(1) Income Tax for the year 1922–23 shall be charged at the rate of five shillings, and the rates of Super-tax for that year shall, for the purposes of Section four of the Income Tax Act, 1918, as amended by the Finance Act, 1920, be the same as those for the year 1921–22.
(2) All such enactments relating to Income Tax and Super-tax respectively as were in force with respect to the duties of Income Tax and Super-tax granted for the year 1921–22, shall have full force and effect with respect to the duties of Income Tax and Super-tax respectively granted by this Act.
(3) The annual value of any property which has been adopted for the purpose either of Income Tax under Schedules A and B, or of Inhabited House Duty, for the year 1921–22, shall be taken as the annual value of that property for the same purpose fur the year 1922–23:
Provided that this Sub-section
Motion made, and Question proposed, "That the Clause stand part of the Bill."
I should like to draw attention to the necessity next year or in the future of making some attempt to reduce the very large taxation which is imposed by this Clause. With the reduction of the Income Tax to 5s. and a Super-tax of 4s. there are still a large number of people who during this year will be, paying at least 9s. of their income to the Government, and to that has to be added the necessary sinking fund for Death Duties, so, without exaggeration, I might say if the Clause is passed the result will be that there will be a large number of people who are paying at least 11s. a year to the Government. We are dealing later on with Clauses which seek to prevent evasion of Income Tax and Super-tax, and those Clauses are perfectly right. But what is the real reason for the evasion? It is only within the last three or four years that these evasions have taken place. It is because you put such an enormous burden upon the people as to amount to practical confiscation in many cases, and, consequently, people who perhaps are not so strict in their moral ideas as they should be are almost driven to evasion. Perhaps I should not say anything about moral ideas, because evasions have always been strictly legal, and people have endeavoured to find out how they can avoid, without coming into contact with the law, the payment of a burden which it is almost impossible to bear. During the War people paid these enormous taxes without a murmur, but they did not expect that they were going to be kept on for an unlimited time after the War.
I have suggested more than once that Income Tax and Super-tax should be made into one tax. That would do away with the possibility of evasion of Super-tax, because people would be assessed for Income Tax and would have to pay it. There would be no question whether or not they were liable to Super-tax, and therefore one of the methods by which Super-tax is evaded would disappear. Another great advantage of that would be that everyone would know what people are paying. At present I believe a very large number of people—I do not mean rich people, but people with £300 or £400 a year—do not in the least know what the richer people are paying and it is very difficult for them to find out. They see in the papers that Income Tax is 6s. or 5s. and they see something about Super-tax, but as a rule there is no mention of the amount of the Super-tax. They do not know what the Super-tax is, or what it amounts to. If it was put on the paper that Income Tax was 9s. in the £1, if there was no Super-tax, everybody would know what the Income Tax was. It might be said that it would be difficult to impose an Income Tax of 9s. on everybody. It would be difficult when the Income Tax was a flat rate, but now it is graduated. Therefore it is easy to say that those people who are liable for 9s. Income Tax and Super-tax, should be charged Income Tax at the rate of 9s. I put these suggestions forward in all seriousness, and I would commend them to members of the Labour party. We all desire that the state of unemployment should disappear, and in whatever part of the House we sit we desire that there should be employment for our own people in this country. You cannot have employment unless you have capital, you cannot have capital unless you have the means of saving, and you cannot save if such a large proportion of your profits are taken from you by the Government. Therefore, I hope that hon. Members opposite will not think that if there was a reduction in Income Tax and Super-tax that it would benefit the rich man only. That idea is erroneous. It would benefit also the people who live by weekly wages and manual labour. It would give increased employment. [HON. MEMBERS: "Oh!"] Those are my views. It would give an opportunity for more factories to be built, more machinery to be bought, and it would tend to a general development of the industries of the country. Some of us, during the last two or three years, have been endeavouring to get the Government to reduce expenditure, but so far we have practically failed. There is one remedy which may eventually have to be put into force, and that is to refuse to give the Government the money to spend. If we were unwilling to vote money, the Government could not pay. I am not advocating that course, because that is something that should only be done in the very last resource; but unless the Government takes some steps to reduce expenditure we shall have to adopt something of that sort. I make these remarks in no spirit of hostility to the Government, and I hope they will be considered by the Chancellor of the Exchequer.The right hon. Baronet will forgive me if I say that the remarks which he has just made, which apparently received the general approval of the Committee, and apparently the approval of Members sitting beside me, are very disastrous remarks to go out to the public. The right hon. baronet knows that they are perfectly unsound.
