in a unique way. They obtain loans, and the loan capital together with the share capital provide the means whereby production is carried on. The loan capital forms a very large proportion of the available capital resources of the company, and those loans are lent to the mills on terms free of Income Tax. They are lent at 4½ per cent. or 5 per cent., free of Income Tax. If the Income Tax goes up, the company has to pay more, because the person who lends the money receives a certain amount of interest free of Income Tax. Therefore, it is quite clear that in that special case, which deals with the largest exporting industry in this country, the amount of Income Tax is directly borne by the industry and, in fact, direct Income Tax is one of the costs of production. In cases where the loans are not lent on terms free of Income Tax, the investor requires to receive a certain net yield and, to the extent that the Income Tax is put up, he has to be offered more advantageous terms.

10.0 p.m.

I believe that if hon. Members will read the Colwyn Report wholly, they will not get the direct statement which is so frequently put forward that direct taxation is not carried forward into the costs of production. The circumstances under which the Colwyn Report was collected, militated against a very accurate analysis of present day circumstances. It should not be forgotten that when that evidence was collected we and other countries had not returned to the gold standard, and we had not arrived at the present circumstances of practically universal depression, when onerous taxation has a much greater effect on the problems of industry than normal taxation in a time of prosperity. The purpose of this direct taxation should be taken into consideration. The hon. Member for Westmorland (Mr. Stanley) pointed out that we ought to bear in mind for what purpose the taxation is to be used. That is true.

As far as I understand it, the Government consider that by direct taxation they can use Income Tax as a means of re-distributing wealth. That is a view that I should like to challenge. In my view, high taxation very frequently destroys wealth. You can have millions of capital sunk in mills, machinery and so forth, and if by means of taxation those industries are not prosperous, then the whole of that capital expenditure becomes valueless, and instead of assisting to produce wealth you have destroyed that wealth. It is the last 25 per cent. of production in the basic trades of the world that makes the previous 75 per cent. profitable or not profitable. Therefore it follows that if we are going to get out of our present depressed condition, we must pursue a policy which will enable us to augment the existing amount of production, and we have to do that by cheaper costs instead of endeavouring to re-distribute wealth by means of high taxation. I believe the proper policy to be followed is to re-distribute wealth through the lower prices of commodities, and we can get lower prices of commodities by the economies that come through mass production and through higher

wages. If you will do what the Chancellor of the Exchequer said he wanted to do, and that was to put the whole of his financial machinery at the back of the producers of the country, you can arrive at a state of affairs in which commodities can be continuously cheapened, and you ought to be able to provide increased employment at higher wages. That would be the best way of redistributing wealth.

Industrialists feel that what ought to happen in the present depressed condition of trade is that, as far as possible, the burden of their costs of production should be lightened. If, for example, it could be considered practicable to move the existing burden of taxation from direct taxation on to the taxation of imported manufactured goods and goods of a luxury character, to that extent you would lower the costs of production by reducing your taxation on the manufacturer and the benefit would be perceived throughout the whole community. It is not the case that putting an indirect tax on a luxury article is the same kind of tax as putting an Excise Tax on tea, coffee, or cocoa. The Chancellor of the Exchequer tried to twit my right hon. Friend the Member for Epping (Mr. Churchill) with having suggested in his speeches that it was desirable to tax manufactured imported goods, and that at the same time he had pursued a policy, when Chancellor of the Exchequer, of removing the Excise Tax upon tea; but these are kinds of indirect taxation of a very different character. From the point of view of the producer, if you could tax the manufactured commodities which come into direct competition with the goods which you make in order to provide employment for your people, and so build up the total volume of production, in that way you could re-distribute wealth in the best possible fashion, through lower prices of commodities and through higher wages.

Question put, "That the words proposed to be left out stand part of the Clause."

The Committee divided: Ayes, 283; Noes, 145.

