1.

3.

4.

5.

6.

7.

8.

Sweden: Salaried officers, 11, including one Consul-General; unsalaried officers, 22 (of whom 20 are foreigners).

Norway: Salaried officers, 34; unsalaried officers, 22 (of whom 21 are foreigners).

Holland: Salaried officers, 11, including one Consul-General; unsalaried officers, 13 (of whom 10 are foreigners).

Denmark: Nine salaried officers; 18 unsalaried officers (of whom 16 are foreigners).

All the salaried officers are British by birth. Eight of the unsalaried officers, namely, two in Sweden, one in Norway, three in Holland and two in Denmark, are also British by birth.

9.

55.

43.

15.

16.

17.

18 and 19.

20.

21.

22.

23.

39.

40.

51.

46.

The essential figures of last year's position are in the Blue Paper which is now in the hands of Members. From that statement it will be seen that the total expenditure has exceeded the Estimate by £403,000,000, while the Votes of Credit have exceeded the Estimate by £427,000,000. The difference between the two figures is caused almost entirely by saving on the Debt charge. That was owing in the main to the fact that Treasury Bills were sold at a lower rate than was anticipated. As regards the excess on the Estimate for the Votes of Credit, I have so often explained, or endeavoured to explain, this to the House that I shall not occupy time in regard to it now beyond pointing out that, of the total excess, £200,000,000 represents dead-weight charge, and the remainder is expenditure which ought to be recoverable. As regards the dead-weight charge of this year, £155,000,000 is represented by the Army Estimates. As regards the other item, £139,000,000 is represented in the main by foodstuffs and other commodities which will conic back when the accounts are settled. The balance consists of an excess in the advances to the Allies of nearly £89,000,000.

The House will perhaps remember that, when I presented the Budget Statement a year ago, I pointed out that America had just entered the War, and that it would not be possible to make any adequate forecast as to what our advances to the Allies would be. I said then that I was certain that the Government of the United States would assist the Allies financially to the full extent of their ability, and I am glad to say that that expectation has been realised to the full. In spite of the assistance of the United States, our advances to the Allies last year amounted to £505,000,000 sterling. That is taking the face value of the obligations, and not the cash advanced. In addition to this the United States have advanced to the Allies no less a sum during the year than £950,000,000 sterling. Of this amount approximately £500,000,000 were advanced to us, and £450,000,000 to the Allies. The House will see, therefore, that whereas this year we advanced to the Allies approximately the same as last year—£505,000,000, as against £540,000,000—the United States advanced, in addition, £450,000,000—that is to say, the total advances to the Allies by us and by the Government of the United States were £955,000,000, as against £540,000,000 advanced by us alone last year. This will show the Committee how enormously the financial needs of the Allies have increased, and how timely, and indeed necessary, was the financial assistance which has come from the United States. But the Committee will have noticed, on the figures I have given, that our advances to the Allies were in the year approximately of the same amount as the advances made to us by the Government of the United States. This is satisfactory. It means that it is only necessary for us to lean on the United States to the extent that the other Allies lean upon us. In other words, after nearly four years of the War, we are self-supporting. This is important from another point of view also, as showing that, in spite of these advances, the net amount of indebtedness outside these Islands has practically not increased.

But there is something anomalous in this arrangement. It is almost, in a sense, absurd that we should be borrowing with one hand, while we are lending with the other. The result of that is that our accounts are inflated apparently—that, in fact, to that extent our credit is weakened. I have, therefore, been in communication with Mr. McAdoo, the Financial Minister of the United States, on this subject, and Mr. Crosby, the head of the Financial Mission of the United States to Europe, is on the point of returning to Washington to consult his Government, and I am making to him certain suggestions as regards advances to the Allies, which, if adopted, will have the effect of lessening to a certain extent our burdens, while in no way increasing the total obligations of the United States. From the way in which not only the United States Government, but Mr. McAdoo himself, has shown every desire to co-operate both with us and the other Allied Governments, I am sure that he will give these suggestions most sympathetic consideration.

Now I come to the Revenue side of our account for last year. The House will see from the Blue Paper that there has been an excess under every head of taxation. There has been an excess in the amount received from the Excess Profits Duty of £20.000.000. and I may add that, of the total receipts from that duly, upwards of £30,000,000 came from the controlled firms. The other excesses of large amount have come from the Income Tax and the Super-tax, which together showed an excess of £15,500,000. I shall not go over the other items, which will all be detailed in a White Paper, some copies of which will be available in the Library as soon as I have finished, while copies will be in the hands of every Member to-morrow morning. I may say, in passing, that the Entertainments Tax has yielded £5,000,000 sterling, or nearly £500,000 more than the Estimate, in spite of the fact that the increased duty was put in force three months later than was intended, and that some reduction was made in the scale when the Finance Bill was passing through the House. I should also like to call attention to another item of Revenue, and I do this because of something I shall have to say in a later portion of my speech. The revenue from tobacco shows a virtual increase over the Estimate of last year of no less than £1,700.000. Perhaps the Committee may notice, in looking at the Blue Paper, that there is an excess in miscellaneous items of £25,000,000. That is accounted for entirely by the fact that the Government of India undertook to provide, as a war contribution, by loan or obligation, £100,000.000. It was estimated that only something like £10,000,000 could be raised in India by loan, whereas, as a matter of fact, the large sum of £35,000,000 was raised in India. It is gratifying to find that there has been this excess in revenue—an excess which has characterised every Budget Estimate since the beginning of the War. It is, of course, satisfactory as showing the prosperity for the time being of our trade and industry, but I do not wish the House to attach too much importance to it, for I have said more than once in this House that so long as money is being raised by borrowing, to whatever extent it may be, there must be at least apparent prosperity, and the real test of our financial position will come when this borrowing ceases and we have to fall back on ordinary methods.

