asked the Chancellor of the Exchequer whether he has made any separate estimate of the addition which the administration of the Finance Bill, assuming it to become law, will make to the general cost of civil administration in Ireland; and, if so, what is the estimated annual increase, and what are the principal items that make it up?

I am afraid I am not in a position to give the estimate which the hon. Member asks.

asked what is the average number of years' purchase at which agricultural lands in Scotland have been assessed for the purposes of Estate Duty in 1907–8?

The average number of years' purchase at which agricultural lands in Scotland have been assessed for the purpose of Estate Duty in 1907–8 was as follows: Gross value, 18.75 years; net annual value, 24.82 years.

asked at what rate of compound interest it would be necessary to invest 3¾d. in the £ in order to realise a sufficient sum in 30 years to meet the increased Death Duties; whether the 3¾d. applies to all the scales; and what sum in the £, and at what compound interest, it would be necessary to invest in order to meet the full Death Duties?

The rate of compound interest at which it would be necessary to invest 3¾d. in the £ of income, calculated at the rate of 3 per cent. upon the capital value of the property, in order to realise a sufficient sum in 30 years to meet the increased Death Duties at the average rate of those duties, is 3 per cent. The 3¾d. does not apply to all the scales, but only to the average rate. It would be necessary to-invest 1s. 2d. in the £ of income at 3 per cent. compound interest in order to meet the full Death Duties—those existing as well as those proposed—at the average rate of those duties.

asked the Chancellor of the Exchequer if a man spends 20s. in the purchase of two bottles of champagne at 10s. per bottle, 20s. in beer, of a specific gravity of 1.055 at a cost of 2d. per pint, and 20s. in whisky, of 25 per cent. below proof, at 4s. per bottle, how much in each purchase would be represented by duties?

The duty on two-reputed quart bottles of champagne would be 1s. 3d. The duty on 120 imperial pints of beer, brewed in the United Kingdom, and of a specific gravity of 1.055, would be 3s. 2¾d. The duty on five-sixths of a gallon of whisky, strength 25 per cent. under proof, would be 9s. 2⅝d.

asked the Chancellor of the Exchequer how much out of £100 worth of beer at 33s. for 36 gallons will be paid to the State as duty by a retailer of beer after the passing of the Finance Bill; how much out of £100 worth of whisky at 18s. a gallon would be paid to the State as duty by a retailer of whisky after the passing of the Finance Bill; and how much out of £100 worth of champagne at 80s. a dozen would be paid by a wine merchant as duty to the State?

I am afraid I can only refer the hon. Member to the answer I gave him to a similar question the other day. He has not given me sufficient data to enable me to furnish him with the information he requires.

May I ask the right hon. Gentleman how much he wants?

I do not think it will take a great deal to satisfy me.

I think it will take a great deal.

asked whether, in case the annual compensation value of licensed premises exceeding £500 annual value cannot be ascertained in time for the present financial year, will the licensees in these cases have to pay duty equivalent to half their annual value?

In the cases referred to it will be necessary to provide for the issue of a licence on payment of a deposit. The point is receiving attention.

Am I right in thinking that because the Government are unable to let them pay on the annual compensation value, the licensees will not be mulcted with a heavier duty this year than they would have had to pay?

I do not think they will be mulcted in any way, but as I have said the point is receiving the attention of the Chancellor of the Exchequer.

asked the Chancellor of the Exchequer whether he is in a position to give the names of the Commissioners proposed to be appointed under the Development and Road Improvement Bill?

I am afraid I am unable to give the names of the Commissioners.

Will they be in a position to give the names before we go into Committee?

I am afraid I cannot give the hon. Gentleman any further information.

asked if it is proposed to devote any of the funds to be available from the Development Grant to the encouragement of the growth of sugar beet and the establishment of sugar factories in this country or in Ireland?

I may refer the hon. Member to the text of the proposed new Clause for the Development Bill placed upon the Paper by my right hon. Friend, which provides that applications for advances under the Bill are to be referred by the Treasury to the Development Commissioners, who are to consider and report upon them.

Will it not come back to the Treasury in the end to say whether these grants are to be made?

Yes; I understand that was said in Committee.

I wish to ask the Chancellor of the Exchequer whether he proposes to devote any of this grant to this purpose?

It will depend on the case made out for the necessity of so doing.

asked the Prime Minister whether he will take steps to secure that the Committee stage of the Development Bill will not be taken on days when the Finance Bill is under discussion in the House?

The question of dates when Committees sit is, by the practice of the House, one for the Committee itself to arrange, and I do not think. I should be justified in taking the step suggested by the hon. Member.

Is the right hon. Gentleman aware that he promised in the House to communicate with the Chairman of Standing Committee C, so that the Committee would not sit on days on which the Finance Bill was down?

That is not so. I will read the exact terms of my reply:—

"We shall be glad to communicate to the Chairman of the Standing Committee so far as we can in advance the days on which the Finance Bill will be taken, so as to enable him to consult the convenience of Members as to the days on which the Committee will sit."

That is all I said.

Is the right hon. Gentleman aware that, although he may have no technical right to dictate to the Chairman of the Committee, an indication of the views of the Government upon such a point would carry great weight; whether the general impression was not conveyed to the House that arrangements could and would be made which would prevent the Committee sitting when the Finance Bill was down; whether he bears in mind that, according to statements made, there is to be an exceptional pressure put upon the House this week, in the shape of late sittings, to deal with what remains of the Finance Bill, and whether in these circumcumstances the right hon. Gentleman does not think the pressure put upon Committee is out of all proportion to that which hon. Members can bear, and whether better methods than depriving them of food cannot be discovered?

So far as I know, the Committee were certainly not deprived of food, and I assume that if any Member was disposed to somnolence he was able to indulge his inclination. With regard to the question put to me by the right hon. Gentleman, I have to say that when I gave the answer already referred to I was sanguine enough to hope that the three days we had assigned for the sittings of that Committee would be sufficient to dispose of the Committee stage of the Development Bill. That has turned out not to be the case. I was careful to say nothing as regards the future. This week on every effective Parliamentary day the Finance Bill will be taken. It is just possible that something of the same kind may happen in the early days of next week, unless all progress with the Development Bill is to be stayed. It seems to be necessary that the Committee should sit at any rate on part of some of the days on which the Finance Bill will also be taken, but I am told that my right hon. Friend the Chancellor of the Exchequer does not intend to ask the Committee to sit after half-past three unless some special emergency should arise.

May I ask whether the right hon. Gentleman is aware that this Committee meets at half-past eleven, and that the House does not rise sometimes until five or six in the morning, and whether he thinks that legislation can be carried on under such conditions?

That is a speculative question, and much could be said both ways.

May I ask whether, if we have to sit all day and all night, the right hon. Gentleman will compel the Chancellor of the Exchequer to be present also?

May I ask the right hon. Gentleman whether he can give us some precise information as to what he regards as an exceptional emergency?

In general terms, if reasonable progress is made, an exceptional emergency will not arise.

If a Member of the Committee dies in the course of the proceedings, will he be accorded a public funeral?

I beg to move, in Sub-section (1), to leave out the words "twopence" ["shall be charged at the rate of one shilling and twopence"], and to insert instead thereof the words "one penny."

I do not know that there is any particular merit in the Income Tax standing at 1s. 2d. A large number of people view with great distrust the increased burdens in this country, and no doubt they would be glad to see the Income Tax standing at 1s. instead of 1s. 2d.

I have listened to a large number of Debates on the Finance Bill in this House, and in those Debates we have had dispelled several of the rules always set up for our guidance. One of the great dangers of increasing the Income Tax, of which the Chancellor of the Exchequer will not have lost sight entirely, is the fact that the higher you go with that tax the less is yielded by a penny in the £. If the Income Tax were ever again so low as a penny in the £, and the Government resolved suddenly to increase it to twopence, I believe that that increase of a penny would produce a far larger sum of money than can possibly be raised by increasing the Income Tax from 1s. 1d. to 1s. 2d. Everybody tries to do the best he can to escape the tax, and some people not of a very conscientious turn of mind succeed to a great extent in evading it altogether. Consequently the higher you go the less is produced by an increase of a penny. But there is another important fact to be borne in mind. There are, I believe, only two precedents for the Income Tax standing at this high figure. I believe that in the second year of the Crimean War it stood at over 1s. 2d. in the £, and also during the South African War. That is to say, the Income Tax has never stood so high except in times of great national emergency. That brings me to a point which should be considered seriously by the Committee. The Income Tax has always been regarded by Chancellors of the Exchequer as the great instrument of finance in times of special crisis and war, and if that tax is low a considerable increase can always be made in it in times of crisis, so that it will produce the sums which are necessary to carry the struggle to a successful issue. To my mind, we are running a very grave danger by not only keeping the Income Tax at the very high level of what it was last year, but by even adding to it. I know I shall be told that the figures in the Budget are misleading and that this Clause, which states that the Income Tax for this year is to be 1s. 2d. in the £, is not correct, because the average of the Income Tax will be less. I admit that, owing to the numerous deductions which are made, the average of the Income Tax will be less than 1s. 2d. in the £, but I would like to point out that even on incomes which hon. Gentlemen opposite will admit are moderate the Income Tax reaches a very high figure. Even on incomes of £700 a year the Income Tax will be 12.60d., and on £800 it will be 1s. 2d. I am bound to say that it is a very grave charge on his resources for a man with £800 a year to be compelled to pay 1s. 2d. in the £ Income Tax, and it may necessitate not only his making economies in his luxuries, but even very likely in making economies in providing education for his children and in bringing up his family as he should wish. Therefore, in spite of all the deductions which do reduce the average below 1s. 2d., I still maintain that we are still running a very grave risk of putting the Income Tax at such a figure in times of peace as seriously to deplete the reserve on which you would require to call in times of war. In addition, if we include the Death Duties with the Income Tax, we have the result that the largest incomes in the country will, under the proposals of the right hon. Gentleman, come to an Income Tax of over 6s. in the £; and however far we may advance along the road towards dividing up everybody's goods when 6s. in the £ is taken from a man's income, it is a near approach towards taking one-half of his income from him.