Division No. 332.]AYES.[10.10 p.m.
Adamson, Rt. Hon. W. (Fife, West)Aitchison, Rt. Hon. Craigie M.Arnott, John
Adamson, W. M. (Staff., Cannock)Alpass, J. H.Aske, Sir Robert
Addison, Rt. Hon. Dr. ChristopherAmmon, Charles GeorgeAyles, Walter
Baker, John (Wolverhampton, Bilston)Hayday, ArthurNathan, Major H. L.
Baldwin, Oliver (Dudley)Henderson, Arthur, Junr, (Cardiff, S.)Naylor, T. E.
Barnes, Alfred JohnHenderson, Thomas (Glasgow)Newman, Sir R. H. S. D. L. (Exeter)
Batey, JosephHenderson, W. W. (Middx., Enfield)Oldfield, J. R.
Beckett, John (Camberwell, Peckham)Harriotts, J.Oliver, George Harold (Ilkeston)
Bellamy, AlbertHirst, G. H. (York W. R. Wentworth)Oliver, P. M. (Man., Blackley)
Bennett, Capt. Sir E. N. (Cardiff C.)Hirst, W. (Bradford, South)Owen, Major G. (Carnarvon)
Benson, G.Hoffman, P. C.Owen, H. F. (Hereford)
Bentham, Dr. EthelHopkin, DanielPalin, John Henry
Bevan, Aneurin (Ebbw Vale)Horrabin, J. F.Palmer, E. T.
Birkett, W. NormanHudson, James H. (Huddersfield)Perry, S. F.
Bowen, J. W.Hunter, Dr. JosephPeters, Dr. Sidney John
Broad, Francis AlfredHutchison, Maj.-Gen. Sir R.Pethick-Lawrence, F. W.
Brockway, A. FennerIsaacs, GeorgePicton-Turbervill, Edith
Bromfield, WilliamJenkins, W. (Glamorgan, Neath)Pole, Major D. G.
Bromley, J.John, William (Rhondda, West)Potts, John S.
Brooke, W.Johnston, ThomasPrice, M. P.
Brothers, M.Jones, F. Llewellyn- (Flint)Pybus, Percy John
Brown, C. W. E. (Notts, Mansfield)Jones, Henry Haydn (Merioneth)Quibell, D. J. K.
Brown, Ernest (Leith)Jones, J. J. (West Ham, Silvertown)Ramsay, T. B. Wilson
Brown, Rt. Hon. J. (South Ayrshire)Jones, Rt. Hon Leif (Camborne)Richards, R.
Buchanan, G.Jones, Morgan (Caerphilly)Richardson, R. (Houghton-le-Spring)
Burgess, F. G.Jones, T. I. Mardy (Pontypridd)Riley, Ben (Dewsbury)
Burgin, Dr. E. L.Jowett, Rt. Hon. F. W.Riley, F. F. (Stockton-on-Tees)
Buxton, C. R. (Yorks, W. R. Elland)Jowitt, Rt. Hon. Sir W. A.Ritson, J.
Caine, Derwent Hall-Kedward, R. M. (Kent, Ashford)Romeril, H. G.
Cameron, A. G.Kennedy, ThomasRosbotham, D. S. T.
Cape, ThomasKinley, J.Rowson, Guy
Carter, W. (St. Pancras, S. W.)Kirkwood, D.Russell, Richard John (Eddisbury)
Charieton, H. C.Lang, GordonSalter, Dr. Alfred
Chater, DanielLathan, G.Samuel, Rt. Hon. Sir H. (Darwen)
Church, Major A. G.Law, Albert (Bolton)Samuel, H. W. (Swansea, West)
Clarke, J. S.Law, A. (Rosendale)Sanders, W. S.
Cluse, W. S.Lawrence, SusanSandham, E.
Clynes, Rt. Hon. John R.Lawson, John JamesSawyer, G. F.
Cocks, Frederick SeymourLawther, W. (Barnard Castle)Scott, James
Collins, Sir Godfrey (Greenock)Leach, W.Scrymgeour, E.
Compton, JosephLee, Frank (Derby, N. E.)Scurr, John
Cove, William G.Lee, Jennie (Lanark, Northern)Sexton, James
Cowan, D. M.Lees, J.Shepherd, Arthur Lewis
Daggar, GeorgeLewis, T. (Southampton)Sherwood, G. H.
Dallas, GeorgeLindley, Fred W.Shield, George William
Davies, E. C. (Montgomery)Lloyd, C. EllisShillaker, J. F.
Davies, Rhys John (Westhoughton)Logan, David GilbertShinwell, E.
Denman, Hon. R. D.Longbottom, A. W.Short, Alfred (Wednesbury)
Dickson, T.Longden, F.Simmons, C. J.
Dudgeon, Major C. R.Lovat-Fraser, J. A.Simon, E. D. (Manch'ter, Withington)
Dukes, C.Lowth, ThomasSinclair, Sir A. (Caithness)
Duncan, CharlesLunn, WilliamSinkinson, George
Ede, James ChuterMacdonald, Gordon (Ince)Sitch, Charles H.
Edmunds, J. E.MacDonald, Malcolm (Bassetlaw)Smith, Alfred (Sunderland)
Edwards, C. (Monmouth, Bedwellty)Macdonald, Sir M. (Inverness)Smith, Frank (Nuneaton)
Edwards, E. (Morpeth)McElwee, A.Smith, H. B. Lees- (Keighley)
Egan, W. H.McEntee, V. L.Smith, Rennie (Penistone)
Elmley, ViscountMcKinlay, A.Smith, Tom (Pontefract)
Evans, Capt. Ernest (Welsh Univer.)MacLaren, AndrewSmith, W. R. (Norwich)
Foot, IsaacMaclean, Sir Donald (Cornwall, N.)Snell, Harry
Forgan, Dr. RobertMacNeill-Weir, L.Snowden, Rt. Hon. Philip
Freeman, PeterMacpherson, Rt. Hon. James I.Snowden, Thomas (Accrington)
Gardner, B. W. (West Ham, Upton)McShane, John JamesSorensen, R.
Gardner, J. P. (Hammersmith, N.)Malone, C. L'Estrange (N'thampton)Stamford, Thomas W.
George, Megan Lloyd (Anglesea)Mander, Geoffrey le M.Stephen, Campbell
Gibson, H. M. (Lancs, Mossley)Mansfield, W.Stewart, J. (St. Rollox)
Gill, T. H.March, S.Strachey, E. J. St. Loe
Gossling, A. G.Markham, S. F.Strauss, G. R.
Gould, F.Marley, J.Sullivan, J.
Graham D. M. (Lanark, Hamilton)Mathers, GeorgeSutton, J. E.
Graham, Rt. Hon. Wm. (Edin., Cent.)Matters, L. W.Taylor, R. A. (Lincoln)
Granville, E.Maxton, JamesThorne, W. (West Ham, Plaistow)
Gray, MilnerMelville, Sir JamesTillett, Ben
Grenfell, D. R. (Glamorgan)Messer, FredTinker, John Joseph
Griffith, F. Kingsley (Middlesbro' W.)Middleton, G.Toole, Joseph
Griffiths, T. (Monmouth, Pontypool)Mills, J. E.Tout, W. J.
Groves, Thomas E.Milner, Major J.Townend, A. E.
Grundy, Thomas W.Montague, FrederickTrevelyan, Rt. Hon. Sir Charles
Hall, F. (York, W. R., Normanton)Morgan, Dr. H. B.Turner, B.