They may be unsound, but I do not think so. It is a matter of opinion.
I think on reflection the right hon. Baronet will see that they must be unsound. It is not taxation which ruins trade, but expenditure which ruins it. The particular form of taxation which we are considering at the present time is 1s. off the Income Tax, and we are getting that reduction off the Income Tax by reducing the sinking fund. Does the right hon. Baronet really think that it helps trade to reduce the repayment of debt by reducing the Income Tax?
I am not in favour of the suspension of the Sinking Fund.
That is what you were arguing.
I have never been in favour of the suspension of the Sinking Fund. What I have said was that we must reduce expenditure, and that we could reduce it by doing away with some of the offices created during the War, and reducing the expenditure on the Civil Service.
The right hon. Baronet is advocating the reduction of the Income Tax, although he knows perfectly well that that reduction is obtained at the expense of honest finance. So long as the expenditure remains constant and you reduce taxation by reducing the repayment of debt, you are doing nothing whatever to benefit trade. Trade would benefit infinitely more if the £51,000,000 that are being lost to the Exchequer by reducing the Income Tax were collected from the public of this country and used for the repayment of debt. If used for the repayment of debt, the money would go back into trade, capital would become cheaper, trade would develop, and production would become cheaper. Instead of its being used for the repayment of debt, it means putting £50 into that man's pocket, £60 into another man's pocket, £100 into another man's pocket, and they will spend it. They will squander it and it will not go back into trade. A great deal of it will be spent at Monte Carlo. Instead of benefiting trade, the Chancellor of the Exchequer, as the right hon. Baronet knows perfectly well, by that action is really damaging trade. It is not a fact that by reducing taxation you are going to help trade. You must reduce expenditure. The one sound argument made by the right hon. Baronet was that the only way to stop this extravagant Government, was to refuse money, and then they would bring their expenditure down. That argument was quite right, but the rest of his speech was wrong.
The right hon. Baronet complains that the wicked, foolish, uneducated working classes do not know what the Super-tax is. Surely every rich man when he pays Super-tax tells the public all about it. Are we not told that three-fourths of a rich man's income is going in payment of taxation? It is very nice to hear that, but nobody knows better than the right hon. Baronet that although he signs a cheque he collects it from the consumer. Be passes the tax on. With regard to the Corporation Profits Tax, the right hon. Baronet gets the railways exempted for three years under this Budget, for the very good reason that the railway companies, being monopolists, are not able to pass the tax on to the consumer. Other industries pay the Corporation Profits Tax, and are quite ready to pay it, because they know that it goes on the overhead charges of the business and falls upon the community in the long run. The rich man signs a cheque but the rich man, through the natural organisation of our present competitive system, collects from the consumer the money required for the cheque paid to the Government. I think that is generally recognised. Hon. Members opposite complain about the heavy taxation they have to pay when it suits their purpose, and when it suits their purpose on another occasion they say to the Labour Members, with tears in their voice: "Do you not realise that I am not really paying this cheque, and that it comes upon the working man?" Of course it does. When it suits the right hon. Baronet's arguments to say that he does not pay the tax, the workman pays it, he uses it. On the other hand, when the right hon. Baronet wants to show what agonies the big financiers suffer owing to the Super-tax and the Income Tax, he takes a different line, and says that the rich man pays the tax. He cannot have it both ways. Let us stick to sound economics. Let us realise that two and two make four, even in the House of Commons, and that when you put heavy taxes upon business, the inevitable result is that the cost of production is greater, that the article which the business produces costs more to produce. There is another point which ought to he made in view of the lecture which we have had from the right hon. Baronet. What about reducing direct taxation or reducing indirect taxation? Which really is the best for trade? The right hon. Baronet told us, with almost a break in his voice, that he wanted reduction in Income Tax in order that there might be more employment in this country. Would