How do you make out 6s. in the £?

By converting the Death Duties on Sir Henry Primrose's calculation, allowing 30 years for a generation, and taking the Death Duties and the Income Tax combined they come to 6s. in the £. [An HON. MEMBER: "These figures are wrong."] I would like to think so, but I believe them to be correct. It was always one of the beliefs of Liberalism up to the present Budget that the larger the amount of money taken from the citizens in taxation the more you take away from the capital of the country, and therefore the greater the burden on the trade and industry of this country. I have an extract here from the speech of a Member of His Majesty's Government; perhaps one of those who are departing rather regretfully from the old traditions of Liberal finance. It is an extract from a speech delivered by Lord Wolverhampton in 1904. No doubt the taxation of this country was high owing to the South African War, and the trade and prosperity of the country were not so great as we should all wish to see. Lord Wolverhampton, speaking at Wolverhampton, made a speech which to my mind pointed out the lines on which the Liberal party's policy should run in future. He stated that:—

"The lesson of to-day was to reduce as far as possible by economy and abstention from rash enterprises the expenditure of public money raised by taxation."

The Liberal party have certainly left Lord Wolverhampton and his opinions as regards that policy, for I can see no sign of their abstention from rash enterprises in the expenditure of public money raised by taxation. The whole of Mr. Gladstone's policy during the middle of the last century was to keep taxation as low as possible in order that the money of the country should be spent in employing the people. Anyone who has studied the works of Mr. Cobden will find that one of his chief arguments in favour of Free Trade was based on the ground that capital could only employ a certain amount of labour, that it was most important that capital should be employed in this country, and that any taxation which would cause capital to leave this country and lessen its amount must have its effect on labour and increase unemployment and distress. I also think that the Income Tax, standing at the high rate it does, must lead to certain injustices and inequalities. I am not one of those who believe that the injustices have been entirely removed, and although I admit that they are bearable when the Income Tax is low, yet when it is very high these anomalies and injustices become all the greater. In discussing this question it is impossible to leave aside all reference to the Estate Dutes. Sir William Harcourt, when he introduced his graduated scale of Estate Duties, did so largely under the impression that he was removing injustices which existed under the Income Tax. These were his words:—

"The graduated Estate Duty may be, in fact, reckoned in terms as an annual charge on the estate, and in that shape may be regarded as a graduated Income Tax, which is levied only upon realised property, and does not fall upon what are called precarious incomes."

That is to say, by instituting his Estate Duties he recognised that they were, as he described, graduated Income Tax, and, also, that at the same time they did much to do away with the anomalies and injustices of the Income Tax as it was levied up to those days. I am doubtful in my own mind whether it has been a very wise thing for this Government, and preceding Governments, to have put up the Income Tax to so high a rate as that at which it stands at present, and at the same time to have introduced those abatements and deductions which are now allowed. I saw a letter in the newspapers the other day, written by the brother of one of the Members of the Treasury Bench. It was the letter of Mr. Seely, and it contained, as I thought, a great deal of common-sense. He said:—

"If successive Chancellors of the Exchequer had not eaten into the Income Tax, but had left it at a low level, and without these different deductions and abatements which have been made, it would have been a much greater instrument of finance than it is at the present time."

There is no doubt that, largely owing to the deductions and abatements that have been made, the tax does not produce nearly as much as it used to do when it was left at a low figure, and before any of these deductions were made. Under the conditions which obtained when the Income Tax was at a low level, the Chancellor of the Exchequer had power in time of national emergency to raise the tax by a penny or twopence in the pound, and it was at that time a far greater financial lever than it is at the present time. I am, I repeat, very doubtful whether successive Chancellors of the Exchequer have acted wisely in this matter of a high level of Income Tax, accompanied by abatements and deductions. I believe that by maintaining the tax at a high figure it will be found that it will not yield so much as it ought to yield, simply from the fact that to the men who are very wealthy there are means of getting out of it. Mr. Gladstone and other Liberal Chancellors of the Exchequer always recognised that it was a bad thing to raise a tax to such a point that evasion becomes the order of the day; and I feel perfectly certain that by the present method of levying Income Tax on the high level at which it is now placed evasion will take place, and that the very men who ought to be caught are the very men who will find it easiest to escape. It will always be one of the gravest objections to the Income Tax that it falls most heavily on those who are most conscientious. That was John Stuart Mill's objection to the Income Tax, and it was also Mr. Gladstone's. Mr. Gladstone stated:—

"The Income Tax is not adapted for a permanent portion of the fiscal system of this country, unless you can by reconstruction remove its inequalities. Even if you could—

I draw attention particularly to this—

there would still remain in my mind objections to it of the gravest character. The objectionable principle of self-assessment can never be satisfactory to the country."

Lord Morley, in commenting on Mr. Gladstone's action as regards the finance of the country, stated this:—

"Mr. Gladstone's view of the Income Tax was that while it was an instrument of gigantic power for great national purposes, it was to be deprecated as a permanency, on the ground of the public feeling of inequality, of the inquisition which it necessitated, and the frauds to which it must lead."

4.0 P.M.

I believe that every one of the objections mentioned by Lord Morley in his life of Mr. Gladstone are as true to-day as they were then, namely, the inquisition which the tax necessitates (and I may mention that the higher it is raised the greater will be the necessity for inquisition, and the frauds to which it must lead. Although I fully admit the enormous expenditure which we have to meet to-day, yet I think that to the many Members who wish to see the finances of the country placed on a sound basis it must be a cause of very grave disquiet to see the Income Tax at so very high a figure as it is to-day. I say you are depleting your reserves for the time of war and national emergency, and I also believe that you are perpetuating a great many of those inequalities of which Mr. Gladstone and every great Liberal financier have spoken, while at the same time you are encouraging and teaching the people of this country—and the very people you wish to tax—to have resort to fraud, which is the last thing that any Chancellor of the Exchequer should think it desirable to try and inculcate into the minds of His Majesty's subjects. I would very much like to hear that the Chancellor of the Exchequer could see his way to make still more of a reduction in the rate of Income Tax, and I should also, in common with a great many other Members, like to bear what he has to say as regards the assessment of land under Schedule A. There can be no doubt that when you have a high Income Tax it falls heaviest on the most conscientious. The man who pays up and makes a clean breast of everything is the man who has got the hardest tax to bear, whereas the man who tries to evade the tax is the man who gets off the easiest. The people to whom it is absolutely impossible to evade this tax are undoubtedly the owners of land. Their rents are there for everybody to see, and every single sixpence has to be paid. Though I do not claim that landowners are as a body more conscientious than any other class of His Majesty's subjects, I would say it is perfectly impossible for them to be anything else. I therefore say that the landowner has to pay the uttermost farthing, and on the high rate he has to pay not only on what he does receive, but on what he does not receive. When the tax is at a penny or twopence people do not mind, and do not go into all those small details; but the moment you raise the rate to 1s. 2d. then everybody looks most carefully into the accounts. If a man finds he is paying rather less he keeps quiet, and if he is paying more then every hour of the day, and unfortunately under our present Rules of Procedure every hour of the night he is, through his representatives, trying to get concessions from the Chancellor of the Exchequer so that he should not pay on more than he has received. It is for those reasons I deplore that the Chancellor of the Exchequer should have found it necessary to place the Income Tax at the very high level, and I most sincerely hope that he may be expected with such a large surplus to display some concession, and accept the lower figure of 1s. 1d.