Hall, G. H. (Merthyr Tydvil)Morley, RalphVaughan, D. J.
Hall, Capt. W. P. (Portsmouth, C.)Morris, Rhys HopkinsViant, S. P.
Hamilton, Mary Agnes (Blackburn)Morris-Jones, Dr. J. H. (Denbigh)Walkden, A. G.
Hamilton, Sir R. (Orkney & Zetland)Morrison, Herbert (Hackney, South)Walker, J.
Harbord, A.Morrison, Robert C. (Tottenham, N.)Wallace, H. W.
Hardie, George D.Mort, D. L.Wallhead, Richard C.
Harris, Percy A.Moses, J. J. H.Walters, Rt. Hon. Sir J. Tudor
Hastings, Dr. SomervilleMuff, G.Watkins, F. C.
Haycock, A. W.Muggeridge, H. T.Watson, W. M. (Dunfermline)
Watts-Morgan, Lt.-Col. D. (Rhondda)Whiteley, William (Blaydon)Wilson R. J. (Jarrow)
Wellock, WilfredWilkinson, Ellen C.Winterton, G. E. (Leicester, Loughb'gh)
Welsh, James (Paisley)Williams, David (Swansea, East)Wood, Major McKenzie (Banff)
West, F. R.Williams, Dr. J. H. (Llanelly)Wright, W. (Rutherglen)
Westwood, JosephWilliams, T. (York, Don Valley)Young, R. S. (Islington, North)
White, H. G.Wilson, C. H. (Sheffield, Attercliffe)
Whiteley, Wilfrid (Birm., Ladywood)Wilson, J. (Oldham)TELLERS FOR THE AYES—
Mr. Allen Parkinson and Mr. Paling.
NOES.
Acland-Troyte, Lieut.-ColonelFison, F. G. ClaveringPeaks, Capt. Osbert
Albery, Irving JamesFord, Sir P. J.Peto, Sir Basil E. (Devon, Barnstaple)
Atkinson, C.Forestier-Walker, Sir L.Pownall, Sir Assheton
Baldwin, Rt. Hon. Stanley (Bowdley)Fremantle, Lieut.-Colonel Francis E.Ramsbotham, H.
Balfour, Captain H. H. (I. of Thanet)Gault, Lieut.-Col. Andrew HamiltonRawson, Sir Cooper
Balniel, LordGibson, C. G. (Pudsey & Otley)Reid, David D. (County Down)
Beaumont, M. W.Graham, Fergus (Cumberland, N.)Remer, John R.
Betterton, Sir Henry B.Grattan-Doyle, Sir N.Reynolds, Col. Sir James
Bevan, S. J. (Holborn)Greene, W. P. CrawfordRichardson, Sir P. W. (Sur'y, Ch'ts'y)
Bird, Ernest RoyGrenfell, Edward C. (City of London)Roberts, Sir Samuel (Ecclesall)
Bourne, Captain Robert Croft.Gretton, Colonel Rt. Hon. JohnRoss, Major Ronald D.
Boyce, H. L.Gritten, W. G. HowardRussell, Alexander West (Tynemouth)
Bracken, B.Hacking, Rt. Hon. Douglas H.Salmon, Major I.
Brass, Captain Sir WilliamHall, Lieut.-Col. Sir F. (Dulwich)Samuel, A. M. (Surrey, Farnham)
Briscoe, Richard GeorgeHamilton, Sir George (Ilford)Samuel, Samuel (W'dsworth, Putney)
Brown, Col. D. C. (N'th'l'd., Hexham)Hammersley, S. S.Sandeman, Sir N. Stewart
Bullock, Captain MalcolmHarvey, Major S. E. (Devon, Totnes)Sassoon, Rt. Hon. Sir Philip A. G. D.
Butler, R. A.Haslam, Henry C.Savery, S. S.
Cadogan, Major Hon. EdwardHenderson, Capt. R. R. (Oxf'd, Henley)Shepperson, Sir Ernest Whittome
Carver, Major W. H.Heneage, Lieut.-Colonel Arthur P.Sinclair, Col. T. (Queen's U., Belfst)
Cautley, Sir Henry S.Hennessy, Major Sir G. R. J.Smith, Louis W. (Sheffield, Hallam)
Chapman, Sir S.Herbert, Sir Dennis (Hertford)Smith-Carington, Neville W.
Christie, J. A.Hoare, Lt.-Col. Rt. Hon. Sir S. J. G.Smithers, Waldron
Churchill, Rt. Hon. Winston SpencerHudson, Capt. A. U. M. (Hackney, N.)Somerville, A. A. (Windsor)
Colfox, Major William PhilipHurd, Percy A.Somerville, D. G. (Willesden, East)
Colman, N. C. D.Hurst, Sir Gerald B.Southby, Commander A. R. J.
Colville, Major D. J.Jones, Sir G. W. H. (Stoke New'gton)Stanley, Maj. Hon. O. (W'morland)
Cranborne, ViscountKnox, Sir AlfredSteel-Maitland, Rt. Hon. Sir Arthur
Crichton-Stuart, Lord C.Lamb, Sir J. Q.Stewart, W. J. (Belfast South)
Croft, Brigadier-General Sir H.Lane Fox, Col. Rt. Hon. George R.Sueter, Rear-Admiral M. F.
Crookshank, Capt. H. C.Law, Sir Alfred (Derby, High Peak)Thomas, Major L. B. (King's Norton)
Croom-Johnson, R. P.Leighton, Major B. E. P.Titchfield, Major the Marquess of
Culverwell, C. T. (Bristol, West)Little, Dr. E. GrahamTodd, Capt. A. J.
Cunliffe-Lister, Rt. Hon. Sir PhilipLocker-Lampson, Rt. Hon. GodfreyTurton, Robert Hugh
Dalkeith, Earl ofLong, Major EricVaughan-Morgan, Sir Kenyon
Davies, Dr. VernonMacdonald, Capt. P. D. (I. of W.)Ward, Lieut.-Col. Sir A. Lambert
Davison, Sir W. H. (Kensington, S.)MacRobert, Rt. Hon. Alexander M.Wardlaw-Milne, J. S.
Dixey, A. C.Maitland, A. (Kent, Faversham)Waterhouse, Captain Charles
Dixon, Captain Rt. Hon. HerbertMakins, Brigadier-General E.Wayland, Sir William A.
Duckworth, G. A. V.Margesson, Captain H. D.Wells, Sydney R.
Eden, Captain AnthonyMason, Colonel Glyn K.Williams, Charles (Devon, Torquay)
Edmondson, Major A. J.Mond, Hon. HenryWilson, G. H. A. (Cambridge U.)
Elliot, Major Walter E.Monsell, Eyres, Com. Rt. Hon. Sir B.Womersley, W. J.
England, Colonel A.Morrison, W. S. (Glos., Cirencester)Wood, Rt. Hon. Sir Kingsley
Erskine, Lord (Somerset, Weston-s.-M.)Nicholson, O. (Westminster)Worthington-Evans, Rt. Hon. Sir L.
Everard, W. LindsayNicholson, Col. Rt. Hn. W. G. (Ptrsf'ld)
Falle, Sir Bertram G.Nield, Rt. Hon. Sir HerbertTELLERS FOR THE NOES.—
Ferguson, Sir JohnO'Connor, T. J.Sir Frederick Thomson and Captain
Fermoy, LordOman, Sir Charles William C.Wallace.
Fielden, E. B.O'Neill, Sir H.