Before leaving last year, there is one subject connected with Canadian finance which I think it will interest the House to hear. We have obtained from the Canadian Government credit in dollars for purchases which we made in Canada; on the other hand, we have supplied to the Canadian Government sterling credit for purchases made by them in Europe. So far, these items have been treated separately; that is to say, they have both appeared in our accounts—our purchases in Canada, and the sterling advanced by us for the purchases of the Canadian Government in Europe—as off-sets. It seems to me this is not the right method. It is really a question of exchange, and the right way is to bring only the excess between the two countries into our accounts. I communicated with the Canadian Finance Minister in this sense, and I have received a telegram from him, through the Governor-General, in which he agrees with the alteration I propose. The effect of this will be apparent to the Committee. Up to the present the total amount treated in this way is at least £80.000,000. When I he adjustments are made, the effect will be that both the nominal amount of our debt and the debt of the Canadian Government will be diminished to that extent. It is not possible, with an arrangement so recently agreed to to include it in the accounts I submit to-day. Of course, it is a question of book-keeping, and makes no difference in the net results that I shall present to the Committee.

I should like to take this opportunity of expressing the appreciation of the Government, which I am sure will be shared by the House of Commons, of the hearty spirit of co-operation which has been shown by the Canadian Government, not only in this, but in every other question connected with finance. I may say, also, that, whereas in the early stages of the War our loans to the Dominion Government exceeded what they lent to us, now, thanks to the exertions which they have recently made, the balance is the other way.

In connection with last year's finance, there is only one other topic to which I should like to refer. My right hon. Friend, who preceded me as Chancellor of the Exchequer (Mr. McKenna), laid down the rule which ought to guide our financial arrangements, and which I adopted and tried to carry out last year. That rule, stated simply, was this, that in presenting every Budget the Chancellor of the Exchequer should aim to produce such a result that, on the assumption that the War came to an end at the close of the year for which the financial statement was made, there would be a sufficient revenue without new borrowing or new taxation to make sure that not only the expenditure left after the War, but the Debt charge could be met. My Budget last year was designed to obtain that result. During the year, as the House may remember, suggestions were made that, in view of the excess of expenditure over my Estimate, my object could not be realised. In October, after going thoroughly into the matter, and forming the best estimate I could as to what the revenue from taxation would be, I stated in the House I was satisfied that the Estimate made at the beginning of the year would be realised. I shall not now go into this subject, which is more important from the point of view of the financial statement for the current year, but I may state briefly to the Committee at once that the Estimate I gave in October has been realised. Owing to the increased expenditure our Debt charge has increased to the extent of £13,500,000. On the other hand, the excess of permanent revenue last year, as compared with the Estimate, was £20,500,000, so that on balance the position is better by £7,000,000 than I estimated at the beginning of the present year. The total balance sheet for last year is given in the Blue Paper. Perhaps I ought to state what the particulars are. The issues last year were £2,696,221,000; the Revenue, £707,235,000, leaving a balance to be borrowed of £1,988,986,000.

I come now to the current year. As regards the expenditure, all the items are in the Blue Paper with the exception of the amounts of the Votes of Credit and the Debt charge. As regards the Votes of Credit, I should like to call attention to this fact, or what seems to me to be the fact. A suggestion is sometimes made, or implied, that the soundness with which our finances are conducted is to be judged by the nearness, or the reverse, with which results correspond to the Estimate. That, I think, under present conditions, is an entire fallacy, and if any hon. Member had the duty, which has fallen upon me, of estimating for the coming year, he would say, I am sure, that in this view I am right. In ordinary times the Estimates are based on specific demands which can be dealt with, but in time of war, not only are the demands varied by the exigencies of the War, but in reality the demands of the fighting forces arc limited only by the possible supplies, and that is a factor which no foresight can tell in advance. With this preface, I come now to the Estimate of the Vote of Credit for next year. I may say, however, that while I think it would be almost impossible, indeed absurd, for the Chancellor of the Exchequer to alter the Estimates given by the fighting forces, there are some general considerations which ought to be taken into account, and, though this is making a prophesy which the event may very likely falsify, I have myself come to the conclusion that, as we have nearly reached the possible limits of supply in this country, the probability is that the Estimates this year will not be greatly exceeded. The Estimate for Votes of Credit for next year is £2,550,000,000, as against an actual expenditure last year of £2,403,000,000. It is at the rate of £6,986,000 per day, as against a daily average expenditure last, year of £6,583,000. All the details which can properly be given will be contained in the White Paper relating to the Vote. I shall give only the amounts for the Army, Navy, Munitions, and Air Services which are put down. The Estimate for next year is £1,861,000,000, against an expenditure last year of, approximately, £1,560,000,000. Another item, of which we have to make an Estimate, is the advances to the Allies. For the reason I have already given—the possibility of an alteration in the system of advances between the United States and ourselves—this Estimate can be only a guess, but we put it down at £300,000,000, whereas the amount which we allow for advances to the Dominions is £50,000,000. I should like to remind the Committee how small throughout the War this amount has kept, showing how great has been the desire and how great the success, not only of Canada, to which I have already referred, but of all the other Dominions to meet their own War expenditure out of their own resources.

The only other item of expenditure not included in the Blue Paper is the Debt charge. This amount is put at £315,000,000, of which £53,000,000 is estimated as being required, to meet obligations to be incurred during the coming year.

I shall now give the balance sheet for the present year. In the ordinary course, the logical way of presenting this balance sheet would be to give, first, the new taxation proposed, and, after it had been stated, to make up the Estimate in that way. I am not, however, going to adopt that course. New taxation is the natural peroration of a Budget speech, because it is the part in which the Committee and the country take the greatest interest, and, though in ordinary speeches I never bother about perorations, yet here I think I must adopt the course of giving the new taxation last. I shall, therefore, in making up this balance sheet, give the total amount which I estimate to receive from new taxation, without going into details. With this explanation let me give the figures.

The total expenditure we estimate at £2,972,197,000. The Revenue on the existing basis of taxation will be £774,250,000, or an excess over last year of £67,000,000. I may add, as it will interest the Committee, that the Estimate for next year of the Excess Profits Duty is no less a sum than £300,000,000 sterling. The new taxation which I propose will, for the coming year it is estimated, amount to £67,800,000. That will make the total Revenue for the year £842,050,000, leaving a balance to be covered by borrowing of £2,130,147,000.