it not be better for employment in this country if an equal amount of taxation were remitted from the indirect taxes? If you take £10,000,000 of taxation off the Income Tax, it does not benefit trade so much as would be the case if it were taken off sugar or tea. If it were taken off sugar or tea it would mean that at the end of the week every working man would have more money to spend; everybody would have more money to spend. They would not throw that money into the sea. They would buy the things they wanted with that money. It would mean that more people would be employed satisfying their wants, and every penny reduction off indirect taxation would go back into trade, thereby increasing production and employment. Hon. Members opposite may say that exactly the same thing would happen in regard to reduction of Income Tax. They will say that if they get a certain sum off the Income Tax it means that they buy more things than they would otherwise buy, that people would be employed in producing the articles they required, and that, in the long run, it is the same thing—more employment all round. It all depends how the money is spent. The object of reducing the indirect taxation is that you produce the maximum amount of employment. A great deal of the increased expenditure, due to the reduction of Income Tax, will be spent in this country, but not all. Therefore, it is best for trade to reduce indirect taxation, which will increase production here and increase employment. I apologise to the Committee for keeping them so long, but I was drawn into this argument on account of the speech of the right hon. Baronet, a speech which, coming from him, where we usually get sound economics, was, perhaps, unfortunate at the present moment.In common with most Members of the Committee I suppose I have done a certain amount of misrepresentation of the speeches of other Members, but the speech of the hon. and gallant Member for Newcastle-under-Lyme (Colonel Wedgwood) goes beyond anything I have ever heard in that direction. It was just a series of arguments which had nothing to do with what the right hon. Baronet (Sir F. Banbury) said The right hon. Baronet merely suggested that it would be of more educative value to the hon. and gallant Member himself and those who sit behind him, if an equivalent amount of taxation were collected in such a form that the people of this country would know exactly where the burden lay, and the hon. and gallant Member must admit that in any demo- cratic form of State it is very desirable that people should have the fullest knowledge of where the money comes from and how it is being spent. As the right hon. Baronet said, if you have a graduated Income Tax with Super-tax in addition, it is extraordinarily difficult for the people of the country to know what taxation is being paid as between one citizen and another.
The hon. and gallant Gentleman told us he was going to give us sound economics this evening. I listened with great attention, but I am afraid that many of us were disappointed, and I would like to give him this thought to sleep upon to-night. Let him consider whether a graduation of tax with a Super-tax is sound economics or not. To my mind, it appears that, if there is to be a graduation of Income Tax at all, the incidence ought to be made heaviest on incomes where they are small rather than where they are large. The graduation of Income Tax ought to be such that Income Tax shall be heavier on small incomes than on large. For this reason, that incomes generally up to £400 or £500 per annum are spent entirely by the people who earn them, or the people who inherit them, but incomes above £10,000 per annum are very largely reinvested in the industries of this country, and if you graduate the Income Tax and the Super-tax in the way in which it is done at present—I make a present of this idea to the Chancellor of the Exchequer—you put a heavy tax on the capital of the country, and therefore reduce the possibility of greater wealth production and a better condition of living for the worker in the future.Hon. Members on both sides have explained what they are pleased to call sound economics. I think they are more sound than economic. The hon. Member for Mossley (Mr. Hopkinson) has put forward one of the most absurd ideas of taxation which have ever been placed before this Chamber, that is that the smaller the income the more heavily it should be taxed. The further down the scale of income the higher the graduation should be. The bricklayer's labourer earning 30s. a week now and again is to have the heaviest graduation upon the 30s. a week, while the city financier with his £10,000 and over is to get off with the lightest graduation. If the hon. Member for Mossley were to go down to his constituents and advocate this sort of doctrine be would never come back to the House.