Photo of Reverend Herbert Dunnico Reverend Herbert Dunnico , Consett

I understand that, in view of the wide discussion on the previous Amendment, there is an arrangement that on the subsequent Amendments on the Clause debate shall not be unduly prolonged.

Photo of Mr Dennis Herbert Mr Dennis Herbert , Watford

I beg to move, in page 5, line 25, to leave out from the word "pound," to the end of the Sub-section.

This is a manuscript Amendment, and, before dealing with it, I should like to have your guidance in the matter. It has been indicated to me that two subsequent Amendments standing in my name and in the names of my hon. Friend the Member for Lewisham (Sir A. Pownall) and the hon. and gallant Member for Oxford City (Captain Bourne) will be ruled out of order. I do not desire to proceed with this manuscript Amendment if I have an opportunity of raising the point I desire to raise on the two later Amendments, and I should like to ask whether you will be good enough to tell me, if I do not proceed with this manuscript Amendment, that you will call me in respect of the later Amendment. If you do not propose to call me perhaps you will indicate to me why you rule the later Amendments out of order?

Photo of Reverend Herbert Dunnico Reverend Herbert Dunnico , Consett

The first Amendment of the hon. Member is contrary to the Money Resolution and the second Amendment is consequential, and I therefore do not propose to call them.

Photo of Mr Dennis Herbert Mr Dennis Herbert , Watford

May I put the point to you as to whether your ruling is not due to a misapprehension? If you will be good enough to refer to the Money Resolution, it says that Income Tax shall be charged: in the case of an individual whose total income from all sources exceeds £2,000 that such higher rates.… as Parliament may hereafter determine. That is, such rates as Parliament may determine after the date of the Resolution. I submit most respectfully that the Money Resolution expressly authorises Parliament at any time after the passing of the Resolution to settle the tax at "such higher rates as Parliament may determine."

Photo of Reverend Herbert Dunnico Reverend Herbert Dunnico , Consett

I am advised that the term "hereafter" means next year, not this year.

Photo of Mr Dennis Herbert Mr Dennis Herbert , Watford

Although it is in the Resolution?

Photo of Reverend Herbert Dunnico Reverend Herbert Dunnico , Consett

I think the hon. Member should proceed with his Amendment.

Photo of Mr Henry Cautley Mr Henry Cautley , East Grinstead

I have an Amendment on the Order Paper of a similar character, and I should like to put this point to you. The Financial Resolution declares that in the case of Surtax—

Photo of Reverend Herbert Dunnico Reverend Herbert Dunnico , Consett

We cannot discuss these Amendments at this point. I called upon the hon. Member for Watford (Sir D. Herbert) to move his Amendment, because I thought he had agreed to do so in place of the one ruled out.

Photo of Mr Henry Cautley Mr Henry Cautley , East Grinstead

I was speaking on the point of order.

Photo of Reverend Herbert Dunnico Reverend Herbert Dunnico , Consett

A point of Order does not arise now. We have not reached the Amendment of the hon. and learned Member yet.

Photo of Mr Henry Cautley Mr Henry Cautley , East Grinstead

The hon. Member for Watford (Sir D. Herbert) has handed in a manuscript Amendment, but he does not desire to proceed with it if the later Amendments on the Order Paper in his name are in order. It is upon that point of Order that I desire to say one or two words.

Photo of Reverend Herbert Dunnico Reverend Herbert Dunnico , Consett

I have called upon the hon. Member for Watford to move his Amendment. After discussion with him this manuscript Amendment was accepted in place of other.

Photo of Mr Henry Cautley Mr Henry Cautley , East Grinstead

And it is upon that point that I want you to hear what I have to say on my Amendment, which appears later.

Photo of Reverend Herbert Dunnico Reverend Herbert Dunnico , Consett

We can deal with that when we come to the Amendment.