I regret that the Noble Lord made rather a deliberate attack on the whole of the Income Tax, and demanded that not only should we get rid of the extra penny, but of the whole 1s. 2d. His argument for reducing the 1s. 2d. to 1s. 1d. would apply to getting rid of the Income Tax altogether. If money is to be raised, I cannot imagine any Chancellor of the Exchequer who had £16,000,000 to raise, and necessarily more next year, standing at this box and proposing to leave the Income Tax exactly at what it was last year. Whatever methods he employed to make up the balance, I am perfectly certain he would raise the Income Tax to a certain point. I think this addition of 2d. to the Income Tax very moderate. The criticism which I have heard with regard to the Death Duties has been that, instead of resorting to Death Duties, it would have been far better to put up the Income Tax. That is the kind of criticism I have heard, and I am not sure that I did not hear it last week. In a rather sensational criticism of the Budget that was the suggestion put forward that we ought rather to increase the Income Tax than to resort to what was regarded as a charge on capital in the nature of the Death Duties. Therefore, I do not think the Noble Lord (Lord Willoughby de Eresby) seriously put forward the claim that we should reduce the Income Tax from 1s. 2d. to 1s. 1d. He is not quite correct in his statement as to the increase in the Income Tax.

I said it had only been exceeded twice.

I agree, but that was the war, and I do not think it is altogether a precedent. At any rate I could not possibly agree to even a reduction of one penny, which would involve £900,000 this year and over a million pounds next year. That is a prospect which I could not possibly contemplate, and the Noble Lord did not suggest how I could raise the money. After various deductions that we are making it amounts to that sum. It is not an all round penny, but is only on part. It only begins on £3,000, and the twopence amounts, I am speaking from memory, to £2,230,000. The Noble Lord proposes to take a penny off. That is a very considerable reduction in our estimate, and one I could not possibly face.

I confess I have more sympathy with the latter part of his speech when he came to deal with the question of charges under Schedule A. That matter has been raised repeatedly in the course of discussions on the Budget, and the very first time it was raised by the hon. and gallant Member for Chelmsford (Mr. Pretyman), I think I replied, and I told him then that I also had come to the conclusion that at any rate the better class of landlord had a grievance so far as Schedule A was concerned, and a very considerable grievance. I then promised definitely that I would look into the matter, and see whether something could not be done even in the course of the discussions on these financial proposals. I received a deputation from the Central Land Association, introduced by Lord Onslow. They put an appeal before me, and offered to submit their accounts. They were good enough to submit to me cases of about 20 or 30 typical estates in different parts of the country which I invited them to send in, not necessarily the accounts of great landowners but rather samples of the good landlord, the average landlord, the great landowner, and the small landowner in different parts of the country, so that we might be able to get a fair examination of the way in which Schedule A worked at the present moment. I must say that after examining them very carefully I confess my first impression was confirmed that undoubtedly, in the case of the best landlords, the present system works rather harshly. The proposal which is made for remedying it is to place the whole of the accounts under Schedule A to Schedule D. I think I pointed out in the course of the Debates that in my judgment, and I was acting on the advice of the officials, that is quite impracticable. In the first place, I do not think it is quite Income Tax but it is a property tax. I do not want to enter into that now, but it is not quite on the same footing as the Income Tax. The second reason is that Schedule D involves the examination of 600,000 accounts, and if the accounts under Schedule A were transferred to Schedule D that would mean an examination of two million more accounts. Those are the figures given to me.

House property as well as agricultural.

The removal of all those under Schedule A to Schedule D would involve the examination of 2,000,000 different accounts. Obviously that would be impossible—at any rate, this financial year. The next thing is that we would have a difficulty in arriving at the facts when you have to abandon taxing at the source. That would be a very serious contingency, and I do not think we could possibly face it. At the present moment two-thirds of the Income Tax is collected at the source, and that is why it is so successful as a tax. With the whole of those accounts collected from each individual it would be a very expensive operation, and I doubt very much whether it would be as successful, from a revenue point of view. Therefore there is a great advantage in collecting at the source, where it is possible, and I think it would be quite impossible at the present stage to abandon the collection on properties under Schedule A and transfer to Schedule D. At the same time, I have admitted that the present system is not fair to the good landlord. The deduction which is made in respect of repairs and improvements is inadequate, and the good landlord and the bad landlord, or rather the indifferent landlord, are treated exactly in the same way. There is no encouragement as far as the revenue is concerned to the good landlord. If he spends money on improvements and repairs he has got to pay taxes on them, and therefore undoubtedly the present system, to that extent, is a vicious one. I have given my reasons why it would be impossible to transfer from Schedule A to Schedule D; and I certainly could not do it this year, because it would involve such an enormous addition to the machinery, and I think it would involve such a loss of revenue, of an indefinite amount, it is quite impossible to say how much until we actually examined the whole of the accounts, and that, of course, I could not face this year. The Noble Lord talked about a surplus to dispose of, but I can assure him I have no surplus to dispose of, and for any allowance made in respect of Schedule A I am afraid I should have to look to the Sinking Fund, but that is another story I do not wish to turn to now, and I leave it. There is really no surplus. There is absolutely nothing in the suggestion. I wish there were. On the contrary, if anything I have over-estimated the revenue, certainly from whisky. I was criticised very severely at the time for having under-estimated the revenue, and I was probably the only man in the House who thought I had not under-estimated it. As a matter of fact I have over-estimated it there, and therefore there is no surplus. However, we are prepared to make a concession, and I think it is a substantial one, in respect of Schedule A.

Before I come to consider the amount of it, I should like to say something about the form. I consulted the Central Land Association as to the form in which they would wish the concession to be made, assuming the Government were prepared, having regard to the financial conditions this year, to set aside a certain sum of money, and no more, for the purpose. They were perfectly unanimous that it ought not to be given in the form of a flat rate deduction. They opposed very strongly the mere raising of the datum line of 12½ per cent., for, they said, and I agree, if you simply raise the datum line all round it means that the good landlord and the bad landlord are treated in exactly the same way. There is no encouragement to the man who spends money in improving his property, because the man who does not spend gets exactly the same allowance as the man who does. The man who does not spend will get a deduction in respect of what he does not spend, whereas, on the other hand, the man who spends lavishly upon improving his property may not get enough. They infinitely prefer taking their chance of such a sum being next year available for increasing the maximum, and that is the line we propose to take. This is the proposal I shall submit. I cannot put it in the form of an Amendment to the Income Tax; it will have to take the form of a new Clause. This is the form in which we propose to make the alteration in the present Session. We do not propose to alter the datum line of 12½ per cent. in respect of land, and of 16 2–3rds per cent. in respect of cottage property. We propose to leave those exactly where they were, so that all landowners will be entitled to those deductions in the future exactly as they have been in the past. But we propose that on a declaration by a landowner, accompanied by general figures which can be examined by the Inland Revenue, if they think it necessary, in any given case, that he has spent more on repairs and on management, a further deduction shall be made up to 25 per cent. That means that on cottage property, where there is a deduction now of 16 2–3rds per cent., a landlord will be entitled to deduct up to 25 per cent. if he makes a declaration that he has spent on repairs a sum of money which comes up to that maximum. The same thing will apply to land. If a landowner has spent in the course of an average number of years—that is the form which I suggest it should take—up to 25 per cent. of the gross, then he will be entitled to deduct 25 per cent.; if he has spent up to 20 per cent. he will be entitled to deduct 20 per cent. But he cannot get it in the form of a deduction, because the deduction would simply be in the form of the 12½ per cent. He has got to make a claim for the difference between 12½ per cent. and 25 per cent., and it will be returned. Otherwise we should have to abandon the whole of the present method of collection at the source. The only way it can be done is by a claim accompanied by a declaration that the money has been spent. That will involve this year something like half a million of money by way of reduction of Schedule A rates.

There are one or two points in reference to which I should like to invite the views of hon. Members especially interested in the matter, not so much in the course of the Debate as in the course of the next few days before we put down our Amendments. One is with regard to the basis upon which the deduction should be made. Obviously it would not be fair that the deduction should be made in respect of each individual hereditament. You might get a landlord who spends this year upon one hereditament 50 per cent. spending not 15 per cent. on another. Therefore, if the deduction were made in respect of each hereditament, he would only get 25 per cent. in respect of one hereditament and 15 per cent. in respect of the other; whereas if he was able to bring the whole of his expenditure on all his hereditaments into hotch potch he would bring the whole of it up to 25 per cent. This is really a concession to landowners. A landlord does not spend his money equally during the year upon all his hereditaments. He may spend a large sum of money on this farm this year, and very little upon another—on repairs, for instance. Therefore it is fairer to him to spread the whole sum over the whole estate. The second point is that I think it ought to be over an average number of years—I suggest two or three—otherwise again the good landlord might be damnified. He might spend in one year a very considerable amount of his income upon repairs, and next year considerably less? Over an average of years he might spend probably 25 per cent. or 30 per cent., whereas if he took one year alone he might not spend 20 per cent. This, I think, is really in the interests, not only of the landowners, but of agriculture as a whole. It discriminates between the landlord who spends money upon improving his property and the landlord who does not. It is the first time that any attempt has been made to discriminate between the good and the bad, or, I would rather say, the indifferent landlord.