I was not advocating it. I was merely stating it as a fact of economics.
If the hon. Member believes it to be a fact in economics then he is not doing his duty as one who claims to be a sound economist in not preaching it to his constituents in Mossley. If he is a sound economist then he is remaining in this House on a subterfuge. He is not teaching the working classes of his constituency those sound economic facts which would lead them to understand thoroughly what is actually paid by the wealthy people of this country in their Income Tax. The right hon. Baronet the member for the City of London (Sir F. Banbury) has put forward the idea that we ought to have a graduated tax so that the people of this country would understand exactly what the total sum of taxation placed on incomes really amounts to. I do not see anything wrong with that. The Labour party have been advocating practically that sort of thing for years, even before they had got a Member in the House. They have advocated time after time a graduated Income Tax, not graduated along the lines suggested by the hon. Member for Mossley from the highest income downwards until the poor charwoman would pay the highest rate of taxes in the country but the other way about, starting from some amount laid down as being the sum necessary to enable the individual who has earned or inherited that income to live upon it in comfort, and beyond that figure graduating Income Tax on an increasing scale according to the amount of income, until, having reached a certain figure, it would take away the greater part of anything above that figure under the graduated Income Tax which you would raise upon it. That I think is the sound economics so far as taxation goes.
I can understand the reason why the right hon. Baronet is so anxious that the people of this country should understand exactly how much is being levied in taxation upon income. We all realise that the average man who has not got an income, but has merely got wages of £1, £2 or £3 per week, does not worry about Super-tax. He does not know what it means in many cases. He never has had to pay Super-tax, because his income is so low that even Income Tax will not be paid. Consequently, he does not bother much about Super-tax and the amount, but as the right hon. Baronet say, if you do away with Super-tax, or do not call it Super-tax, but add it to the Income Tax, it will be seen that the individual who has to pay what is called Super-tax is really paying, instead of 5s. Income Tax and a Super-tax of 4s., an Income Tax of 9s. in the £. I agree with that, but it is not with the object of educating the man in the street that the right hon. Baronet and the hon. Member for Mossley put forward that idea. If you say that there is an Income Tax of 9s. in the £, then with the love of justice which is inherent in every Britisher, no matter to what station he belongs, when he sees in the "Daily Mail," the "Sunday Express," the "Sunday Pictorial," and all the other papers, stunt articles pointing out that the wealthy people of this country have to pay this enormous Income Tax of 9s. in the £, and suggesting that 1s. in the £ should be knocked off the tax, it is said that is in the £ would never be missed, and they secure, not only 1s. in the £ off the tax, but bring about that which the right hon. Baronet and the hon. Member want, an actual reduction in the Income Tax, an actual bringing down of the graduated scale. Where you have, as you have in this country to-day, to meet the enormous expenses which are a consequence of the War, we must find money, and we can only get this money to pay Sinking Fund and interests on our debts by levying taxation upon something in this country. The Income Tax is one of the methods of carrying on that work in this country. The people who benefit most out of the charge are the very people for whom the right hon. Baronet and the hon. Member speak, because they have the largest incomes in this country and they have got the greatest advantage out of the victory of the Allies. Now we have them trying to escape the responsibility of paying, out of the wealth they possess, their full share of that which they are enjoying because of the victory of the Allies. I think it, is absurd for the hon. Member to preach sound economics, because he is not a sound economist. His facts are not facts, but theories. Theories are not facts until they are applied. If some hon. Member would take the hon. Member into the Library and give him a lecture on sound economics, it might be of some benefit to him. I hope that before the hon. Gentleman again intervenes in Debate he will give a thought to what, after all, sound economics are, and see if there is not a way in which those economic theories in which he believes can be applied for the benefit of the taxpayers of the country. If he is able to show that that can be done, he will contribute more to the education of the Committee than he is doing at present, when he is only contributing to its hilarity.8.0 P.M.