I desire to discuss now what seems to me the most important feature in a Budget statement at the present time—that is what our position will be at the end of the year on a peace basis, following the rule which was originally introduced by my predecessor. That rule, as I have said, implies that at the end of the Budget year we shall have Revenue sufficient to meet all normal expenditure and the Debt charge without new taxation or new borrowing. I venture to say that, whatever difference of opinion there may be on other aspects of finance, no one will doubt that, as long as it is humanly possible for the country to live up to that standard, it is our absolute duty to see that it is carried out. Starting on this basis, this is the calculation: Our pre-war expenditure was £173,000,000 sterling, excluding service of Debt, but it is evident that, apart from Debt charge, we must add a large item to that amount. There is the amount required for pensions, which at the end of the year cannot fall far short of £50,000,000. There is the addition which the House has already sanctioned for education. There is the normal growth which has taken place, even during the War, owing to a variety of causes due to the War, and there must be other expenses for which some allowance ought to be, made. I have, therefore, added to the pre-war expenditure a total sum for these purposes of £97,000,000, which seems to me adequate in this calculation. That will make our expenditure, apart from the Debt charge, £270,000,000 per annum.

4.0 P.M.

I now come to the Debt. The National Debt, from the Estimates I have submitted to the Committee will, at the end of the present year—31st March, 1919—amount to £7,980,000,000, Previously, in counting our liabilities, I have deducted altogether the advances to the Allies and to the Dominions. I do not propose to take that course to-day. We cannot ignore what has happened in Russia, though even now I do not admit, and do not believe, that we should regard the debt of Russia as a bad debt, because sooner or later, in spite of what is happening now, and whether Russia should or should not be divided, there will be an ordered Government in that country. The natural resources of Russia are great. Those resources can only be exploited with the aid of capital, and, whenever there is a Government, foreign capital will be required, and they will realise that it will be unobtainable unless previous debts are paid. It is very necessary, I think, in dealing with the national accounts, to treat them in the same way as a business firm would treat its own accounts, and for the time being we must make allowance not only for what is happening in Russia, but for the possibility that at the time the War ends we may not be able to rely on receiving immediately the interest due to us by all our Allies. In making this calculation, therefore, I propose to take off half the debt of the Allies as if that were our liability. At the end of next year the total debt due by the Allies to us will be £1,632.000,000. I propose to deduct half of that, namely, £816,000,000. I deduct also the debt due by the Dominions in full, £244,000,000, and the obligation of India in full, £64,000,000, making a total of £1,124,000,000. That would make on this basis a Debt for which we would be liable of £6,856,000,000, and I will say in passing—I have not mentioned it before—the gross amount of our National Debt at the end of last year was approximately £5,850,000,000, or, taking it in the same way, £4,926,000,000 net liability. The amount of our liability at 31st March next will be, as I have said, on this basis, £6,856l,000,G00. Take 5½ per cent. on this amount as the rate of Interest and Sinking-Fund, the total comes in round figures to £380,000,000. This, added to the normal expenditure, makes a total amount to be paid out of Revenue of £650,000,000.

How is that to be met? Taking the existing taxation alone, my advisers have given me as an estimate £540,000,000. They have made that estimate carefully, but, of course, it does include a. recovery from the absence of war conditions. It includes recovery of Customs and Excise and some increase in Inland Revenue. As regards the latter, the income on our gross debt itself adds to the revenue we receive, but, however conservative that estimate may be, it is obvious that mistake is possible, though, as I have said, it has been made with the utmost care, and on the whole on a conservative basis. Taking this estimate, there remains a deficiency to be met, if we arc to fulfil the conditions which I have laid down, by new taxation on the full year of £110,000,000. We become so used to these enormous figures that, possibly we can hardly realise what this means; but the Committee will realise, when I remind them that this addition to taxation which I propose this year is something well over 60 per cent. of the total tax revenue in the last year before the War. To make good this deficit of £110,000,000, I shall propose new taxation which in a full year will bring in £114,000,000, without taking account of another tax for which I have made no estimate, and to which I shall refer later.

Now that is the position on that basis. I think the House will recognise that it is a fair estimate, but our position is really better even than these figures show. In the first place, the Inland Revenue, in their estimate of the. result of existing taxation, took no account whatever of the Excess Profits Duty, but, that duty, as I have pointed out, is expected to yield next year £300,000,000. On the assumption, which may last for half an hour, of the Income Tax remaining at 5s., the Income Tax on what is now charged to Excess Profits Duty would represent £75,000,000. Of course, that must be problematical. It depends on the state or trade and credit, but I think I am quite safe in assuming that that amount which was left out of their estimate is more than sufficient to counterbalance any possible error they have made in the estimate of existing taxation. But there are. other items. I stated on one of the recent Votes of Credit that, before the Budget came on, I should endeavour to obtain a clear list of undoubted assets of the nation to-day. I have done it. They are divided into three categories. The first category consists of balances with our financial agents, of debts due by our Allies and Dominions—not Loans, but in respect of goods or services which we have supplied to them, and where the amount is regulated as soon as the accounts can be completed—and, in addition, commodities, including foodsuffs and things of that kind which are bought to be resold. The total amount under this category is no less than. £375,000,000, and it is not taken at cost. This amount is arrived at after careful calculation as to what could reasonably be expected would be obtained from it. I think the House can safely take that as an asset upon which we can absolutely rely.

The second category of assets consists of land securities, buildings, and ships. Here, again, the calculation given to me is not at cost. It is an estimate of the amount which can reasonably be expected to be realised on sale. The estimate is a conservative one, and again I think this amount can be taken at its face value. It is £97,000,000. Then there is a third category, made up of stores of all kinds, chiefly in the Munitions Department. It includes, however, war materials, the selling value of which is doubtful. This item is taken at cost, and the figure given to me is £325,000,000. It is obvious that the Belling value under this category is very uncertain, but I think I am safe in assuming that it will be worth at least £100,000,000. That brings the total amount of assets to £572,000,000. But this calculation was made only to the end of last year. This kind of piling up of assets will be going on during the year, and estimates are made for it in the Budget. I am safe, therefore, in assuming that there will be at least an additional £100,000,000 at the end of the current year. That will mean a total of assets of this kind amounting to £672,000,000.