As I have said, the Government are prepared to set aside a sum of £500,000 for this purpose. It is quite impossible to estimate quite accurately how far that £500,000 will go; but, at any rate, if it costs more than that, we are prepared to go up to the 25 per cent. An element uncertainty is the Super-tax. We can estimate with some approach to accuracy what it will cost to make this concession in respect of the ordinary Income Tax from cottage property and from farms; but when you come to the Super-tax there are two or three elements which introduce considerable uncertainty. For instance, we cannot quite say at the present moment, with the materials at our command, how many landlords will be taken outside the Super-tax altogether by this deduction of 25 per cent. There is no doubt that several will be taken outside the Super-tax altogether, merely owing to the fact that they are entitled to 25 per cent., instead of 12½ per cent.; and we cannot say quite what the effect will be upon the remainder. On the other hand, there will be a certain number of landlords who will be unable to make declarations that they had spent 25 per cent. It is not always a question of the good and the bad landlord. Sometimes it will depend very largely on the class of land. For instance, you may have land on which there are considerable buildings. Obviously, where a very large proportion of the capital is invested in structures and fencing, the percentage would be much higher than on land with comparatively few buildings. On the other hand, there may be landlords who cannot conscientiously claim 25 per cent., because the maintenance of their property does not demand expenditure to that extent. If, therefore, it is found that the £500,000 is not altogether disposed of by this concession, the Government will probably be in a position, at any rate next year, to increase the maximum. If there is any surplus, we propose to increase the maximum to those who are spending more than 25 per cent., and, no doubt, there are several landlords who are spending considerably more. The claim of the Central Land Association is that the average good landlord spends 35 per cent. I am not in a position either to controvert or to verify that statement, and I shall not be until the accounts of all the landowners are submitted under this proposal for the examination of the Inland Revenue.

That is the proposal of the Government which I propose to put down in the form of a new Clause. I shall not put it down for a day or two, because I should like any suggestions that Members interested in the matter would care to make in regard to the form. All I can say is that at the present time we cannot see our way to go beyond that £500,000. If anyone holds a very strong view that that sum could be better allocated in some other form for the attainment of the same purpose, I shall be very glad to consider any suggestions before we finally put down our Clause. All I feel very strongly upon is, and here I agree with the Central Land Association, that it ought not to be a flat rate, but that the landowner who actually spends money on the improvement of his property ought to get the benefit of the concession.

Everybody must have listened with interest to the speech just delivered by the right hon. Gentleman the Chancellor of the Exchequer. He made it quite clear that he is animated by a desire to do away with what he has on more than one occasion admitted to be an injustice. I say it in no grudging spirit when I repeat—what he himself is the first to admit—that the concession does not cover the whole ground which justice seemed to require. As one of a much-abused class, who I suppose will gain certainly something from the Chancellor of the Exchequer's proposals, may I say with what satisfaction I have heard it admitted that we have been overtaxed for so many years. [Several HON. MEMBERS: "No, no."] I was not arguing with hon. Gentlemen below the Gangway, but expressing my gratification that the Chancellor of the Exchequer, in the fairest possible spirit, has admitted that for many years, and in practice in an increasing degree, the owners of land in this country have paid more than their fair share, not merely of rates, but of taxes to the Imperial Exchequer. As I understand him he is not giving to the owners of land this half million as a complete vindication of the equity of the present system. I do not propose to discuss his proposals at present. I think it would not be convenient to discuss to-day the proposals of the right hon. Gentleman in any detail. A more legitimate opportunity will occur when the Clause is on the Paper, but perhaps I may just ask in regard to the right hon. Gentleman's statement one or two questions. I was very much puzzled by his assertion that whilst there was only 600,000 commercial accounts to examine every year, there would have been the large number of 2,000,000 accounts to examine if land were put under Schedule D. At first sight that is a most paradoxical statement. We have always understood that the number of traders in this country was enormous and that the number of landowners was few to the point of public danger. That statement, I repeat, at first sight, must be admitted a most singular one. I have no doubt there is an explanation of it. But my ingenuity, on the spur of the moment, is not sufficient to conceive what that explanation may be. Then the right hon. Gentleman in the earlier part of his statement seemed to be under the impression—which he subsequently qualified—that this distinction—the distinction, that is to say, between the landlord who spends a great deal on repairs and the landlord who spends little on repairs—roughly corresponds to the good and the bad, the indifferent or the moderate, landlord. I should think if that is true at all it is true in only the most vague and general way. The right hon. Gentleman, I suppose, has behind him the authority of the Central Land Association, a very highly qualified body. Certainly, if he has behind him the authority of that body, I venture to criticise his statement with the utmost diffidence. But it is not quite in accordance with such experience as I have in the matter, and it does not seem easy to reconcile with what one might suppose are the necessities of the case.

For example, in some parts of the country which I know best, the Lowlands of Scotland, the practice is for farm buildings to be made on so substantial a basis that although the initial course may be very great the annual repairs are relatively very small. I do not think anybody will say that in that part of the country the farming is indifferent or that the landlords do not recognise their duty to do their best by the land in which they are interested. A landlord might spend the whole of his income for a few years—might have to borrow for a few years—in order to get his estate into thoroughly good order. When he got it so he would be relieved of these annual repairs for a very considerable period. It is no criticism of the right hon. Gentleman when I say that it is a fact that land managed in that way would not get so much advantage as land managed on quite a different system—a system which might be better on estates in other parts of the country, but a system which involved less capital expenditure when buildings are erected, and carries with it greater annual repairs in order to keep these buildings in a proper state to do their work. That, I take it, is true of agricultural land. I would appeal to other Gentlemen more cognisant of the subject than myself whether it is not true to an even greater extent of cottage property. Cottages often involve an immense amount of annual repairs to keep them merely, watertight, and to allow them to scrape through the examination of the sanitary authorities. On the other hand, those who are sufficiently wealthy to be able to do full justice to this class of property will have cottages built in so substantial a fashion that perpetual repairs are not required. If I am right, the original de-markation—subsequently qualified by the right hon. Gentleman—between the good landlord who spends much in repairs and the indifferent landlord who does not spend much in repairs again breaks down. But I am not aware that there is any plan by which these inequalities can be avoided. I have no doubt that the interesting speech of the right hon. Gentleman will suggest other comments from other parts of the House.

I think the Government have a right to claim from us that we do not have too full discussion now upon this particular proposal which they have laid before us. I think I am speaking the general sentiments of the House, and if my hon. Friends behind me agree, then, for my part, I think we will spend our time better if we reserve any criticism until the moment when we actually see the Clause in type. I therefore shall refrain from further observations on this point. I would rather suggest to my hon. Friends, if they will do so, that they should defer their comments until the more convenient and fitting opportunity which will be in ordinary course accorded to us when we get to the new Clause. If that general scheme of discussion be accepted, all that remains for us to discuss now are the actual proposals of this Clause as they stand—the proposals that there should be an extra 2d. upon certain classes of income. I daresay the House was startled to learn that this extra 2d. is going to bring in so comparatively small a sum. The reason is that only a small portion of the income of the country is coming under the purview of the Clause. People are beginning to see more and more the gravity of the situation, and the danger in putting a very heavy tax upon a very small number of people. It may require a very strong Chancellor of the Exchequer to resist the illegitimate pressure to augment that differentiation which is now suggested, the effect of which does not touch more than a very small fraction of the population, and which, therefore, that very small fraction have no power to control. I am in the position of agreeing with a great deal of what my Noble Friend said in his introductory speech, though not agreeing with the practical conclusion at which he arrived. I think everybody must admit that it is a serious thing to reflect that we in a time of peace are without any immediate hopes of any alleviation before us, and that the general Income Tax is to be fixed at a point which up to the year 1909 would never have been thought legitimate except in dealing with such a grave national emergency as a foreign war. That is a conclusion which must give us all pause. It is a condition of things which is really alarming from the point of view that it deprives us, or largely deprives us, of the greatest fiscal weapon which any Chancellor of the Exchequer can possess to deal with a sudden national emergency. In time of peace we are blunting the weapon which we require to keep sharp and effective for a time of war. That is a most unsatisfactory condition of things, and if the Chancellor of the Exchequer told us the whole of his thoughts he would not deny that these proposals carry with them something in the nature of national peril, or, at all events, involve national weakness. I am confident that every man who looks forward to the emergencies and possibilities that may arise in our own lifetime in a relatively short period of years, and feels that there is little prospect of the financial burdens of this country diminishing—and, indeed, the prospect is that they may increase—everybody must recognise that we are reaching that point from which we must look back to the happy days when Sir Robert Peel and Mr. Gladstone first proposed a small Income Tax dealing with the temporary emergency, as a position not likely in our time to be repeated, or, at all events, not to be repeated to that extent which most of us would desire. My Noble Friend pointed out also that avoidance is almost sure to increase as you increase the tax, and here, I think, he was not open to the answer given by the Chancellor of the Exchequer. The Chancellor of the Exchequer said if these arguments are true they do not really tell against an Income Tax of 1s. 2d.: they apply against an Income Tax of 8d., or 10d., or 6d., and they apply equally against the whole system. That is the fallacy which this Government tumbles over in every tax they impose. They fail to recognise that a tax may become more objectionable in the regular ratio of its increase.