The Debate seems to be wandering round the question, whether direct or indirect taxation is the better form. Both forms of taxation are bad and we want to keep them down as much as possible. The real question is whether we can reduce taxation, not only direct, but indirect. I agree with the hon. Member who has just spoken that we must reduce indirect taxation when possible, taxation on such things as tea, beer, coffee. Yesterday we had a discussion on tea and I agreed with what was said by hon. Members on these benches, because taxes on various commodities keep up the cost of living and thus produce the same effect as direct taxation. Direct taxation besides keeping up prices does something worse, because it prevents new capital from being invested in any form of enterprise to enable the country to carry on, and it also prevents the country from becoming more prosperous as, unless capital is saved, the country would become less prosperous, though hon. Members on those benches may be pleased if the country does become less prosperous—[HON. MEMBERS: "No!"]—or if certain individuals in the country become less prosperous, and save less money. But I think that some foreign countries might become more pleased because they would get the trade which we must lose in consequence. I listened to the speech of the hon. Member for Newcastle-under-Lyme, and I thought it was extremely strongly favour of the reduction of the Income Tax, He said that the people who now pay Income Tax are not the people who suffer, but that the people who suffer are the consumers, because the people who pay Income Tax make the consumers pay more for their goods. I do not think that is the case. Assume for the moment that it is true. Is it- not an even greater reason for reducing the Income Tax? Surely the question of Income Tax is a national question, and not a question of one group or one section of the community. The question affects not only the man who pays Income Tax. Every person in the community suffers from a grievous Income Tax, which is a direct levy, and almost a capital levy, upon the whole community, and must have its effect on every trade and industry in the country. On every business, whether big or small, it has its effect, and surely on all the people employed in that business, not only those high up with large salaries, but those who get only wages. It must have the effect of producing lower wages, and of fewer people being employed.
The point to consider is how we can get the Income Tax down. I agree with the statement that Income Tax should not be reduced by suspending the interest on the Sinking Fund. It should have been reduced by cutting down national expenditure. That is the only way of doing it. I do not want to go into the question whether it was advisable to reduce Income Tax by is. I think the Government were probably quite right in taking the risk, and in trying thus to give an impetus to trade. They should have had a better balance sheet to present to the country. Next year the country will not be satisfied with the Income Tax of this year, but will expect another 1s. to come off. That is what I wish to urge upon the Government now. This is the only opportunity we have of telling the Government that next year the country will expect a further reduction of Income Tax and in all other taxes. The only possible way to make that possible is to cut down national expenditure. I would urge the Chancellor of the Exchequer and the Government to review national expenditure once more, and to cut down in every Department. That is the most pressing question of the hour. If trade is to be got going again, and business in the country is to be helped and unemployment checked, it can be done only by cutting down taxation.The speech, which the hon. Member for Govan (Mr. N. Maclean) made, displayed a good deal of indignation in the reply he made to the hon. Member for Mossley (Mr. A. Hopkinson). The hon. Member rediculed the idea that the hon. Member for Mossley had been expressing sound economics. The hon. Gentleman is really confusing two things which are perfectly distinct. The hon. Member told my hon. Friend that if he went to his constituency and preached the same doctrine that he preached in this House he would never come back. I think that is probably true. That is because the hon. Gentleman opposite was confusing sound economics with practical politics. They are two totally different things. I doubt very much if any Member of this House would be likely to come back if he preached sound economics in his own constituency. As a matter of fact, that is one of the great difficulties we all have in dealing with these questions. Sound economics are a very cruel thing. Equity is one thing and sound economics a very different thing. In practical politics we constantly are obliged to say good-bye to sound economics, in order that we may do justice between one class and another. Take the case which was spoken of by the hon. and gallant Member for Newcastle-under-Lyme (Colonel Wedgwood), the question whether relief from direct taxation or from indirect taxation is of the greater benefit, from the point of view of industry and employment. He said quite truly that the saving of money by the reduction of expenditure is the great point, and that the crucial matter is how the money saved is spent. But as a matter of practical politics and of practical knowledge we all know that whereas the saving of direct taxation may, and probably will, result in investment which will give employment, the saving of very small sums through the consumer on indirect taxation will have no such result.