Photo of Mr Dennis Herbert Mr Dennis Herbert , Watford

I accept your interpretation of the Financial Resolution, but I must respectfully say that the point is one which I cannot quite follow, and I desire to reserve any rights I may have to raise the question at any subsequent stage of the Bill. I made some reference to the discussion that took place on the Financial Resolution in regard to the meaning of these words, the reason for inserting them here, and the effect of them. I am afraid that it will be necessary for me, in discussing this Amendment, to refer to Clause 8. I do not propose to discuss Clause 8 now, because there are on the Paper Amendments to it in regard to the fixing of what is known as Surtax for the year 1928–29; but I think it is necessary to explain to the Committee what I take to be the reason why the apparently meaningless and ineffective words appear in this particular Clause. All those who are acquainted with the Income Tax law know that Surtax under the Act of 1927, by which it was first created, is a deferred instalment of Income Tax. The Surtax for any particular financial year is not payable until the 1st January of the following financial year. Therefore, the Surtax payable on 1st January of next year will be the Surtax for the financial year which ended on 5th April last.

It will be observed that Clause 8 deals with Surtax for the year 1928–29, which will be payable on 1st January next. Therefore, it will be received within this financial year, although it is last year's tax. Clause 8 proposes to deal with the tax which was last year's tax but payable in this year, and to increase it. I imagine, therefore, that the intention, in putting these words into this Clause, is to give a lead to Parliament to the effect that it shall generally be regarded as the customary thing to deal with the rate of Surtax for any particular year, not in the Finance Act of the year for which the tax is levied, but in the Finance Act for the year in which the tax is collected and received by the revenue. It seems to me that under Clause 8 the Chancellor of the Exchequer is contemplating the unforgivable Parliamentary and Constitutional sin of endeavouring to increase a tax for a past year which has been fixed by a past Finance Act. That, however, is a matter to be discussed when we come to Clause 8, and I only wish in passing to point out that these words which the right hon. Gentleman admits are put in more or less as a sort of lead to Parliament as to what it should do in the future, are, in fact, a lead to Parliament to be guilty of what I have already described as an unforgivable Parliamentary and Constitutional sin.

There is another point of considerable importance which arises on this Amendment, and to which I frankly believe that I shall get the answer which I hope for from the Chancellor of the Exchequer. Much as I differ from the right hon. Gentleman in many things I will, if I may respectfully do so, pay him the compliment of saying that I believe that he desires to uphold in every way the protection of those old Standing Orders which deal with our financial procedure. I can hardly hope that the Government will agree to the Amendment but if they do not, I wish, at least, to have an expression from the Chancellor of the Exchequer that he does not contemplate and the Revenue do not contemplate, if this Clause is passed in this form, that it will then be competent for Parliament in next year's Finance Bill—this Clause being founded on a Financial Resolution—to impose a higher rate of Surtax, in pursuance of this Clause, without founding it upon a new Financial Resolution during next Session. If one could get a definite expression of opinion from the Front Bench, to that effect, it would dispose of a certain amount of the anxiety which is felt on this side.

I pass to the main point of the Amendment, and I respectfully but very earnestly urge that these words cannot have any effect—that they are a mere indication to Parliament. We all know that Parliament may do whatever it chooses to do, and, as there is a considerable body of opinion which considers that Surtax for a particular year ought to be fixed in that year, and as the present Government, however notable they may be, do not, I am sure, regard themselves as immortal or as always to rule, I hope that they will leave out of this Clause what I have described as an indication to Parliament that in future Parliament ought to take a course which in the opinion of many would be the wrong course for Parliament to pursue. Parliament ought not to commit itself unnecessarily to a Clause indicating a course of action which does not find favour with a great body of opinion in this House. I do not desire to prolong the discussion, and having, I hope, made my point clear I await a reply to the question which I have raised.

Photo of Mr Frederick Pethick-Lawrence Mr Frederick Pethick-Lawrence , Leicester West

The hon. Member has raised three separate points. The largest point of all, the decision of the Government to impose a Surtax for the year 1929–30 in the present Budget, is one which, I understand, he does not wish to discuss on this particular Amendment, because it will come up later. The two other points with which he has dealt are these. In the first place, he asked a question whether the passage of the Clause in the form in which it appears in the Finance Bill will still necessitate a Financial Resolution next year before any higher rate or any rate of Surtax is imposed. The answer to that is in the affirmative. It will still be necessary, assuming that the Clause is carried in its present form, to have a Financial Resolution—

Photo of Mr Frederick Pethick-Lawrence Mr Frederick Pethick-Lawrence , Leicester West

Yes, it will still be necessary to have a Financial Resolution, certainly for a higher rate.

Photo of Sir Waldron Smithers Sir Waldron Smithers , Chislehurst

Supposing the rate is not changed?

Photo of Mr Frederick Pethick-Lawrence Mr Frederick Pethick-Lawrence , Leicester West

It will still be necessary under any circumstances to have a Financial Resolution. The hon. Member for Watford (Sir D. Herbert) then asked why these words have been inserted. The reason is somewhat peculiar. It is because of the precise form of Section 38 of the Finance Act of 1927. The words used in that Section imply that the Income Tax of any given year shall be at two different rates, one for people below a certain figure of income, and varying rates for people above that figure—

Photo of Mr Dennis Herbert Mr Dennis Herbert , Watford

Additional varying rates?

Photo of Mr Frederick Pethick-Lawrence Mr Frederick Pethick-Lawrence , Leicester West

The essential part of Section 38 is that there shall be a standard rate, and for persons above a certain amount of income there shall be an additional rate. I am advised that, unless these words which we are proposing are retained in this Clause, some doubt will arise as to the right to carry through the necessary regulations with regard to Income Tax. It is not a question of the Surtax next year. It is a question of the standard rate of Income Tax for the current year, and, in order to secure that the necessary provisions in regard to Income Tax apply to the standard rate for the current year, it is necessary that these words should be retained in the Clause. That is the purely technical reason why the retention of these words are necessary.

Photo of Mr Dennis Herbert Mr Dennis Herbert , Watford

I thank the hon. Gentleman for what he said in the first part of his reply, which entirely satisfies me. I asked the question not so much for any fear that I might have, but because I was anxious in the interests of our financial procedure to get a definite pronouncement from the Front Bench and on that matter I am quite satisfied. I am sorry, however, that the hon. Gentleman does not by any means satisfy me with regard to the second point. He showed how he is likely to be misled over this matter and how, if I may say so, he does not really grasp the case, judging by the words that he used in the beginning of his speech, where he appeared to infer that Income Tax was charged at a varying or graduated rate. It was there that I interrupted him, because this is a mistake which appears in other parts of the Bill. Income Tax most definitely persists in two separate parts. One is Income Tax commonly so-called, which, according to the legal language of the statute, is the standard rate of Income Tax. It is important to remember that Income Tax, apart from Surtax, is not a graduated tax. There are reliefs, it is true, but even those reliefs do not make it a graduated tax. It is a, standard tax, and it is payable by all the taxpayers, and the relief that is given is given in the form of relief from the tax which is payable. Then we come to the Surtax, as it is called in the statute, which is Income Tax at a higher rate than the standard rate and is charged upon incomes above a certain amount. In dealing with this point the Financial Secretary said, "I am advised," but he must forgive me for saying that that is no answer to us unless he can explain the advice.

We have the advantage of the presence of the Attorney-General on the Treasury Bench, and I hope he will go into this point. I listened to a speech by him elsewhere some time ago in which he spoke of the necessity of getting this tax legislation in a form in which it could be understood by persons of ordinary intelligence; but it seems to me that the hon. Gentleman's answer to my question has only increased the fog. How can the leaving out of these apparently meaningless words interfere with the due imposition and collection during the present financial year of the standard Income Tax for this year? If there be a difficulty about that I would like to have it explained. I thought I had pointed out in my earlier remarks that if it is to be the custom of the House of Commons to fix the Surtax for the year in respect of which it is assessed not in the year for which it is assessed but in the following year, in which this deferred instalment of Income Tax is to be actually received, we shall be taking a course which we do not want to encourage and one which I have ventured to describe as an unforgiveable sin from every point of constitutionalism and Parliamentary procedure.