But there is another and a bigger item. When the Excess Profits Duty comes to an end—this calculation is made on the assumption, which I am sure will prove correct, whatever Government or House of Commons is then existing, that the duty will be allowed to go on until the end of the accounting period after peace is declared—on this assumption the total amount of income due from the Excess Profits Duty, if the War ends at the end of the current year, would be in the following and subsequent years no less than £560,000,000. But, as the Committee knows, this tax has always been treated, both by my predecessor and by myself, as one which should be adjusted, to some extent, over the whole period. It is possible, therefore, that deductions might be. necessary from that amount, but I think I am safe in assuming that we can count on additional revenue from this source of £500,000,000. This makes a total of these assets, including arrears of taxation, £1,172,000.000, or between £300,000,000 and £400.000.000 more than the total amount for which we have taken credit in the obligations of our Allies to us.

There is one other fact intermixed with the accounts which, I think, will interest the Committee, and that is the proportion of our expenditure which has been borne out of Revenue. So far up to the end of last year, 31st March, 1918 (four years), the proportion of total expenditure borne out of Revenue was 26.3 per cent., and for the year 1917–18, alone, it was practically the same figure. For 1918–19, on the Estimates which I am now submitting to the House, the proportion of total expenditure met out of Revenue will be 28.3 per cent., and the proportion calculated over the whole period to the end of the current year (five years) will be 26.9. But perhaps some hon. Members will recollect that last year a distinction was drawn between the proportion of total expenditure and the proportion of war expenditure. The calculation was made on the basis of deducting on each side £200,000,000 as representing the normal expenditure and Revenue and leaving out the advances to the Allies and Dominions. I shall give the figures calculated in this way, though, as a matter of fact, I think the proportion of total expenditure is the more natural and more important way of looking at it. Taking that method of calculation, the proportion of war expenditure, met out of war revenue, up to 31st March, 1918—that is, four years—was 21.7 per cent. For the year 1917-–18 alone it was 25.3 per cent. For the current year it will be 26.5 per cent., or, for the whole period up to the end of the current year (five years), it will be 23.3 per cent.

I shall conclude this section by stating the total amount which has been raised by war revenue. The total war revenue raised up to the end of last year was £1,044,000,000. On the basis of the Estimates now before the House, by the end of the current year it will have reached £1,686,000,000.

This concludes my examination of the financial figures for the current year. I have tried to put them to the House exactly as they are—to put the situation without making it too favourable. The calculations have all been made on a basis against us rather than in our favour. I am inclined to say this, and I think the House will agree with me, that, looking at these figures, looking at what the figures will be at the end of the year, the financial strength of this country, after five years of war, will be far greater than anyone could have expected in advance. These results are, I think, an amazing testimony to the financial stability of this country.

Perhaps—although it is not absolutely necessary, for it does not come into the financial statement—the House would like me to make a contrast, so far as I am able to do so, between our financial position and that of Germany. If is not easy to to make this calculation. Our figures throughout have been presented with the object of showing quite clearly what is our financial position. That has not been the object of German financial statements. It is, therefore, difficult to make an exact statement, but in what I am going to say to the House I am taking the German Estimates at their face value—taking, that is to say, the statements of the German Finance Ministers themselves.

The first point is as regards the increase of expenditure. We have all been alarmed, and justly so, at the rate at which our expenditure has steadily grown. It is true also of Germany. Up to June, 1916, as we were told by the German Finance Minister, their monthly expenditure was at the rate of £100,000,000. It has now, by their own statement, risen to upwards of £187,000,000. That means that their daily expenditure is £6,250,000—almost the same as ours—although our expenditure includes such items, for instance, as separation allowances and other matters of that kind borne by the States and municipalities in Germany, and which are not taken into account in the German figures.

The second point of German finance, to which I wish to direct the attention of the House, is their war debt. Their last Vote of Credit, which was estimated to carry them on to June or July, brings the total amount of all their Votes of Credit to £6,200,000,000, and, as I shall show, it is at least certain that that amount has been added to their war debt. That is certain, because their taxation has not covered peace expenditure, and in addition, their debt charge. Up to 1916 they imposed no new taxation. In 1916 they imposed a War Increment Tax, taking something in the nature of a capital levy, which is stated to have brought in £275,000,000. They added also that year £25,000,000, nominally, to their permanent revenue. In 1917 they added, in addition, £40,000,000 to their permanent revenue. Assuming, therefore, that their estimates were realised, the total amount of new taxation levied by them since the beginning of the War comes to £365,000,000, as against our £1,044,000,000. This £365,000,000 is not enough to pay the interest upon the war debt which had been accumulated up to the end of the year.

Look at the third consideration in regard to their finance. Consider what their balance sheet will be a year hence on the same basis on which I have put ours. Their war debt at that time will be not less than £8,000,000,000. The interest on that will be at least £400,000,000; sinking fund at ½ per cent. will be £40,000,000; their pension engagements, which, of course, must be much higher than ours, have been estimated at various amounts. Some give it as high as £200,000,000. I am sure I am within the mark in saying that by the end of the year that amount will be at least £150,000,000. Their normal pre-war expenditure was £130,000,000. That makes a total expenditure of £720,000,000. Their pre-war revenue was £150,000,000. They have announced their intention of this year raising additional permanent Imperial revenue amounting to £120,000,000. From the nature of the taxes it seems very difficult to believe that this amount will be realised, but, assuming that it is, it will make their total additional revenue £185,000,000. That, added to the pre-war revenue, gives a total of £335,000,000, showing a deficit at the end of this year, comparing the revenue with the expenditure, of £385,000,000 at least. If that were our position, I should certainly think that bankruptcy was not far from the British Government.