A shilling Income Tax may be more than: twice as bad as a 6d. Income Tax, and a 1s. 2d. Income Tax may be more than one-sixth worse than a 1s. Income Tax, and; the same is true of the Death Duties and of the Licensing Duties, and of many other taxes which the Government propose. I myself have long recognised, and all upon this side of the House recognise, that the Income Tax is an absolute necessity of modern finance. We have all abandoned the old and happy tradition when the Income Tax was regarded as a temporary stop-tax. But that is no reason why my Noble Friend should be criticised for saying he sees great peril and great danger, and some injustice in a tax of 1s. 2d. in the pound, which would not attach to a tax of the same kind much smaller in amount. I, therefore, accept my Noble Friend's observation in a less critical spirit than the Chancellor of the Exchequer. I think he was absolutely justified in all he said; but here I join, for the first time, with the Chancellor in the Budget discussions in saying that it is an adequate, or at all events a strong, defence of the Government that the money must be found. But that is, in my opinion, no argument for some of the earlier taxes, which seem to me to do a great deal of injustice. This is a tax which does not single out a particular kind of property to be specially attacked. This kind of tax does not, like the Death Duties, diminish ipso facto by the very incidence of its character the available capital of the country. This tax is a grievous and a heavy burden; it is weakening to the finances of the country, but the money must be found, and those who have income must do their full share in finding this money, and, as there is very little hope, I am afraid, of inducing this Government to widen their basis of taxation and see whether other resources cannot be obtained elsewhere less onerous in their incidence to the general community, I recognise that the Income Tax must be increased, and I cannot go into the Lobby with my Noble Friend and ask the Government to cut off this source of their revenue in the present position of our national finances.

I regret as much as my Noble Friend the necessity which the Chancellor of the Exchequer finds himself in, but it is a necessity. He has to meet these charges, and he is now for the first time in this Budget attempting to meet them by a tax not arbitrary in its incidence. In that state of things I should certainly not criticise the Government upon the subject of this addition to the Income Tax. I regret its necessity, but I recognise in the present condition of affairs that at all events as long as our finances are dealt with under the existing principle this, or something like this, is absolutely necessary to meet the charges of the year which have to be met by the Government of the day.

I agree with the right hon. Gentleman it would be very undesirable to discuss the proposals of the Government before they are submitted to the House in proper form, and, after all, I do not think it is directly relevant to this Amendment. I thought it would be a great advantage to make an explanation at this stage; otherwise it would not be possible to submit those proposals to the House until practically the whole of the Bill was disposed of and until we had come to the new clauses. It would be very undesirable to have two Debates upon the same proposals. The right hon. Gentleman asked me if there were two millions of owners under Schedule A, and only 600,000 under Schedule D? The two millions includes the whole of Schedule A, and I was arguing against the abolition of it as a whole. It includes not only the owners of land, but of all kinds of property. I should not think that the owners of land come to anything like 2,000,000 in the aggregate. There are 11,000,000 of hereditaments and 2,000,000 of owners, but that is the total which conies under Schedule A. I agree with the right hon. Gentleman it is not altogether a question between good and bad landlords; it is very often a question between one class of property and another, but in the vast majority of cases it represents the difference between the landlord who spends generously upon his property and the landlord who does not. There is a certain class of property that does not require money spent except at certain regular intervals, but these are exceptional cases. We know in the main where they are; but, taking, I should say, nine-tenths of the country, I think in the main there is a difference between good landlords who spend liberally and the landlords who do not. I agree with the right hon. Gentleman these other cases could not be met even by an extension of Schedule D, which only examines the expenditure over an average of three years. That does not in the slightest degree meet the case of the landlord who spends a considerable income upon a large scale.

Perhaps I may ask a question with regard to the matter of allowances for repairs, which seem to me to be rather indefinite. The point would be met if the Chancellor of the Exchequer in making his deductions would allow for what is really new work, but for which no addition is made to the rent.

Will the hon. and gallant Gentleman give an illustration?

Yes. Take the case of a landlord who built a new pair of cottages for which the tenant paid him a rent. That is not to be allowed for because it is entirely new work; but there may be a pair of old cottages for which rent is being paid. The landlord thinks them so bad that they are past mending. He rebuilds these cottages and lets them to tenants at the same rent. There has been no increase for the rebuilt cottages which have been let, say at £4 a year. That is a constant case, and our contention is that that should be included in the allowance.

I will consider that point. So long as the cottages are let at the same rent and the money is spread over a certain number of years, obviously you cannot spread it over three years, I agree there is something in the point that when repairs are effected it shall have that effect, and that the expenditure ought to be spread over a considerable number of years. I will look into the point. It seems to me to be quite a legitimate matter, and really it encourages the building of better cottages, which, in itself, is a desirable thing to do, and that is why we extended the Schedule originally intended merely to apply to agricultural land to cottages as well, in order to induce landowners to improve their cottage accommodation. One observation with regard to the amount. I understood the Noble Lord's Amendment was confined to one part of the 1s. 2d. I find it is extended over the whole. It is not only the £900,000 with which it deals, it is the £1,800,000 for this year. I find his Amendment extends to earned as well as unearned increment. The total for the next year would be £2,270,000. He wants to reduce the 1s. 2d. in respect of the whole field of these operations. That is all I wish to say with regard to that matter.

The Leader of the Opposition put his point quite clearly, but I am sorry he was not equally clear and precise in explaining what he meant by "widening the basis of taxation." I am in favour of widening the basis of taxation by extending the Income Tax so that every man, however poor, will pay his fair share. But that is not the particular point before the House. Let me say how I welcome the concession which the Chancellor of the Exchequer has made to-day, because it seems to me to be based upon the principle of giving fair play even to landowners. That has always been my principle, and that is why I have opposed certain other portions of this Budget. Persons who are supporting this Budget claim that they are doing so because landowners ought to be specially taxed. I have been attacked, contrary to all precedent, in my Constituency by no fewer than five hon. Members sitting on this side of the House because I have not supported this Budget. Now the Chancellor of the Exchequer comes down to the House and tells us these landowners are to have £500,000 a year taken out of the Sinking Fund. I wish to express my gratification at the right hon. Gentleman's recognition that there are 200,000 separate landowner in this Kingdom. I wish to call attention to one detail which I think the Chancellor of the Exchequer has overlooked. As I understand his proposal, he is willing to make an allowance for repairs up to 25 per cent. That is all right in regard to agricultural land, where the custom is for the landlord to do the repairs, but in the case of urban land, supposing the landlord lets his house at a very low rent on the condition that the tenant makes the repairs. I do not see how the Chancellor of the Exchequer proposes to meet that case, and I put that forward as a point to be considered. My main point, however, is that, I think, the Chancellor of the Exchequer has given away too much money in other directions in this Budget. He has given away money by not raising the Income Tax in the case of earned incomes between £2,000 and £3,000. I cannot see why a professional man earning £2,800 a year should be taxed at a lower rate.

I think that point comes in on Clause 48, and not here.

I think, Mr. Emmott, you will see how it comes in here on this Clause when I finish my point. I cannot see why a professional man, with £2,800 a year; should be taxed at a lower rate than his mother who is getting only £700 a year. If the right hon. Gentleman accepts that argument, he can raise the money which he wants by graduating the scale for earned incomes between £1,500 and £2,000, charging the £1,500 man 9d., the £1,600 man 10d., and then the man with £2,000 will pay the full 1s. 2d. In that way the Chancellor of the Exchequer will save a good deal of the money he is now giving away to the landowners of the Kingdom.

There is one point which I must make clear, and it is that the 25 per cent. now covers management. Management, therefore, can be deducted in cases where there is no Super-tax charged. That will involve the special 5 per cent. in respect of management under the Super-tax Clause being taken out.

Holding the views I do in regard to the Death Duties, it would be illogical on my part if I were to support the Amendment of my Noble Friend. If I voted for this increase in the Income Tax I should be open to a charge from the Prime Minister and those who agree with him that I was voting for a capital tax, and I should like to make it clear that certainly, in my view, there is a vast difference between Income Tax and Death Duties. The Prime Minister apparently maintains that there is no difference between the Income Tax and the Death Duties, and it is claimed that the Death Duties are merely another form of Income Tax. I think the right hon. Gentleman takes a view that in the one case you are merely taxing accumulations of wealth that have already been made, and in the other case by the Income Tax you are taxing funds before they have been allowed to accumulate. The whole difference lies in the fact that in the Income Tax you are also taxing funds which if you do not take them will be spent and will not be accumulated, and that makes a very large difference in the incidence of the Death Duties and the Income Tax. Of course, the Prime Minister has given expression to some very surprising views on the subject of what is productive expenditure, and he has gone so far as to say that the expenditure of the State when money is taken from individuals by the State is expended in a productive manner; that is a statement which can hardly have been seriously meant if the word "productive" bears the ordinary significance given to it in economic language. The Prime Minister apparently thinks that money which is taken by the State in these taxes directly from individuals is spent as productively and is as remuneratively employed as if it was left in the pockets of the previous owners or transmitted to their children. But the money does not remain in their pockets, because the accumulations of those individuals are employed in all the various industries in the country, producing food in the case of agriculture and in producing iron, steel, and wooden goods or in the distribution of those goods in the form of railways or ships. It cannot be contended that money taken by the State from what is practically capital in the hands of individuals is not destroying the capital of the nation. Having said that much in regard to the question of the destruction of capital, I do not hesitate to say in so far as direct taxation is necessary it is infinitely better to get what is required by increasing the Income Tax than by increasing the Death Duties, because in the case of the Income Tax you are taking the national income for your purposes, but in the case of the Death Duties you are taxing accumulations already made.