Photo of Sir William Jowitt Sir William Jowitt , Preston

The difficulty which the hon. and learned Gentleman feels really arises from half-a-dozen words in Section 38 of the Finance Act of 1927. Those words are: where Income Tax is so charged. Where Income Tax is so charged certain consequences follow and certain enactments apply. The meaning of the words "so charged" is plain from the first part of the Section, and where in any year you charge Income Tax at the standard rate you also charge Surtax, then certain consequences follow, certain enactments apply, and certain machinery is operative. Unless you use some such words you do not comply with the condition in Section 38 so as to get the benefit of the machinery which Section 38 provides, because it is necessary that the Income Tax should be so charged, that is to say, that you should charge both Income Tax and Surtax. It is simply reason to bring ourselves within the words of Section 38 of the Finance Act of 1927 that the machinery therein provided may apply. That is why the words are used.

Photo of Mr Henry Cautley Mr Henry Cautley , East Grinstead

There does not seem to me to be any reason whatever for the inclusion of the words to which we are objecting, and which are quite meaningless.

Photo of Sir Waldron Smithers Sir Waldron Smithers , Chislehurst

I desire to ask the Attorney-General a question. In the Bill under discussion the word "Surtax" is not, mentioned until we reach Clause 12. Clause 38 of the Finance Act of 1927 refers to Income Tax so charged for any year at the rate or rates exceeding the standard rate. In the Clause under discussion it says "at such higher rates." I look at the Finance Bill of 1929, and there is no scale in that Act, because, I take it, there was no change in the rate. Therefore, you have to refer back to the Finance Act of 1928. In the Finance Act of 1928 the table reads:

"For every pound of the first five hundred pounds of the excess.Four shillings and nine-pence.
being the amount of the standard rate plus the excess Surtax. That applies also to the 1929 Act, the table for the Surtax being given in full with the standard rate plus the addition. In this Bill, in Clause 8, it is given as "one shilling, one shilling and threepence," etc., to which you have to add the standard rate. Why has that different method been adopted in this Bill as compared with the Act of 1928 and is that the reason why the words "such higher rates" have been put into this Bill?

Photo of Mr John Wardlaw-Milne Mr John Wardlaw-Milne , Kidderminster

I should like to ask the Attorney-General whether the whole confusion does not arise owing to this different setting up of the increased rates of Income Tax, or what used to be known as the rate of Income Tax plus Super-tax. If in Clause 8 the rates had been set out in full, i.e., the standard rate plus the Surtax, then surely the words in Clause 7, paragraph 1, would have read, not as Parliament may hereafter determine, but as set out in the Clause which follows. That would have made the whole matter quite clear.

Photo of Sir William Jowitt Sir William Jowitt , Preston

May I say I do not withdraw one single word of what I said before, but I do think that all sections of the House ought to do everything they can to simplify not only this but all other legislation in order that we may have some idea of what it is all about. With regard to the question which I have been asked and which seems to arise on Clause 8, I do not think that there is any great difficulty. There are set out in Clause 8 the rates which exceed the standard rate. All you have to do is to add the sums therein mentioned to the sum of 4s. I do not suppose that has been done to make it more difficult. I frankly say I do not know what is the reason why it is done in that way, but it is not difficult to arrive at the result. With regard to the question arising under Clause 7, if we stop at the word "pound" we should be holding out undue expectations to the taxpayer, because nobody really supposes that Income Tax for the year 1930–31 shall be charged at the standard rate of 4s. 6d. only. Unfortunately, we all anticipate that in the year 1931 Income Tax will be charged at some higher rate. Surtax is a part of Income Tax. Income Tax consists of the standard rate plus surtax. We all know perfectly well that Income Tax for the year 1930–31 will be charged not only at the standard rate, but at some rate of Surtax. It would be entirely misleading to leave the taxpayers to suppose that the only Income Tax payable for that year is the standard rate. With regard to the point about specifying the rates, I agree that this is a highly technical point, but I think that, if hon. Members consider Section 38 of the Finance Act of 1927 strictly and technically, they will find it specified that there is to be a higher rate, and, although what it is is not specified, we do comply with Section 38 so as to render possible the rest of the machinery therein provided. That, at any rate, is the view of the Income Tax experts, and it is a view with which I am not disposed to disagree, after having gone into the matter.

Photo of Hon. Henry Mond Hon. Henry Mond , Liverpool East Toxteth

I really think that this matter ought to be made clear. We have had several speeches from the Front Bench, but they have not thrown very much light upon it. The Financial Secretary to the Treasury has sheltered himself behind a form of words which we are proposing to leave out, but in which he is advised there is some virtue; and the Attorney-General is sheltering himself behind some machinery in Clause 38 of the Finance Act, 1927, which he has not explained to the Committee at all. It is impossible for hon. Members to follow the course of the discussion if the whole matter is not put plainly and clearly before them. We have to pass this evening legislation which is imposing a grievous burden upon the country, and it is right that we should at least understand what we are doing. I think we might have a speech from the Front Bench making it quite clear how we are to relate this particular mumbo-jumbo which we are trying to leave out, because no one can explain it to us, to the machinery, which has not been explained to us either, in a Finance Act of three years ago. I appeal to right hon. Gentlemen on the Front Bench opposite to make the position sufficiently clear to us to be able at any rate to take up a reasonable position on the matter. We are asked to pass this Clause, which says: and, in the case of an individual whose total income from all sources exceeds two thousand pounds, at such higher rates in respect of the excess over two thousand pounds as Parliament may hereafter determine. That is clearly leaving an obligation upon Parliament to increase the rate at some future date, without considering any of the causes or effects that may be appropriate at that time. I would ask the Attorney-General or the Financial Secretary to the Treasury, or, possibly, the Chancellor of the Exchequer himself, to make clear to us exactly what he proposes to do.

Photo of Mr Dennis Herbert Mr Dennis Herbert , Watford

I think that perhaps the proper way of ending this discussion would be for me, if the Committee will give me leave, to withdraw the Amendment, because there does not seem to be any particular point in proceeding with it. I feel, however, that I cannot do that until I have said just a word or two on the Attorney-General's defence with regard to this Clause. I quite understand his point as to the necessity, under Section 38 of the Act of 1927, of charging Income Tax for one year at the standard rate and at an increased rate—that is to say, a Surtax; but, if he will allow me to say so, the fact that he has to do that under the Act of 1927 is about the best proof that I can want of the suggestion that I first made, namely, that the Government are committing a sin in endeavouring to alter this particular tax for last year, and are equally committing a sin in avoiding the charging of the tax for this year at a particular and specified rate, whatever they wish it to be, during this year.

The hon. and learned Gentleman's defence, therefore, clearly is: "According to the law as it stands I am doing something, or attempting to do something, which the Income Tax law does not allow me to do. I must, therefore, resort to some sort, of shift in order to do it, and I therefore propose to put apparently ridiculous words into an Act of Parliament to say that this particular Surtax shall be charged at a rate which shall be determined hereafter." The only possible thing to be said about it is that this Clause proposes to charge, not only Income Tax at the standard rate, at a particular figure, but the increased Income Tax called Surtax, also at a particular figure.

11.0 p.m.

I venture to remind the Committee that is was my wish originally to move Amendments to fix the increased rate of this Surtax for the present year in this Bill. You, Sir, have ruled that out of order and, therefore, at this stage at any rate, we have no remedy and we cannot move that particular form of Amendment. But I propose to raise the question again on Report, because I regard it as one of immense importance and, in the meantime, we shall probably have further light thrown upon it, or we must have some further discussion which will bear on the point when we come to the next Clause, where the Government propose to alter the rate of Surtax which was fixed by last year's Finance Act.