But there is something else in connection with their taxation worthy of note. With the exception of the Increment War Tax, to which I have referred, scarcely any of the additional revenue has been obtained from the wealthier classes in Germany. Taxation has been indirect, and on commodities which are paid for by the masses of the people. The lesson to be drawn from these facts is not difficult to see. The rulers of Germany, in spite of their hopes of an indemnity, must recognise that financial stability is one of the elements of national strength. They have not added to their financial stability. The reason, I think, is largely psychological. It is, in the first place, because they do not care to add to the discontent by increased taxation all over the country; but it is still more due to this, that in Germany the classes which have any influence on or control of the Government are the wealthier classes, and the Government have been absolutely afraid to force taxation upon them.

I now come to the peroration of the Budget, speech new taxation. There are different views as to the method which should be adopted, as to the general principles which ought to guide us in levying taxation. In effect, however, I think every sensible man will agree with this principle, that it is our duty to levy as much taxation, now, to make us bear as much of the current expenditure of the War, as can be borne by the nation without weakening us in the conduct of it. That, I think, is the principle—though there will be different opinions as to the application of it. I, for one, am strongly of opinion—and have throughout acted upon it—that we could hardly make a greater mistake than to forget that the War has to be financed to-day, that we must not only think of the position afterwards, and that, therefore, it is absolutely essential that we should not levy taxation on such a scale as to cripple every industry and every financial institution in this country, with the result that it would be impossible to obtain by voluntary means the money it is necessary to borrow to carry on the War. It might easily be impossible to obtain it by any means which would not shake to the bottom the whole foundation of our national stability.

There is another consideration. Up bill now, in imposing taxation, I think everyone has been struck with the readiness with which all classes in the country have been prepared to pay. Nothing could be worse than to put taxation on any class on a scale which seems to them in excess of the needs of the situation. For that reason we really must be moderate in the amount which we raise by taxation. There is, however, another thing. Even from the point of view of borrowing it is necessary that the lender should have reason to believe that the security is good. For that purpose it is essential that we should show, by the amount of taxation which we raise, that the country is in a position to bear the burden of additional loans. It is on that principle, as I have said, that I have tried to act.

There is something else I should like to say. Last year I found—and I am sure my predecessor also found it—that on the whole the House of Commons recognised the need for drastic taxation, and was prepared to support the Government in their proposals to a greater extent, I think, than was ever the case in times of peace. I hope, and I expect, that the House of Commons will take the same view this year. But that lays a special obligation on the Government, and on the Chancellor of the Exchquer, to make sure—or at least as sure as it is in their power to make that the proposals are in themselves just and fair.

Not only I myself, but all those who have assisted me, including my hon. Friend at my side (Mr. Baldwin), have the conviction that the proposals I shall submit are proposals which, after examination—in connection with which we have spared no trouble—are the most equitable that it is in our power to propose to the House of Commons. I shall not take up the time of the House by describing the different forms of taxation which we have considered and rejected. I will, however, say a word about one. It has been proposed in many quarters—and, indeed, has been urged in many quarters—that we should increase the amount of the Excess Profits Duty.

The first item, not of taxation, but which yields additional revenue, I propose to the House of Commons is an increase in the Post Office rates. The House will remember that this was recommended by a Committee in 1915. It was considered then, and the Government did not adopt it. But our need then was very different from what it is now; and there is this fact also, that the change has been made in nearly all the great countries of the world. We propose, therefore, that the rate upon letters both at home and to the United States and our Dominions should be 1½d., and that the rate on postcards should be 1d. From this source of revenue we expect to derive in the present year £3,400,000, and in a full year £4,000,000 per annum. [An HON. MEMBER: "For the same weight?"] I do not think the House wishes me to go into details. They will all be contained in a White Paper, which will be available to-morrow morning.

The next item, in comparison with the figures I have been dealing with, brings in a very small amount, but it has this advantage, that it can be collected without any trouble or expense. I propose that the stamp on a cheque in the future should be 2d. instead of 1d. The House will remember that this was proposed by Sir Michael Hicks Beach at the time of the Boer War. It was rejected then by the House of Commons, but again the need now is much greater. I have been in consultation in connection with this tax, as I have been with all other taxes, with those who I think are the best people to advise me, and I have reason to believe that this change can be made without any serious inconvenience at all. It will have the advantage possibly, though I doubt if it will be much—it will only happen if the total number of cheques are reduced—it will have an advantage from the point of view of the banks, whose starts have been so much reduced. They would be glad, no doubt, to see some diminution in the number of cheques used. We estimate that we shall get £750,000 from that, and in a full year £1,000,000 sterling.

I now come to an item of much greater amount, the Income Tax. Every Chancellor of the Exchequer, and I think almost everyone, is inclined to be tempted by the facility with which revenue can be raised by this tax. It is only a case of taking a decision, and immense sums come in. I do not think it is right to be too much influenced by that consideration. I think the House of Commons, and hon. Members in every quarter of it, should take into account seriously what is the effect of an Income Tax on anything like this scale, not only on the individuals who have to pay it, but on the whole trade and industry of this country. I should have been glad if it had been possible to leave it at 5s., but that is impossible, and I propose to increase the rate of Income Tax by one shilling and make it 6s. in the £l. [HON. MEMBERS: "Hear, hear!" and "Not enough!"] I hope the exclamations I have just heard reflect the general view of Income Tax payers. This proposal will bring in this year £11,250,000, and in a full year it will bring in £41,400,000. The difference is accounted for by the permission to pay by instalments.

As regards the Income Tax, I do not propose to make any change in the existing rates of incomes up to £500. On the whole, looking at the question from the point of view of ability to pay, which ought to be the test, I think this is fair. I may say to the House of Commons that I have looked upon my taxation proposals as a whole, and I should not have felt justified in relieving this class altogether from this form of taxation if I had not seen my way to make additions to indirect taxation, by which they will pay their share. There will be no alteration up to £500. There will be no change in the Income Tax rate on the service pay of soldiers and sailors.

As regards the double Income Tax within the Empire, I propose to adopt the same principle which was adopted by my predecessor—that is to say, this extra 1s. will not be paid where the combined tax in other parts of the Empire and here amounts to as much as 6s., and the tax will remain 3s. 6d. in the £. I propose to make the children allowance apply to a wife also, and so far, much to my surprise, I have had no representations from any women's suffrage societies suggesting the impropriety of proceeding on that basis. I also propose, and I have already promised this, to extend a similar allowance to real dependants who are incapacitated. The only other change in this respect is that these allowances which I have just mentioned, together with the allowance to children up to sixteen years of age, will apply in case of incomes up to £800, instead of £700 as at present. The reason for that change is that without this alteration the sharpness of the gradation at this point would have been so marked as to act almost unfairly.