Take the Tea Duty or the Sugar Duty. It is perfectly right, apart altogether from whether it is sound politics or not, that we should reduce, as far as possible, the burden on the consumer, in order to do justice and to enable people to live with decent comfort. But if it comes to a question of what will give employment and what will be invested, we know perfectly well that a small weekly saving will not result in investment to give employment, but that a reduction of direct taxation, especially on the larger incomes, will have that result and will give employment. Therefore, I believe that the hon. Member for Mossley, although he was not speaking practical politics, because such a thing could not be done, was speaking perfectly sound economics when he said that the proper graduation of income would be higher on the low income. [HON. MEMBERS: "No!"] Yes; it was sound economics. I say again that the hon. Member for Govan is confusing two things. Neither of us advocates such a graduation, but let us recognise the distinction between politics and economics. What is economics? It is the science that deals with the production of national wealth. [HON. MEMBERS: "And its distribution."] And its distribution, I agree. I do not want to pursue it, because it is an academic point. If you could have such a system of graduation as was suggested it would result, as a matter of fact, in a greater increase in the national wealth than the system which we have to pursue, not for an economic reason at all, but for the equitable reason of putting the greater burden on those who have the greater resources. That is equity, not economics. Therefore, I think that, although we must, of course, keep in view the reduction of the burden upon the people and maintain the balance which has always been maintained, roughly speaking, between indirect taxation and direct taxation, yet I join with my right hon. Friend the Member for the City of London (Sir F. Banbury) in saying that if next year the Government can give a further reduction in the very pressing burden of Income Tax on the industries of the country, not merely as a means of relieving people who require relief less than others, but for the purpose of increasing the general prosperity of the country out of which alone employment can grow, they will be taking the right course.Seeing that the hon. Gentleman desires prosperity for the country, how does the proposal to place the heavier tax on the lower incomes produce it?
I did not say that.
I am not fully aware of what has passed in the earlier discussion, but it seems to me that the discussion is now taking a range far wider than the Clause would allow.
It was the point raised by the hon. Member for Mossley which produced practically the whole of the speech of the hon. Member for Govan. I will answer the hon. Member briefly. I do not think it would produce prosperity to do what was suggested. The hon. Member for Mossley said was sound economics. Apart from that, we require equity and justice.
It would be very difficult to justify the present reduction of Income Tax while we keep intact the tremendous burden of indirect taxation. I share the view of the hon. and gallant Member for Newcastle-under-Lyme (Colonel Wedgwood) that any reduction in taxation which is specifically applied to what can be termed luxuries will have considerably less benefit on the trade of the country than a similar reduction of taxation applied to the common necessaries of life, and that if the £50,000,000 reduction in Income Tax had been applied to the reduction of taxes upon food, a greater advantage to trade and commerce would have been forthcoming. Several hon. Members have urged that one of the methods whereby Income Tax can be reduced now and reduced still further in future is by a reduction in expenditure. There is considerable loose talk upon various political platforms, in the newspaper Press and in this House about reduction of expenditure. I think the time has come—
It is quite clear that this general discussion cannot be continued. The question is whether there shall be an Income Tax of 5s. in the £or not. It must be assumed that a certain sum of expenditure has to be met, and the question is whether it should be met by a 5s. Income Tax or not.
With all respect, I say it is very unfortunate that the Debate has proceeded on the lines hitherto followed, with all these aspects of the matter brought in. If we are restricted now to the point you have laid down, having regard to the wide field that the discussion has taken hitherto, I do not feel justified in continuing the Debate.