Photo of Mr Henry Cautley Mr Henry Cautley , East Grinstead

Before the Amendment is withdrawn, I should like to ask the Attorney-General to answer this point. Section 38 of the Finance Act, 1927, on which he relies, requires that the Finance Act for the year should specify the standard rate of Income Tax, and should also specify the rate or rates for the Surtax for the particular year. Are not these words which are sought to be included in this Clause directly contrary to the wording of Section 38, and is it not really an attempt to alter the Act of 1927 without informing Parliament about it? Is it really the way our finance ought to be conducted? Ever since 1860, Income Tax has been levied and collected as a yearly tax. Income Tax and Super-tax have always been for the particular year for which it was levied. There is a good deal more substance in the Amendment than the Committee have yet realised.

Photo of Colonel Harry Nathan Colonel Harry Nathan , Bethnal Green North East

It is clear that, to put it no higher, this matter is by no means free from difficulty. I should like to ask the Chancellor of the Exchequer to follow me in the practical application of the Sub-section and of Clause 8, from which it cannot be dissociated. It seems to me that the way the matter will work out in practice will be this. Under Clause 8, Surtax for 1929–30 is to be charged at certain rates. The returns for assessment for the Revenue of the year 1929–30 have already been made, the rate has been fixed, and the tax will become payable in January, 1931. One position as regards the Revenue year 1930–31, therefore, is that no tax can be levied in respect of Super-tax until after a new Financial Resolution has been passed. I may have misunderstood the Financial Secretary. The question which I should like to ask is, should the Financial Resolution be passed before the ordinary time of producing the Budget or at that time.

Photo of Sir Waldron Smithers Sir Waldron Smithers , Chislehurst

I apologise for keeping the Committee, but this is a very important point. Will the Attorney-General look up the Finance Act of 1928, Section 15 (1, b)? I ask the Committee to note the words: (b) in the case of an individual whose total income from all sources exceeds two thousand pounds, at the following higher rates in respect of the excess over two thousand pounds. Then follows the various rates. Why in this Finance Bill is it necessary to alter that wording and to put in the words: in the case of an individual whose total income from all sources exceeds two thousand pounds, at such higher rates in respect of excess" etc. Why is it necessary to change the method? In the Finance Act of 1928 "the following higher rates" are very definitely fixed, but in the present Finance Bill the words "at such higher rates" make a subsequent change possible.

Photo of Mr David Reid Mr David Reid , Down

May I ask the Attorney-General what this Clause means? The words are: whose total income from all sources exceeds two thousand pounds, at such higher rates in respect of the excess over two thousand pounds. The "higher rates" cannot refer to Clause 8. Does it mean that the rate of Surtax to be payable on the 1st January, 1931, is to be unknown? Is the rate which a person liable to Surtax will have to pay not to be known until the Budget Resolution for next year has been passed, or will it be possible for the individual so to regulate his expenditure this year that he will be in a position to pay the tax by the 1st January next year without having any subsequent demand in respect of that year made upon him?

Photo of Mr Winston Churchill Mr Winston Churchill , Epping

May I suggest that the Financial Secretary should give some clear indication of the intention of the Government to re-examine this matter before the Report stage? We are anxious to facilitate the progress of business, but the point that has arisen is one of real substance and difficulty. It seems not at all unlikely that the words inserted do not achieve the object they have in view or, if they do achieve it, they raise other difficulties of a constitutional character which it is desired to avoid. I suggest that, instead of carrying the matter further at this moment, the Chancellor of the Exchequer or the Financial Secretary should make it clear that it is going to have the concentrated attention of the Government and the Law Officers of the Crown, and that we shall have an opportunity on report of going into it in full detail and, we trust, in a more satisfactory form.

Photo of Mr Philip Snowden Mr Philip Snowden , Colne Valley

No one knows better than does the right hon. Gentleman, after his experience of two years ago, what a complicated matter this is and how difficult it is to make it clear. I have no objection at all to taking the matter into further consideration, and seeing if we possibly can bring it forward in a way that is more comprehensible to those who are not lawyers, but I am advised that it will be difficult to put it in a plainer form than in the words of the Clause. However, we will apply what ingenuity we have between now and the Report stage to seeing what can be done.

Photo of Mr Leifchild Jones Mr Leifchild Jones , Camborne

I do not know whether I quite understand what we are doing here, but I understand that we are not fixing the amount of tax to be paid by a taxpayer except what is due on 1st January next. The Income Tax payable on 1st January would be at the standard rate of 4s. 6d. on the income of the current year, 1930–31, but Surtax would be payable on the income of the preceding year, that is, on the income of the year 1929–30, which is already ascertained. That is to say, we are dealing with taxes which are payable on 1st January, 1931, but on incomes of different years, and we are not increasing now any rate of tax which is to be payable at any later time than 1st January, 1931.

Lieut.-Colonel Sir FREDERICK HALL:

My hon. Friend the Member for Watford (Sir D. Herbert) has indicated that in all probability he will withdraw his Amendment, but I want it made clear that, if no Division is taken, we reserve all rights to raise any question on the Report stage.

Photo of Mr Dennis Herbert Mr Dennis Herbert , Watford

I hope I have made it clear already that we are not in any way prejudiced by withdrawing this Amendment, and in those circumstances I ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

The following Amendment stood upon the Order Paper in the name of Mr. C. WILLIAMS:

In page 5, line 30, to leave out Subsection (2).

Photo of Mr Charles Williams Mr Charles Williams , Torquay

As this Amendment raises the question of the whole of the enactments under which the Income Tax is collected and is of great importance, and, owing to various factors, it is not convenient to discuss it at adequate length, I do not wish to move it. I shall put down the Amendment again on the Report stage, when I hope that the Chancellor of the Exchequer will see that we have adequate time in which to discuss the enactments under which the Income Tax is collected.

Photo of Mr Dennis Herbert Mr Dennis Herbert , Watford

I beg to move, in page 5, line 33, at the end, to insert the words: but subject to all amendments of, or alterations in, such enactments made by this Act. The Amendment is a simple one put down with the intention of improving the drafting and making the matter clear. The Sub-section applies all existing enactments referring to the Income Tax to the Income Tax charged for the present year. Considerable alterations are proposed to be made in these enactments in the course of this Bill, and I suggest that in order to prevent the Act from being misread the proposed words should be added.

Photo of Mr Philip Snowden Mr Philip Snowden , Colne Valley

The hon. Member's Amendment is unnecessary. For instance, it is enacted in Sub-section (5) of Clause 47 of this Bill that: Any reference in this Act to any enactment shall be construed as a reference to that enactment as amended by any subsequent enactment, including this Act. I think that that makes the Amendment of the hon. Member unnecessary.

Photo of Mr Dennis Herbert Mr Dennis Herbert , Watford

I agree that, according to the words suggested, my Amendment is not necessary. It is only a question whether the words will apply to it. That may be a, matter of opinion, and one may be entitled to differ, but, in the circumstances, I will not press the Amendment, but ask the leave of the Committee to withdraw it.

Amendment, by leave, withdrawn.

Photo of Mr Winston Churchill Mr Winston Churchill , Epping

I have handed in a manuscript Amendment in the following terms: In page 6, line 33, at the end, to insert the words: (3) Notwithstanding anything contained in the last preceding sub-section, the first sub-section of Section fifteen of the Finance Act, 1925, shall have effect as if for the words 'equal to one-sixth of the amount of that income' there were substituted the words 'equal in the case of an individual whose total income does not exceed fifteen hundred pounds, one-fourth of the amount of that income, and in the case of an individual whose total income exceeds fifteen hundred pounds and does not exceed two thousand pounds, one-fifth of the amount of that income' and for the words 'two hundred and fifty' there were substituted the words 'five hundred' and as if for the words 'one-sixth' in the second sub-section there were substituted the words 'one-fourth.'