The laws which apply to a nation and to an individual seem to me in this respect to be very much the same. A nation must live on its income in the same way as an individual, and one of the advantages of the Income Tax over the Death Duties is that each individual in paying the Income Tax is annually reminded that he is paying that tax, and he is not left until he is dead to find it out. The Leader of the Opposition again referred to the views, which I think are held by all sides of the House almost, as to the danger of increasing the Income Tax beyond a certain point on the ground that it is a war reserve. We have a great number of expressions on that opinion very strongly put forward by such authorities as the late Mr. Gladstone, who spoke of a high Income Tax as a dangerous instrument in time of peace. Of course everybody regrets that Income, Tax should be so high as it is in time of peace, and that our war reserve should be diminished in any way. I think, however, we are justified in asking whether in the existing conditions of the world you can say that we are really living under conditions of absolute peace. I know we are actually living at peace, but we are undoubtedly called upon to make very large provision for our national defence, and in so far as that goes I think some justification is given for an increase in the Income Tax. For these reasons I think I am fairly justified in saying that I cannot support the Amendment of my hon. and gallant Friend.

I think the Chancellor of the Exchequer has been exceedingly generous to the land interest in the concession he has made under Schedule A. Personally I think that Schedule A should not be reviewed without at the same time taking under review the extraordinary effects of Schedule B, which is a tax on the occupation of land or, rather, upon the profits arising out of the occupation of land. As the Committee is well aware, an arbitrary rule is taken with regard to farmers' profits, which are assumed to be one-third of the rental. It therefore follows that a farmer with a fairly large farm at a rental, say, of £480 a year, is assessed at £160 a year, or, in other words, he pays nothing. If he pays no Income Tax it follows that nearly all the farmers are not assessable to Income Tax at all. That means something to the landowners, because a landowner is able by virtue of the manner in which Schedule B operates to obtain more rent than he otherwise would do if farmers were assessed under Schedule B. I cannot help thinking that when you contemplate a City clerk with £200 a year in London—who finds it very difficult to make both ends meet—has to buy an expensive season ticket, upon which he gets no abatement under the Income Tax, when you remember that that man is taxed under the Income Tax Acts while the farmer with £480 rental pays no Income Tax at all, you get a most glaring anomaly and a most glaring injustice. I think, therefore, the landowners are very heartily to be congratulated on the concession made to them. I venture to point out to the Committee that the amount, £500,000, is precisely the same as the amount expected to be yielded by all the three new Land Taxes in the present year. I do not myself think that £500,000 will be realised by the three duties, but, if it is, all of it is being handed back to the landowners by the concession made to them under Schedule A. It is very difficult, therefore, to understand why any landowners should now object to the proposals of my right hon. Friend. The last speaker referred to the question of public expenditure; and it has also been referred to by other speakers this afternoon.

May I, at a time when the fiscal atmosphere is filled with clamour about Socialism, remind hon. Gentlemen opposite that if they want a reduction of taxation there is only one way to get it, and that is, not by less Socialism, but by more Socialism. If they doubt that fact may I refer them to the Blue Book issued by my right hon. Friend on "Taxation Abroad." Let them turn to "Taxation in Prussia." They will find that Prussia has an Income Tax and a Capital Tax, and that both are rather smaller than the corresponding taxes in this country. Why is that? If they will turn to the beginning of the Official Memorandum, they will find it stated that 47 per cent.—I direct the attention of hon. Gentlemen to this figure—of the public income of the State of Prussia is raised from railways and from other State industrial undertakings. It is, in ether words, raised from Socialism, and purely from Socialism. When hon. Gentlemen opposite are inclined to mention that much misunderstood word, and to dwell on Socialistic tendencies in legislation as raising taxes, let them turn their eyes to the fiscal example of Prussia, and there they will see a very satisfactory means of reducing the Income Tax in a way of which I most heartily approve. I do not want to press the point very far, because I take it the Amendment will not be pressed to a Division, but the Noble Lord who opened the Debate rather exaggerated the extent of the taxation suggested under this Clause. I take it that even next year the Income Tax as suggested in this Clause combined with the Super-tax will not raise more than £38,000,000 or £40,000,000 of money. What is that as an Income Tax taken over the whole income of the nation? It is only an average of 9d. in the £. Surely that shows that the fears of the right hon. Gentleman the Leader of the Opposition with regard to the danger of trenching unduly upon the war reserves of this country and upon that financial strength, which I take it we all desire to extend, are groundless. Just consider for a moment what Pitt's Income Tax at 2s. in the £ would yield to-day! Does the House realise how greatly the nation has grown since the time of Pitt? Pitt's Income Tax was graduated, and did not reach 2s. in the £ until £200 was reached. Pitt's Income Tax on our present income would yield £118,000,000 a year, and so little has the national financial strength been trenched upon by the Income Tax proposals of the present Budget that an additional £80,000,000 a year could, if necessary, be raised to meet a national emergency. I think that is sufficient to dispose of the somewhat vague apprehensions of the Leader of the Opposition. I take it they were not very seriously entertained, because if they were the right hon. Gentleman would obviously be voting against this increase of the tax. The fact that he is not means, I take it, that he really has no very serious apprehensions on that score.

There is only one other thing with which I will trouble the Committee, and that is the question of making a straightforward graduation of this tax, instead of placing it before the public in the form of Finance Bill proposals, which are so vague and obscure that they cannot possibly be understood without prolonged study. If an intelligent foreigner carne into this country and wanted to acquaint himself with our Income Tax he would have to buy this year's Finance Ball, last year's Finance Bill, and the Finance Bill of the year before that, and all the Income Tax Acts, and only by putting them all together would he gradually arrive at what our Income Tax means. I am perfectly sure the taxpayers themselves do not understand it I must venture to remind the Committee how the matter now stands, and what really stands in the way of a straightforward graduation of the tax. It is, as I have pointed out before, the fetish of collection at the source. It has been held that collection at the source is an insuperable barrier to graduation. I myself hold it is not, and the Chancellor's own proposals show it is not. Let us take earned income. In the first place, the tax on earned incomes is graduated up to £700 by the grant of abatements. It is graduated further on incomes of over £700 and up to £2,000 by the grant of a 9d. rate; between £2,000 and £3,000 a year it is graduated further stall by the grant of a 1s. rate; and to get those rates the taxpayers have to declare their incomes. If they do not, if they are too proud to declare, they do not get the rates reduced. At £3,000 a year there is a gap, and there no further declarations are demanded until a man is fortunate enough to earn £5,000, or rather just over £5,000 a year. He is then called upon, if the Super-tax Commissioners think he is a very rich man, to make a personal declaration. How will these special Commissioners find out whether a man has £5,000 a year? I take it they will proceed in the obvious way. They will apply to people who either by reputation or by manner of living appear to them to have £5,000 a year or more; and it is obvious that to do their work properly they will have to apply to many more than have £5,000 a year. The Commissioners therefore will come into possession of declarations of those with not merely £5,000, but of many who have incomes below that line. It follows that, with regard to earned incomes, personal declarations of total incomes are now demanded from practically all taxpayers, except a very small group with incomes over £2,000 and under £5,000. Let us pass to the unearned side of the scale. There declarations are demanded up to £700 if the taxpayers require the abatements, but over £700 and under £5,000 if they do not declare, because there is a flat rate of 1s. 2d. between £700 and £5,000. That obviously is a great misfortune. It is certainly not just, or anything approaching it.

I do not quite see how this arises on the Amendment before the Committee.

I beg pardon if I have trespassed, but I understood we were discussing the rate of the tax, and I thought that, in accordance with the ordinary custom, I should be able to raise the larger issue on the question of decreasing the tax from 1s. 2d. to 1s. 1d. Of course, I bow to your ruling.

The hon. Member is really introducing questions which do not seem to me relevant. Of course, he could raise this discussion on the question that the Clause stand part of the Bill, or the Committee might by general consent take the general discussion now. Otherwise it is not strictly relevant.