Now I come to the Super-tax. I propose to make the maximum rate 4s. 6d. in the £, instead of 3s. 6d. as at present, and beginning at incomes of £2,500, instead of £3,000 as at present. From this source it is estimated that we shall derive £9,200,000 in the current year and £14,150,000 in a full year. The particulars of the scale are all contained in the White Paper, but perhaps it may interest the House if I give one or two examples of what the effect of the Income Tax and Super-tax combined is upon a given income. Upon an income of £3,000 a combination of these two taxes will make an actual tax of 6s. 5d. in the £; on an income of £5,000 it will be 7s. 2d.; on £7,000 it will be 7s. 9d.; on £10,000 it will be 8s. 4d.; and on £20,000 it will be 9s. 5d. in the £.

The next tax has given me more trouble, and has been more difficult to decide, than any other, and that is the treatment of farmers in this Budget. There is no doubt a widespread feeling that farmers are making large profits. It has been made plain to me not only in the House of Commons by such cheers as I have just listened to, but by deputations which I have received in connection with the Budget—and this would, I think, be admitted by the farmers themselves—that they are not bearing a fair share of the burden of taxation caused by the War. It is necessary, therefore, to make some change. Obviously the change which one would like to make—and it would be fair in every sense of the word—would be to put them like other people under Schedule D, and make them pay on profits. There are many advantages in taking this course, and, in a sense, the present would be a suitable time to take it, because undoubtedly they could bear the change more easily now than would be the case at other periods. It would be a great advantage—and here I am expressing not only my own views, but those of my right hon. Friend the President of the Board of Agriculture, whom I have closely consulted in regard to this proposal—it would be an immense advantage to the fanners themselves, because undoubtedly correct finance and the keeping of accurate accounts is the beginning of all sound business undertakings. I should have liked to take this course, but I am not going to-take it, and I will tell the House why. My advisers tell me that it would not only be difficult, but that it would be impossible to carry out, and, after going into it most carefully myself and with the assistance of my advisers at the Treasury, I have come to the conclusion that they are right.

I will try to make the House understand why. The great bulk of the farmers—I am told more than 90 per cent.—much more than 90 per cent.—keep no accounts. That ought not to be a reason for excluding them from the tax, but I am dealing not with what is just, but with what is practicable. The farmers themselves would find it very difficult, their time being more usefully occupied in the national interest, to set to work framing their accounts. But that is not what makes it impossible; it is the difficulty of having the accounts checked by the tax-surveying staff. I want the House of Commons to try and realise—I certainly did not do so myself until I went closely into it—what an immense effect the withdrawal of so many of the men engaged in tax collecting has had upon the collection of our taxes. The numbers who have been withdrawn—and I am sure my right hon. Friend opposite will agree with me—are very great, while the total amount of taxation to be collected has increased many times, and there have been so many new taxes, especially the Excess Profits Tax, that the additional burden thrown upon what is left of the staff has become almost intolerable. I am prepared to say I do not believe there is any class of the community which has rendered better service during the War than what remains of the Inland Revenue staff in the collection of taxes. This has had another effect. It has always been the pride of the British Government in regard to taxation that evasion should not be permitted. Many suggestions for new taxes in the past, and some to-day made to myself, have been rejected because they lent themselves easily to evasion. As a matter of fact, with our depleted staff, and with the immense amount of extra work, there is no doubt whatever that a certain amount of revenue, which in other circumstances would come in, has escaped. For that reason, and rightly, the heads of the Inland Revenue Department have given instructions that the work of the staff should be concentrated on the sources from which large revenue is derived, and I think the House will agree that that is a right course.

Consider that from the point of view of this proposed tax. The farmers have never been accustomed to it, and they would, therefore, bother the life out of the tax collector as to how to make up their accounts, and, when the accounts were made up, the tax surveyor would have no means of checking them. The real effect, stated by my advisers and accepted by myself, was that, if we were to adopt this course, the result would be that, in trying to get this form of revenue, we should lose many times over in other sources the amount of revenue we should collect by these means. For that reason I have rejected this proposal, and I propose, instead of making the assumption which is made low that the farmer's profits are equivalent to his rent, that we should take twice the rent as the equivalent of the profits and assess the farmer on that. That may be regarded in some quarters as inadequate, but there is this to be borne in mind: There is an immense difference in the profits on different kinds of crops. I have gone into this fully with the Board of Agriculture and with my right hon. Friend. I think it would have been possible to make a fairer adjustment by assessing a certain number of the higher-rented farms under Schedule D, for the reason that profits depend not so much on the size of the farm as on the kind of farming. I am told in able farms which produce corn make profits very small indeed in comparison with those of much smaller farms which produce potatoes. It is true that this arrangement which I am making is unequal as between one farmer and another. That is obvious, but I do not see how it is to be avoided. On the other hand, it is not unfair to the farmers who have to pay on the double rent, for this reason, that everyone will have the option, if they prefer, of giving accounts under Schedule D, so as to be certain that they shall not in any circumstances pay more than any other section of the community.

I ask the House of Commons to keep in view what has been in my mind, that food production is much more important to the nation than any additional revenue we may get in this way, and it is essential that any proposals of this kind which I make to-day should not work unfairly on those on whom we rely for the production of food. They do not. My right hon. Friend the President of the Board of Agriculture agrees with me that the number of farmers who will not be in a position to pay on this scale will be small, and we all know, especially in the case of those who are unaccustomed to accounts—although I am told that farmers look at both sides of a penny as carefully as any other person—that sometimes they pay what they are asked to pay, without knowing exactly on what basis they are paying. I have, therefore, made arrangements with my right hon. Friend the President of the Board of Agriculture—and this will apply to the Agricultural Departments for Ireland and Scotland—I hope they will take the same course—that they shall, through their district committees and other local agents, give farmers every facility when they are satisfied that they are being asked to pay too much—to give them what help they can in making up their accounts. I am sure the House of Commons will feel unanimously that in making this change I am not acting unfairly towards the farmers. From this source the amount of increased revenue this year will be £2,500,000, and in a full year £5,300,000.