Photo of Mr Philip Snowden Mr Philip Snowden , Colne Valley

On a point of Order. You have ruled, Mr. Dunnico, that a number of Amendments on the Paper are not appropriate as Amendments to the Clause, but should be moved as a new Clause. May I submit that the long Amendment just read by the right hon. Gentleman is hardly suitable as an Amendment to a Clause which deals with enactments to carry out the Income Tax Acts and which does not raise the question of a revision of those Acts? Further, may I say that we have had no copy of the Amendment, and it is unreasonable to ask us to discuss it without having had an opportunity of considering it?

Photo of Mr Winston Churchill Mr Winston Churchill , Epping

I was about to conclude by saying that I do not propose to move the Amendment to-night and was going to suggest that I should bring it up on Report. But I think the suggestion of the Chancellor of the Exchequer is the better one and that it would be more appropriate to move it as a new Clause.

Motion made, and Question put, "That the Clause stand part of the Bill."

The Committee divided: Ayes, 257; Noes, 147.

Division No. 333.]AYES.[11.25 p.m.
Adamson, Rt. Hon. W. (Fife, West)Gardner, B. W. (West Ham, Upton)Lawson, John James
Adamson, W. M. (Staff., Cannock)Gardner, J. P. (Hammersmith, N.)Lawther, W. (Barnard Castle)
Addison, Rt. Hon. Dr. ChristopherGibbins, JosephLeach, W.
Aitchison, Rt. Hon. Craigie M.Gibson, H. M. (Lancs. Mossley)Lee, Frank (Derby, N. E.)
Alpass, J. H.Gill, T. H.Lee, Jennie (Lanark, Northern)
Ammon, Charles GeorgeGillett, George M.Lees, J.
Arnott, JohnGossling, A. G.Lewis, T. (Southampton)
Aske, Sir RobertGould, F.Lindley, Fred W.
Ayles, WalterGraham D. M. (Lanark, Hamilton)Lloyd, C. Ellis
Baldwin, Oliver (Dudley)Graham, Rt. Hon. Wm. (Edin., Cent.)Logan, David Gilbert
Barnes, Alfred JohnGranville, E.Longbottom, A. W.
Batey, JosephGray, MilnerLongden, F.
Bellamy, AlbertGrenfell, D. R. (Glamorgan)Lovat-Fraser, J. A.
Benson, G.Griffith, F. Kingsley (Middlesbro' W.)Lunn, William
Bentham, Dr. EthelGriffiths, T. (Monmouth, Pontypool)Macdonald, Gordon (Ince)
Bevan, Aneurin (Ebbw Vale)Groves, Thomas E.MacDonald, Malcolm (Bassetlaw)
Birkett, W. NormanGrundy, Thomas W.Macdonald, Sir M. (Inverness)
Bowen, J. W.Hall, F. (York, W. R., Normanton)McElwee, A.
Broad, Francis AlfredHall, G. H. (Merthyr Tydvil)McEntee, V. L.
Bromfield, WilliamHall, Capt. W. P. (Portsmouth, C.)McKinlay, A.
Bromley, J.Hamilton, Mary Agnes (Blackburn)MacNeill-Weir, L.
Brooke, W.Harbord, A.McShane, John James
Brothers, M.Hardie, George D.Malone, C. L'Estrange (N'thampton)
Brown, C. W. E. (Notts, Mansfield)Harris, Percy A.Mansfield, W.
Brown, Ernest (Leith)Hastings, Dr. SomervilleMarcus, M.
Brown, Rt. Hon. J. (South Ayrshire)Haycock, A. W.Markham, S. F.
Brown, W. J. (Wolverhampton, West)Hayday, ArthurMarley, J.
Buchanan, G.Henderson, Arthur, Junr, (Cardiff, S.)Mathers, George
Burgess, F. G.Henderson, Thomas (Glasgow)Matters, L. W.
Burgin, Dr. E. L.Henderson, W. W. (Middx., Enfield)Maxton, James
Caine, Derwent Hall-Herriotts, J.Melville, Sir James
Cameron, A. G.Hirst, G. H. (York W. R. Wentworth)Messer, Fred
Cape, ThomasHirst, W. (Bradford, South)Middleton, G.
Carter, W. (St. Pancras, S. W.)Hoffman, P. C.Milner, Major J.
Charieton, H. C.Hollins, A.Montague, Frederick
Chater, DanielHopkin, DanielMorgan, Dr. H. B.
Church, Major A. G.Horrabin, J. F.Morley, Ralph
Clarke, J. S.Hudson, James H. (Huddersfield)Morris-Jones, Dr. J. H. (Denbigh)
Cluse, W. S.Hunter, Dr. JosephMorrison, Herbert (Hackney, South)
Clynes, Rt. Hon. John R.Hutchison, Maj.-Gen. Sir R.Morrison, Robert C. (Tottenham, N.)
Cocks, Frederick SeymourIsaacs, GeorgeMort, D. L.
Compton, JosephJenkins, W. (Glamorgan, Neath)Moses, J. J. H.
Daggar, GeorgeJohn, William (Rhondda, West)Mosley, Lady C. (Stoke-on-Trent)
Dallas, GeorgeJohnston, ThomasMosley, Sir Oswald (Smethwick)
Dalton, HughJones, F. Llewellyn- (Flint)Muff, G.
Davies, E. C. (Montgomery)Jones, J. J. (West Ham, Silvertown)Muggeridge, H. T.
Davies, Rhys John (Westhoughton)Jones, Rt. Hon. Leif (Camborne)Nathan, Major H. L.
Denman, Hon. R. D.Jones, Morgan (Caerphilly)Naylor, T. E.
Dickson, T.Jones, T. I. Mardy (Pontypridd)Newman, Sir R. H. S. D. L. (Exeter)
Dukes, C.Jowett, Rt. Hon. F. W.Noel Baker, P. J.
Duncan, CharlesJowitt, Rt. Hon. Sir W. A.Oldfield, J. R.
Ede, James ChuterKedward, R. M. (Kent, Ashford)Oliver, George Harold (Ilkeston)
Edmunds, J. E.Kennedy, ThomasOliver, P. M. (Man., Blackley)
Edwards, E. (Morpeth)Kinley, J.Owen, H. F. (Hereford)
Egan, W. H.Kirkwood, D.Palin, John Henry.
Elmley, ViscountLang, GordonPaling, Wilfrid
Evans, Capt. Ernest (Welsh Univer.)Lathan, G.Palmer, E. T.
Foot, IsaacLaw, Albert (Bolton)Parkinson, John Allen (Wigan)
Forgan, Dr. RobertLaw, A. (Rosendale)Perry, S. F.
Freeman, PeterLawrence, SusanPeters, Dr. Sidney John
Pethick-Lawrence, F. W.Shinwell, E.Walker, J.
Picton-Turbervill, EdithShort, Alfred (Wednesbury)Wallace, H. W.
Potts, John S.Simmons, C. J.Watkins, F. C.
Price, M. P.Sinkinson, GeorgeWatson, W. M. (Dunfermline)
Pybus, Percy JohnSitch, Charles H.Watts-Morgan, Lt.-Col. D. (Rhondda)
Quibell, D. J. K.Smith, Alfred (Sunderland)Wellock, Wilfred
Ramsay, T. B. WilsonSmith, Frank (Nuneaton)Welsh, James (Paisley)
Rathbone, EleanorSmith, Rennie (Penistone)West, F. R.
Richards, R.Smith, Tom (Pontefract)Westwood, Joseph
Richardson, R. (Houghton-le-Spring>Smith, W. R. (Norwich)White, H. G.
Ritson, J.Snowden, Rt. Hon. PhilipWhiteley, Wilfrid (Birm., Ladywood)
Romeril, H. G.Snowden, Thomas (Accrington)Wilkinson, Ellen C.
Rosbotham, D. S. T.Sorensen, R.Williams, David (Swansea, East)
Rowson, GuyStamford, Thomas W.Williams, Dr. J. H. (Llanelly)
Russell, Richard John (Eddisbury)Stephen, CampbellWilliams, T. (York, Don Valley)
Salter, Dr. AlfredStrachey, E. J. St. LoeWilson, C. H. (Sheffield, Attercliffe)
Samuel, H. W. (Swansea, West)Strauss, G. R.Wilson, J. (Oldham)
Sanders, W. S.Sullivan, J.Wilson, R. J. (Jarrow)
Sandham, E.Sutton, J. E.Winterton, G. E. (Leicester, Loughb'gh)
Sawyer, G. F.Thorne, W. (West Ham, Plaistow)Wise, E. F.
Scott, JamesTinker, John JosephWood, Major McKenzie (Banff)
Scrymgeour, E.Tools, JosephWright, W. (Rutherglen)
Sexton, JamesTout, W. J.Young, R. S. (Islington, North)
Shepherd, Arthur LewisTownend, A. E.
Sherwood, G. H.Turner, B.TELLERS FOR THE AYES.—
Shield, George WilliamVaughan, D. J.Mr. Charles Edwards and Mr.
Shillaker, J. F.Viant, S. P.William Whiteley.
NOES.
Acland-Troyte, Lieut.-Colonel.Everard, W. LindsayPeto, Sir Basil E. (Devon, Barnstaple)
Albery, Irving JamesFalle, Sir Bertram G.Pownall, Sir Assheton
Atkinson, C.Ferguson, Sir JohnRamsbotham, H.
Balfour, Captain H. H. (I. of Thanet)Fermoy, LordRawson, Sir Cooper
Balniel, LordFielden, E. B.Reid, David D. (County Down)
Beaumont, M. W.Fison, F. G. ClaveringRemer, John R.
Betterton, Sir Henry B.Ford, Sir P. J.Reynolds, Col. Sir James
Bevan, S. J. (Holborn)Forestier-Walker, Sir L.Richardson, Sir P. W. (Sur'y, Ch'ts'y)
Bird, Ernest RoyFremantle, Lieut.-Colonel Francis E.Roberts, Sir Samuel (Ecclesall)
Boothby, R. J. G.Gault, Lieut.-Col. Andrew HamiltonRoss, Major Ronald D.
Bourne, Captain Robert CroftGibson, C. G. (Pudsey & Otley)Russell, Alexander West (Tynemouth)
Boyce, H. L.Gower, Sir RobertSalmon, Major I.
Bracken, B.Graham, Fergus (Cumberland, N.)Samuel, A. M. (Surrey, Farnham)
Brass, Captain Sir WilliamGrattan-Doyle, Sir N.Samuel, Samuel (W'dsworth, Putney)
Briscoe, Richard GeorgeGreene, W. P. CrawfordSandeman, Sir N. Stewart
Brown, Col. D. C. (N'th'l d'., Hexham)Grenfell, Edward C. (City of London)Sassoon, Rt. Hon. Sir Philip A. G. D.
Brown, Brig.-Gen. H. C. (Berks, Newb'y)Gretton, Colonel Rt. Hon. JohnSavery, S. S.
Buckingham, Sir H.Gritten, W. G. HowardShepperson, Sir Ernest Whittome
Butler, R. A.Hall, Lieut.-Col. Sir F. (Dulwich)Sinclair, Col. T. (Queen's U., Belfast)
Cadogan, Major Hon. EdwardHamilton, Sir George (Ilford)Smith, Louis W. (Sheffield, Hallam)
Carver, Major W. H.Hammersley, S. S.Smith-Carington, Neville W.
Cayzer, Sir C. (Chester, City)Hartington, Marquess ofSmithers, Waldron
Cayzer, Maj. Sir Herbt. R. (Prtsmth, S.)Harvey, Major S. E. (Devon, Totnes)Somerville, A. A. (Windsor)
Cazalet, Captain Victor A.Haslam, Henry C.Somerville, D. G. (Willesden, East)
Chamberlain, Rt. Hon. N. (Edgbaston)Henderson, Capt. R. R. (Oxf'd, Henley)Southby, Commander A. R. J.
Christie, J. A.Heneage, Lieut.-Colonel Arthur P.Spender-Clay, Colonel H.
Churchill, Rt. Hon. Winston SpencerHerbert, Sir Dennis (Hertford)Stanley, Lord (Fylde)
Cobb, Sir CyrilHills, Major Rt. Hon. John WalterStanley, Maj. Hon. O. (W'morland)
Colfox, Major William PhilipHudson, Capt. A. U. M. (Hackney, N.)Steel-Maitland, Rt. Hon. Sir Arthur
Colman, N. C. D.Iveagh, Countess ofStuart, Hon. J. (M'oray and Nairn)
Colville, Major D. J.Jones, Sir G. W. H. (Stoke New'gton)Thomas, Major L. B. (King's Norton)
Courtauld, Major J. S.Knox, Sir AlfredTitchfield, Major the Marquess of
Cranborne, ViscountLamb, Sir J. Q.Todd, Capt. A. J.
Crichton-Stuart, Lord C.Lane Fox, Col. Rt. Hon. George R.Train, J.
Croft, Brigadier-General Sir H.Leighton, Major B. E. P.Turton, Robert Hugh
Crookshank, Capt. H. C.Long, Major EricVaughan-Morgan, Sir Kenyon
Croom-Johnson, R. P.Macdonald Capt. P. D. (I. of W.)Wallace, Capt. D. E. (Hornsey)
Culverwell, C. T. (Bristol, West)MacRobert, Rt. Hon. Alexander M.Ward, Lieut.-Col. Sir A. Lambert
Dalkeith, Earl ofMargesson, Captain H. D.Warrender, Sir Victor
Dalrymple White, Lt.-Col. Sir GodfreyMarjoribanks, E. G.Waterhouse, Captain Charles
Davies, Dr. VernonMason, Colonel Glyn K.Wells, Sydney R.
Davison, Sir W. H. (Kensington, S.)Mond, Hon. HenryWilliams, Charles (Devon, Torquay)
Dixey, A. C.Monsell, Eyres, Com. Rt. Hon. Sir B.Windsor-Clive, Lieut.-Colonel George
Dixon, Captain Rt. Hon. HerbertMorrison, W. S. (Glos., Cirencester)Wolmer, Rt. Hon. Viscount
Duckworth, G. A. V.Nicholson, O. (Westminster)Womersley, W. J.
Eden, Captain AnthonyNicholson, Col. Rt. Hn. W. G. (Ptrsf'ld)Wood, Rt. Hon. Sir Kingsley
Edmondson, Major A. J.O'Connor, T. J.Worthington-Evans, Rt. Hon. Sir L.
Elliot, Major Walter E.O'Neill, Sir H.
England, Colonel A.Penny, Sir GeorgeTELLERS FOR THE NOES.—
Erskine, Lord (Somerset, Weston-s-M.)Percy, Lord Eustace (Hastings)Major Sir George Hennessy and
Sir Frederick Thomson.