It is unfortunate that you, Mr. Chairman, were not here when the discussion opened. It was not on a question of whether or not the Income Tax should be 5s. in the £. The right hon. Baronet the Member for the City of London (Sir F. Banbury), on the Clause being moved, took the opportunity of pointing out how desirable it was that Income Tax and Super-tax should be levied together as one sum and not separately. He went on to say that if that were done the burden of the joint tax would become apparent to the most simple-minded, and the result would be to bring home to the country the necessity for further reductions. That is how the Debate opened, and I do not desire to carry it further than that point. Super-tax is only another word for additional Income Tax. The Statute calls it additional Income Tax, and those who have occasion to negotiate with the authorities on this matter know how they insist that the same rules which apply to the levying of Income Tax should apply also to the levying of Super-tax. That being so, why should they not be levied as one? It would effect a great saving. It would mean getting rid of one Department, and that is a matter which should command the attention of the Chancellor of the Exchequer. In regard to the local authorities—certainly those of England and Wales—the two collections of local taxation have been merged into one, and the ratepayer receives a demand note which comprises the poor rate and the district rate, each of which was collected separately in former times. I earnestly ask the Chancellor of the Exchequer to consider this aspect of the matter. The lumping together of these taxes is simple and educative, and it would effect a very large saving. I venture to think the officials who now levy Income Tax have become used to the rules relating to Super-tax. It would he a mere matter of accountancy to add the requisite sums to the demand notes and we would get rid of the establishment which at present flourishes in Kingsway and keeps a very large and expensive building and has a very large and expensive staff. That would be a beginning of economy without the least interference in Government work, and I hope the Chancellor of the Exechequer will consider it.
I think I shall not stray without the ambit of your ruling, Mr. Chairman, in referring to one or two of the arguments which have been advanced from the opposite benches. I would like in this direction to animadvert for one moment to the argument employed, first of all, by the hon. Member for Mossley (Mr. Hopkinson) and supported by the hon. Member for Canterbury (Mr. R. McNeill). Their argument was, in brief, that the incidence of Income Tax should be heavier in exact proportion to the decline in income, and that those possessing small incomes should be taxed in a heavier degree than those possessing larger incomes, because in the case of the larger incomes more money was saved annually and re-invested. That remarkable argument was hailed with satisfaction by the hon. Member for Canterbury as sound economics. He pointed out in support of his belief that sound economics had no concern with equity. That is quite true, but sound economics are greatly concerned with efficiency. Efficiency, in fact, might be described as the keynote of sound economics. No one would contend that the heaviest pressure of taxation should be directed against those members of the community who have to contribute by their labour to the production of the wealth of the country, and that this would conduce to those sound economics which are desired by the hon. Gentleman. The contention of the hon. and gallant Member for Newcastle-under-Lyme (Colonel Wedgwood), to the effect that the suspension of the Sinking Fund in order to provide remission of Income Tax did not contribute to the end which the Government had in view, namely, the stimulus of trade, was greatly scoffed at from the opposite benches, but surely it is evident that the release of capital which, in all probability, would be re-invested in industry must conduce more to the stimulation of trade than a remission of taxation.
There are separate provisions in connection with the suspension of the Sinking Fund, and I think, on the question now before the Committee, the hon. Member must confine himself to Income Tax.
I bow at once to your ruling, Sir, but I may point out, as a matter of order, that all this has been debated at great length in the course of this particular discussion, and it is difficult for me to know exactly in whose footsteps I may tread and in which direction I am debarred from going. The argument was advanced that this remission of Income Tax which we are now discussing was obtained by a raid upon the Sinking Fund, and consequently that this remission was unsound finance. Am I to understand that we are debarred from debating the methods by which this reduction is obtained?
The hon. Member states that a certain argument was adduced in the course of this discussion. It would be obviously unfair to prevent him referring to that, but I must ask him not to go beyond the matter iself.
On a point of Order. If an hon. Member is desirous of answering remarks made by another hon. Member opposite, will he be entitled to do so no matter whether his argument conies under the specific head of Income Tax or not?
That is a large proposition, and I am not desirous of pronouncing a universal opinion which will hold good in all cases. The hon. Member for Harrow (Mr. Mosley) mentioned a concrete argument which has been put forward, and I cannot refuse to allow him to answer it, but hon. Members must not go beyond the scope of this Clause in any further arguments they may adduce.