Now I come to another source of revenue, with regard to which also there has been great difficulty in coming to a decision. The House will not be surprised to learn that I propose to get additional revenue out of the spirit and beer trade. The trade, as everyone knows, is in a position which is entirely artificial. On the one hand, the commodity is so scarce and the desire for it is so great—I know in some quarters they do not desire it—but the desire is so great that sellers, if left to themselves, could obtain practically any price. It is, therefore, a monopoly. On the other hand, the condition is artificial, because prices are regulated by the Food Controller. As regards spirits, the present duty is 14s. 9d. per proof gallon. I propose to make that duty in the future 30s., or an addition of 15s. 3d. per proof gallon. That will bring in during the present year £10,500,000, and in a full year £11,150,000. I have, in coming to this decision, not only examined the figures most carefully, but I have consulted many of those connected with the industry, whose advice is worth having, and I have no doubt whatever that the trade, at the prices fixed by the Food Controller, which will be announced tomorrow, can pay this additional duty and still make reasonable profits.

Now I come to beer. If spirits interest a large section of the House, beer, I think, will interest a still larger section. What I propose to do in the case of beer is to double the present duty, which is 25s. per standard barrel, and to make it 50s. This will bring in £9,700,000 this year and £15,700,000 in a full year, on the present output. The prices of beer have been fixed by the Food Controller, in consultation with my self, at figures, which justify us in believing that the duty can be paid, while still leaving fair profits for those engaged in the trade. I have no doubt, from observations which have been made at different times in the House of Commons, that many Members of the House have in their minds the big profits that have been made in this trade during the past year.

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The next item is tobacco. I propose to raise the duty on tobacco from 6s. 5d., at which it now stands., to 8s. 2d., or a rise of 1s. 9d. per pound. The House will remember that I proposed an increase of duty on tobacco last year, part of which, in the course of discussion, was taken off. I do not like to put these heavy taxes on tobacco or anything else, but what we have to consider is that the money must be got, and what are the sources from which it can most fairly be obtained. Judging tobacco from the standpoint which has always applied in the past, as to whether or not it can stand additional taxation, that is, how the consumption is going on, we certainly can stand this additional taxation, for the amount consumed in the United Kingdom in the year before the War has been greatly exceeded. It is now three or four million pounds more, in spite of the high duty. Tobacco prices, as the House knows, are in the hands of a Tobacco Controller, and I think the result has been advantageous to the consumer, and not unfair to those who are engaged in the trade. Representations were made to the Tobacco Controller that, owing to the increased cost of production, it was necessary in any case to raise the price of tobacco by a Id. per ounce. The duty, which has been decided upon, has been fixed after consultation with the Controller, and the whole result will be that the price will be raised by 2d. per ounce, but the House will see that the whole of that is not borne by the consumer, because there would have been Id. advance in any case, and the duty is raised by about l ⅓ d. per ounce. This means that something like one-third of a penny is borne by those who are dealing in it, under the prices arranged. The increase proposed is large, but I am told by the Control Board that there will be no difficulty whatever in getting the higher price, provided we do not irritate the consumer, as we have done in the case of beer, by not only charging him a higher price, but not enabling him to get the article when he is willing to pay for it. He said that whether the taxation could be got without discontent depended on whether or not these supplies can be kept up.

The House will readily understand that at a. time like this, when we have to restrict imports in every direction, tobacco, not being, as some think, a necessity of life, is one of those where restriction would naturally come. But I thought it right, as Chancellor of the Exchequer, to point out to the Cabinet Committee which was considering the matter, that in importing tobacco we are almost importing money, and that that was something which ought to be taken into account, especially as the total tonnage required was not largo. The House will realise to what extent that is true when I say that, under the new scale of duties proposed, an import of 6,000 tons of tobacco will give to the Treasury a revenue of £5,500,000 sterling. That is rather a double-barrelled observation. It shows on the one hand—and that was my reason for making it—the advantage from the point of view of the State of bringing in tobacco, and, on the other, shows how largo is the proportion of the price of tobacco which the consumer gives to the state. On the whole, therefore, looking, as I have done, in every direction for taxation, I think this is as fair a source as any which is open to us. The increased yield of this tax will be in the present year £7,500,000. and in a full year £8,000,000.

The next tax to which I will call the attention of the Committee is a very small one. It is an addition to the duty on matches. That addition would not be made for the sake of revenue; the reason for it is a simple one, which I am sure will commend itself to the Committee. Matches, like nearly everything else, are under a Controller. The price is fixed—for those who can get them. It was fixed in regard to the box which is in most common use at ¾ d. The producers have satisfied the Controller that it was necessary for them to get a higher price. You can only make an addition of |d., and to make this addition without raising the duty would have given an excessive profit to the manufacturer. Therefore, by arrangement with the manufacturers, I am proposing an additional duty of 50 per cent., which will enable the matches to be sold at the same price that they would have been sold in any case, and the gain to the Revenue is £600,000 per annum.

I come now to the last of the sources of Revenue which are included in the £114,000,000 I mentioned to the House. I propose an additional tax on sugar of 11s. 8d. per cwt. That will bring in during the current year £12,400,000, and in a full year £13,200,000. I wish, if I can, to justify this on the same grounds as the other taxes can be justified. The price of sugar is fixed. At present it averages 5 ¾ d. per lb., and with this addition the cost will be 7d. per lb. I ask the Committee to consider the extent of that burden upon the individual. The ration of sugar is ½ lb. per week; the duty is l ¼ d. per lb. Therefore, the burden upon each consumer is l ¼ d. per fortnight. I may point out also that, considering the price of other commodities, sugar will still be sold at a not unreasonable price.