I will bow to your ruling. I have really concluded my remarks on that point. With regard to the unearned part of the scale, the number of personal declarations are obviously very much smaller than in the case of the earned part of the scale. Yet, taking the Income Tax as a whole, the Chancellor of the Exchequer now, in effect, demands from the taxpayers in, I should say, 10 cases out of 11 personal declarations of income. Why should not the odd one out of the 11 declare? The poor declare, the middle class declare, and the very rich declare, but the middling rich are not to declare. Surely that is a most anomalous situation! Whilst I entirely sympathise with the object of the present Finance Bill in regard to the Income Tax, and whilst I should be the first to admit that it gives me more than half the loaf I have asked for, yet it does seem an extraordinary thing that we should reduce the tax to a state of muddle and confusion in which it cannot be easily understood by any member of the public, I earnestly hope that the Chancellor of the Exchequer will see his way next year at any rate to revise the whole tax, so that we shall never again I hope bring in a Finance Bill saying the Income Tax for the year—[Interruption.] Yes, I hope hon. Gentlemen opposite, if they are in power, will not commit the folly of bringing in a Finance Bill which states that the Income Tax for the year so-and-so shall be charged at the rate of 1s. 2d. in the £, when, as a matter of fact, there are few taxpayers who are called upon to pay at that rate. I plead for a straightforward statement of the taxes which are imposed upon His Majesty's subjects, and I say again what I have said before, if these rates were plainly stated, and if concessions were made tempering the wind to the taxpayer, we could easily make the Income Tax, I will not say more popular, but a very much juster and much more easily collected tax than is the case at the present moment.

I wish to say a very few words to the Committee on the general subject of a high Income Tax. My Noble Friend behind me (Lord Willoughby de Eresby) moved that the Income Tax should be at the rate of 1s. 1d. When the present Government took office three and a half years ago, and the present Prime Minister was Chancellor of the Exchequer, the tax stood at 1s., and he distinctly said in his Budget speech that he could not justify the maintenance of that 1s. rate. He said it was a burden upon trade, profit, and wages, and tended to destroy the most readily available resource, but he declared that a return to a more fruitful administration was the first paramount duty of the Government. What did the Income Tax bring in? In 1906 it brought in £31,350,000. It is now estimated to bring in £37,400,000, an increase of £6,050,000 on this tax alone.

May I ask the Government is that a return to the better method of administration which they promised? I think it is a sign of the extravagant and reckless finance which has brought about this Budget, and if care had been taken to secure a proper administration of financial matters we should not have had this great deficiency to provide for.

Now I come to the rate of 1s. 2d. in the pound. It has been said this afternoon that only twice since the Income Tax was really imposed by Sir Robert Peel, I think it was in 1842 or 1843, has the rate been higher? It was higher in 1855, when it went up to 1s. 4d. in the pound, but then it was raised from 7d. What a different thing is that to what would occur if the rate were raised to-day from 1s. 2d. to 2s. 4d.! It makes all the difference when there is a low rate to start with. Again, during the Boer war, the Income Tax was raised to 1s. 3d. from 8d.—it was very nearly doubled. But what would it mean if the Income Tax to-day were doubled—if it went from 1s. 2d. to 2s. 4d. The Chancellor of the Exchequer, in his statement, justified this increase of Income Tax on the ground that the taxable income of the country had increased. He said that in the five years from 1902–1907 the aggregate incomes upon which the tax was payable had increased by more than what the tax is bringing in, and he argued, therefore, that people were just as well off now if they had to pay a double tax on certain incomes in the aggregate, as they were five years ago. But how can one imagine the Chancellor of the Exchequer going to the large class of small Income Tax payers and saying that "while we double your Income Tax you will be no worse off than five years ago"? The idea is quite absurd. The Chancellor of the Exchequer must know that out of 1,100,000 Income Tax payers three-fourths come under the class entitled to abatement under £700 a year. They are a large class. They have borne this burden with patience. One Chancellor of the Exchequer after another has promised that they should be the first entitled to relief when the war was at an end, but that relief has never reached them. Now take the case of a man with an income of £300 a year. He is entitled to a deduction of £160. He therefore pays on £140 net. That works out at 6.5 per cent. On £400 it works out at 8.4 per cent., and on £500 at 9.8 per cent. How many of these people are living on earned incomes, on money which has been earned, just as much as if they were being paid by salary? They earned the money, they accumulated their savings, and invested them, and yet, under this Budget, they are to have no consideration at all. I submit that they are entitled to a deduction to almost the same extent as those who are having salaries paid to them. I can quote the case of a lady now over 80 years of age. She was the mistress of a large girls' school; she lost her husband when young. All her life she has toiled. She saved a small sum, on the income of which she now lives. Surely that money is earned money, and very hardly earned money. So long as the school was going she was entitled to have her income treated as earned income. Now it is treated as unearned income, and the result is she pays a higher Income Tax. I should like to draw the attention of the Committee to the general trend of direct taxation in this country in proportion to income. The trend is that it is very largely increasing. I know my hon. Friends below the Gangway approve of that. I believe their principle is to make the whole taxation of the country come from direct taxation. Now in the year 1905–6 the proportion of direct taxation to indirect taxation was about equal. It was 50.4 direct and 49.6 indirect. In the present year it is 57.1 direct and 42.9 indirect.

What do you mean by direct taxation?

Direct taxation includes Income Tax, the Death Duties, Stamps, and so on. We all know what indirect taxation is May I compare this state of things with that which obtains in the United States? Almost the whole of the revenue there is obtained from indirect taxation.

Surely that is rather a question for a Second Reading Debate. This is a specific Amendment to leave out 2d. and insert 1d., and obviously it is not the occasion to go into comparisons between direct and indirect taxation.

I thought that in the Debate this afternoon a little latitude had been allowed. The Chancellor of the Exchequer has certainly gone beyond the scope of the present Amendment, and my hon. Friend the Member for North Paddington also alluded to questions which could not be said to properly come within the purview of the Amendment. I thought I was not trespassing on the Rules of the House when I was drawing a comparison with regard to the proportion of direct and indirect taxation in other countries. I wanted to comment on the fact that in this country the proportion was far too large. I was only going to point out that in America almost the whole of the revenue is produced by indirect taxation. There is no Income Tax at all. In France the proportion is one direct and four indirect. In Germany, out of a revenue of 121 millions, no less than 107 millions is obtained from indirect taxation.

Next I come to the general question of the effect of a high Income Tax. I think there can be no doubt that at the present moment people who have money to invest are looking to other fields than British in which to make their investments. They are not only doing that: they are selling what English securities they hold. And why? For two reasons. In the first place they do not like this large increase in the Income Tax and Death Duties combined, and, in the second place, they see that the spirit of Socialism is spreading in this country, and that under it their capital will not be secure. I think they are right. The result is that they are selling out their English securities, and, in consequence of that, the value of English securities is depreciating and people engaged in large trading concerns are being placed at a great disadvantage. Their shares are going down. There is another reason why people in this country are investing their money abroad. They are putting them iii good, sound foreign bonds, from which they get a rather larger percentage. It is now perfectly easy to get 4 per cent. on a first-class foreign bond, and their argument is this, that by this small increase in interest they will be enabled to pay the increased taxation. In my opinion that is a sound argument from their point of view; They see that the taxation is going to fall very heavily upon them. They see the necessity for making provision so as to get more money, and they realise that by investing in these foreign bonds they may get ½ per cent. more interest, and by rear son of that they will be able to pay the increased taxation. I think these are very cogent reasons why a high Income Tax in times of peace is a danger to the country, I think I have shown good grounds for the Income Tax payers of this country feeling that they have a grievance. They have been promised a reduction by one Chancellor of the Exchequer after another and no reduction has yet come. My Noble Friend has moved the reduction of this; tax, but, after what has fallen from our. Leader, I shall not feel myself justified in voting for the Amendment, because we admit that, whether for well or for ill, this money has to be found, and we are not going to have it said that the Income Tax payers of this country are unwilling to pay their share of this money. I hope the Government will bear this point in mind in the future, and will realise that the, Income Tax cannot be raised year after year without great danger to our National Emergency Fund or without inflicting great injustice on the Income Tax payers.