I hope to keep within your ruling, Mr. Chairman. I was only going to answer the attempted refutation of the argument advanced. It is said that in the release of capital which has been invested in Government securities there is a far greater probability that the capital so released will be invested for the promotion of enterprise and industry. The argument is that it is more likely that capital so released from Government securities will be re-invested than that the shilling given to the taxpayer by this remission will in all cases and invariably be invested and so promote trade revival. It must be evident that it is not on those grounds that we can base our demand for a lower Income Tax. Then, again, with very great confidence, another argument of the hon. and gallant Member for Newcastle-under-Lyme was rebutted from the opposite benches—his argument that the remission of indirect taxation as opposed to Income Tax, was equally efficacious in the matter of the stimulation of trade. The hon. Members opposite pointed out that in a remission of Income Tax the money not demanded of the taxpayer is more likely to be invested in industry than a remission of taxation to the indirect taxpayer, who will probably spend the money, but those advancing that argument altogether ignore the fact that all indirect taxation must raise the cost of living and that, wages being based upon the cost of living, the cost of production must inevitably he raised by indirect taxation. In fact, it is, if anything, more inevitable that the cost of industry should be raised by indirect taxation than by direct taxation, because if it be admitted that direct taxation raises the cost of production, then another argument of the hon. and gallant Member for Newcastle-under-Lyme is admitted, that the direct taxpayer who is engaged in commerce is not paying the tax out of his own normal income but is handing the tax on to the consumer.
I rather disagree with that argument. I think that in very many cases the tax is being paid out of the normal income of those engaged in the promotion of industry and that consequently it is not handed on to the consumer, and therefore the cost of production is not raised in all cases by direct taxation, but it must inevitably be raised in every case by indirect taxation, which raises the cost of living and consequently raises the cost of wages. I therefore cannot follow the arguments of those who assert with such confidence that a remission of direct taxation is very much more conducive to a trade revival than a remission of indirect taxation. We must face the fact that the greatest stimulus of all to trade is the repayment of debt, in that capital is released for investment, and beyond that we must recognise that much of taxation which is remitted will be spent on things that are unnecessary, and if money is spent by the individual on things that are unnecessary, it is just as badly spent, or very nearly as badly spent, as if it were spent by the State. If a rich man who has received a remission of taxation of, say, £1,000 spends that money this autumn on a deer forest, trade will no more be stimulated than if it was spent on battleships by the State. Any luxury or unnecessary expenditure in times of economic stress, whether by the State or the individual, is equally vicious, and we cannot possibly contend that industry will benefit through money—The hon. Member is now embarking on an uncharted sea, and I really must ask him to keep to the point.
I certainly will not pursue that argument. I have contented myself with rebutting some of the extreme arguments, as I consider them, from the other side in favour of this reduction of direct taxation as opposed to the payment of Sinking Fund and the remission of indirect taxation, and I will now con-elude by saying that in my view the real benefit from a remission of 1s. of the Income Tax is a psychological benefit rather than anything that is materially conducive to a trade revival. I think it has this effect, that when taxation is lower, when direct taxation on men's earnings or on the interest on their money which they may have invested in enterprises, often of a speculative character, is reduced, they have a greater incentive to embark upon fresh enterprises, and enterprises which are of a speculative character, and in the event of success may open up vast new sources of work for the development of mankind; and so, as a psychological move, I welcome the remission of 1s. of direct taxation. That psychological benefit is equal, of course, in the case of a remission of indirect taxation, but I agree essentially with the remarks that have been voiced from all quarters of the Committee to the effect that a reduction, an all-round reduction, of taxation, involving a great psychological benefit to trade and industry in this country, is essential, and also that it is equally essential that debt should be repaid for the release of capital for the enterprises which are now so vitally necessary. On those grounds, I think we are entitled to press for a reduction of Government expenditure and to vote for any reasonable reduction of taxation on the ground that cutting off the supply is the only possible method of making this Government economical.
Question, "That the Clause stand part of the Bill," put, and agreed to.
CLAUSE 11 (Computation of profits under Case III of Schedule D) ordered to stand part of the Bill.