I would put this finally to the Committee. It really was absolutely necessary to have additions to indirect taxation. If anyone in the House feels inclined to consider that any particular tax is too hard on some persons, they should try to find out from what other sources the Revenue can be obtained. I should like to add this. In considering the amount of this indirect taxation, it ought not to be left out of account—it is very important that it should be remembered—that a subsidy is now paid on the loaf. It is really relieving those, who would naturally pay this indirect taxation, and this subsidy amounts to more than the total of the additional indirect taxation which I am now placing before the Committee. I am not going to argue the question, on which I know there is a difference of opinion, as to whether or not it was wise to make that subsidy, but, from the point of view of the effect upon the poorer classes of the country, I have no hesitation whatever in saying that the indirect taxation which I propose is more than counterbalanced by the subsidy which was given on the cost of the loaf. That makes the total amount of new taxation which I mentioned.

There is, however, one other tax to which I invite the approval of the House. It is impossible, as the House will see in a minute, to give any accurate estimate of it, arid, though I rely upon receiving considerable Revenue from it, I wish ii to be regarded as something extra, over and above the calculations which I have made. It is what is called a Luxury Tax. Last year I desired to introduce such a tax. I had it examined as closely as I could, and I came to the conclusion—I was advised—that the difficulties were so great that it was not worth proceeding with. I am not sure whether that was a wise decision, but at all events there has been an additional year of war, there have been an additional year of expenditure, and there is greater need than there has ever been before. There is also, the fact that the tax has actually been imposed in France. In January I saw M. Klotz, the French Financial Minister, and discussed the tax with him at length. I gained from him all the particulars which he had available, and carefully studied them. The tax in France was not put on at once. The Chamber sanctioned it and left the details to be arranged by a Commission. It was subsequently put on, and it came into operation at the beginning of this month. just before it came into operation I sent a representative of the Treasury to France to study on the spot the methods by which they proposed to collect the tax. I have come to the conclusion that the right way is to adopt, as the guiding principle, the course which has been taken in France. Their tax is composed of three varieties. There is, first of all, a tax on articles which are essentially articles of luxury, apart altogether from price, such, for instance, as jewellery. There is, in addition, a tax on all articles, or on a great variety of articles which, in the opinion of the French Government and the French Chamber, become articles of luxury above a certain price, and should, therefore, be subject to the tax. There is, in addition, a tax on luxury establishments, hotels, and restaurants, which is also included in the Luxury Tax. It would have been very easy to have made a list of the first class, and to have denned a certain number of articles, and to have said, "We will have a duty on them," but the amount of revenue which in any case could have been got from them would have been small, and it would not have had the effect which such a tax is desired to secure. I have put it on mainly for revenue, but I do not think that there is anyone in the House or out of it who will doubt that at a time like this if it can be arranged, it is a good thing in the national interest to make it more difficult, apart from revenue, for people to spend money on articles of pure luxury. I think that view will be taken. If the tax were only on particular articles, the result would be to a large extent that those articles would be avoided, and the extravagant expenditure would continue on other articles which were not subject to the tax.

I propose, therefore, to adopt, as I have said, the general principle adopted by the French Government. In arranging schedules, they appointed a Commission, consisting of Government officials and representatives of traders. I am going, if the House sanctions it, to adopt a different principle. I am going to ask the House of Commons to set up a Select Committee to prepare these schedules. Of course, they will have either to co-opt traders, or, in their discretion; take advice from them as they think best. I have been encouraged to take this course, because of the advantage which the Government have already received—and I hope it will be greater—from the Select Committee set up on expenditure; last year. It may be said that, as a matter of fact, I am leaving the most difficult part of the Budget to be dealt with by the House of Commons. That is true, but I do it partly for this reason, that this kind of tax is novel and it may be found very objectionable by those through whom it will be collected, and I desire, if possible, to get the additional sanction which will be given to the proposal by a Committee of the House of Commons.

With regard to the amount of the tax, the French rate of the tax is 10 per cent., but they have in addition a tax on retail turnover irrespective of whether the article is a luxury or not. I do not ask the House of Commons to adopt that tax. I propose, therefore, a purely Luxury Tax on rather a higher scale of duty than was taken by the French Government. The rate which I propose—and the House, especially those who are in favour of the decimal systems, will be shocked by the method by which I propose that it should be calculated—is two pence in the shilling, or one-sixth of the amount. I am told that will be a much more workable arrangement than to take a percentage, 10 or 15 per cent. The method by which this tax has to be collected must, I think, be by stamp duty. In that way the stamp is put on the bill, and the customer himself will to a certain extent check the transaction, though, of course, there must be inspection by Government officials as well. I believe, if, as I hope, the -Select Committee of the House of Commons will try to ass-1st in this matter, that it will do extremely useful work, and will elaborate a form of taxation which will give a large revenue. The amount which the French Government have calculated to get from their Luxury Tax is-£24,000,000. Our rate is, as I have said, higher What the amount will be must depend, of course, on the nature of the schedules which are prepared, but I shall be disappointed if, as a result of this tax, a very considerable addition is not secured to the Revenue of the country.

I have now come to the end of my statement. I am sorry to have occupied so much time of the Committee, but I hardly see what I could have left out. I recognise as fully as any Member of the House how very heavy is the burden which I am asking the country to bear. I can only say to the House of Commons that, in considering the proposals of the Budget, I hope they will try to look upon it as a whole and to realise that I have attempted at least to balance fairly the taxation between the different classes who are called upon to bear it. I am convinced that the House of Commons will begin the examination of these proposals with a full realisation of the necessity of the additional taxation, and with the desire to support the Government in the methods which they have taken to secure it. I am perfectly certain that the country as a whole will boar this heavy additional burden in the same spirit in which they have submitted to sacrifices far more heavy than anything measurer! by mere money value.

Motion made, and Question proposed,

(1) That the following Duties of Customs imposed by Part I. of the Finance (No. 2) Act, 1915, and continued by Section one of (he Finance Act, 1917, until the first day of August, nineteen hundred and eighteen, shall continue to be charged as from that date until the first day of August, nineteen hundred and nineteen (that is to say):

And it is declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act,. 1913.—[ Mr. Sonar Law.]

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