We have had an interesting discussion, in the course of which the Chancellor of the Exchequer has made certain statements with respect to the taxes on land, and if I venture to deal with another part of income which I think deserves to be considered in connection with this case I hope it will not be considered that I am infringing your ruling or interfering with points which may arise in future discussions. So far as regards the proposal to put the Income Tax at 1s. 2d. in the pound, I should like to say, representing a great number of traders, that while we naturally dislike to see the tax raised to this figure, we yet feel we must accept the position in view of the necessities of the case in regard to defence expenditure and other matters. We certainly would welcome it as a very good alternative to the destruction of capital which it is to be feared must result from some other parts of the Government proposals. If a man's Income Tax is put up he naturally strives to do the best he can to meet the claims of the Chancellor of the Exchequer, and he works all the harder in order that, after paying Income Tax, he may have sufficient for his own requirements. But when capital is destroyed it is undoubtedly a different matter, because it seriously affects the source from which provision is made for large industries—mining and otherwise—provision which can only be obtained from the capitalised savings of the nation. With regard to land, the Chancellor of the Exchequer to-day has made considerable abatements, and he has done it on the ground that the income was not properly assessed on the present basis, and that there are deductions which ought to be allowed in respect of the expenditure which attaches to that income. On behalf of the traders I would ask the right hon. Gentleman whether it is not quite right and correct that he should also consider the question from their point of view, and particularly whether he should not take into consideration the subject of wasting assets. He has given the landowners this abatement when it was brought to his notice that the Income Tax was improperly calculated upon the assessment of land. That having been brought to his notice the Chancellor of the Exchequer has, very wisely, met the case and allowed the abatement, and we traders are quite willing to welcome this change, and are glad to see the adaptability of the Chancellor of the Exchequer in regard to complaints. The complaints of the traders are, I think, however, more serious than those of the landowners in regard to these wasting assets. I am sorry I do not see many Members opposite who are engaged in trading operations, for I am sure that those who are must feel the pinch of these wasting assets quite as much as we do who sit upon these benches. We have among us many members of the agricultural interest, and it is a very clear and distinct injury that is done to trade that income is considered in a different light from profits and gains. I do hope the Postmaster-General or the Secretary to the Treasury will take note of this matter, because it is quite as much in the interest of the traders as it is in the interest of the agricultural community that the concession should be made. At the present instant a distinction is drawn between income and profits and gains. I cannot understand the distinction.

I cannot understand why a man's income should not be considered the same as his profits and gains, which, as I understand it, will be the amount that he has over to spend in dividing in dividends. No provident director would ever divide any income coming from his business without making provision for wasting assets, and it is not only wasting assets as regards mines and manufactories that I am concerned with, but it is also the wasting assets of copyrights, patent rights, terminable annuities, and leaseholds. If you pay money for a leasehold, and pay £10,000 for it, and £1,000 a year in regard to your assessment, only the £1,000 a year is allowed, and nothing is allowed for the £10,000 which you lose at the end of ten years. If you buy a nitrate ground out in Chili, and you have 20 years to work out the material, when the material is gone at the end of that time your profit is not the amount which has come to you during those 20 years, but the amount less deduction of the original cost of material. If you sink a mine the cost of that mine is not only the annual cost but the expense of sinking the pit shaft and the erection of the machinery which you have to put up, and the cost of the roadways and tunnels which you drive ought to be taken into account for the purpose of arriving at your income; and yet under the present law of Income Tax you are not allowed to deduct anything in respect of that expenditure, so that you may spend £100,000 for sinking a shaft, you may get for forty years £10,000 from the business, and you have to pay Income Tax on the whole of that £400,000, whereas your profits ought to be estimated at the end of that time as being the £400,000, less the £100,000 which you have spent in opening up that mine.

I venture to think if the Chancellor of the Exchequer makes this tax permanent, as it is perfectly plain he intends to do—if he makes it permanent and makes it high, so that it is of considerable importance to those who have to pay it, then his first duty is to do that in this case, which he is doing in connection with land—his first duty is to make the fund upon which he exacts this high tax fair and reasonable, and such as a man would make up his own statement in regard to when he was dealing with profit and loss, and not base it upon a fictitious profit which does not represent any system of trading, and which a judge, if a man paid dividends upon that basis, would make the director personally responsible for, for not having paid dividends out of profits only. This is a matter of far greater importance than this question of the land. The fairness of the Income Tax upon every industry in the kingdom and the basis upon which it is assessed are based upon it, and I do appeal to the Chancellor not to go upon that old plea of precedent, and say that our Chancellor of the Exchequer did not do it when he was in office, and, therefore, he will not do it now. But I do hope we shall hear from our late Chancellor of the Exchequer that he takes this view, and that if he comes into power again he will adopt this basis of assessing Income Tax which I am advocating. I am sure it will give him very good help from the traders of the country, but I do entreat the Chancellor of the Exchequer to look into this question very closely, and before we start to-morrow to try to bring in some Amendment by which he will meet the traders of the country by providing for depreciation and wasting assets. I hope that some of the hon. Members on the other side of the House will take up this line also, in order that the right hon. Gentleman may know that it is not a question of politics, but of fairness to trade in all the communities of the country.

I wish to ask a question. The Income Tax is averaged for three years, and in the last three years there were two very good years and one very bad year. We have heard a good deal from Gentlemen on the Front Bench opposite of how very low a rate the Income Tax averages at. Do they take it over all the income of the three years, and can the Secretary to the Treasury tell us what the Income Tax would be in the last year only, and if it was not averaged with the other two-years? We are told that the last three years it averages between 9d. and 10d. What would be the average charge of the Income Tax payment if it were taken for the last year only instead of for a period of three years?

I have not the figures with me, but I understand that the difference will be very small.

Are we to understand that the last year was smaller in comparison with the two previous years?

I understand that there was a small diminution but not a substantial one.

I should like to join in the appeal in respect to the position of traders which the hon. Member for the Everton Division (Mr. Harmood-Banner) has made. The hon. Member has pointed out with a great deal of force that in respect to wasting assets the Chancellor of the Exchequer takes a much larger sum in regard to Income Tax than he is entitled to. Take the case of a very deep mine which, in a certain number of years, sells £400,000 worth of the product of the mine. The whole of that sum is treated as income, whereas out of the £400,000, £100,000 was expended in sinking the shaft and opening up the mine. In point of fact, that is not income, but it is a wasting asset. I do not see why the landowners should be treated more advantageously than the great trading community of the country. After all, the landowners pay a very small wages bill, whereas the trading interest pay enormous sums in the way of wages, and keep hundreds of thousands of families.

I think if the hon. Gentleman wants to object to the concession to landowners, he should do it When it comes before the Committee in a definite form. As to concessions to traders, they cannot be raised as an Amendment to this Clause, but only as a new Clause.

I will deal with the matter at a later stage, and, for the present, I will merely utter my protest against this concession being made to the landowners. We on this side of the House have been reproached for the high Income Tax, which it is said is due to our want of foresight. But I may remind hon. Gentlemen opposite that the high level of the Income Tax Duty dates from the time of the War, and that the party opposite were responsible for that War.

My hon. Friend the Member for the Everton Division of Liverpool (Mr. Harmood-Banner) made an appeal which I understood was directed to me, which I should not like to pass without notice, but I understand, Sir, that you rule that it would be undesirable that we should discuss on the Income Tax Clause as it stands the questions of deductions in regard to trade and industry. It is a question in which I am very much interested, and one which is very complicated and difficult, but, much as I admit it requires the attention of the Committee, I understand you to say that it can only properly be raised on a new clause, and, if so, I should prefer to reserve any observation I may have to make until that new clause is reached.

Exemptions and abatements from the Income Tax—I have been looking into the matter—have always been put into a Finance Bill, whenever they are put into the Bill, as new clauses, and I think the Amendment should be made as a new clause, and not as an Amendment to this Clause.

moved, in Subsection (1), to leave out the word "for" ["and paid for the year beginning"], and to insert the word "during."

The answer to the hon. Gentleman is that in nearly every Finance Act the word has always been "for," and not "during." What I understand him to propose is that the Super-tax should be based for the following year upon the income of this year. That would not be an ascertainable fact, and the Super-tax must be based upon ascertainable facts. The ascertainable facts in this relation are the average on which Schedule D has been calculated for the past three years. The hon. Member is basing the Super-tax on something which is not definitely ascertainable, but on something hypothetical.

I do not ask that it should be based on an average, but that next April you should charge your Super-tax on the actual income arising in the same way as income for abatements and exceptions received during the present year of charge of the Income Tax.

Schedule D is only arrived at on a three years' basis. I regret that we cannot accept the Amendment.

I never object to Income Tax. I think it is a fair tax. A man knows where he is, and can regulate matters accordingly. I understand by the Bill that I shall have to pay Super-tax this year upon the income that I made last year—an average on the three years up till last April. Every professional man will have to pay Super-tax upon income at the rate earned in the last three years—earned before the Bill came into operation. That is what I object to. Take my own case. Supposing I had not been able to go on with my profession this year, or supposing I had been ordered abroad, or supposing the labours of the House had knocked me up—take the case of a man who is not able to earn anything like the income he made in the last three years. I ask the Chancellor of the Exchequer, is it fair to ask him now to pay a Super-tax on an income calculated, as you say, on a three years' average if he does not make anything like the average in the year in which you are raising the tax? There must be cases in which that will work out extremely unfairly. There must be many men whose incomes may be very largely reduced through illness or other reasons during this year. I suggest to the Chancellor of the Exchequer that the fairest way to do is to charge the Super-tax upon the actual earning of this year. If you say to me, "I charge you Super-tax on anything you have earned over £3,000, your income being over £5,000," surely the fairest way is to ask me to make a return for the year in which I have to pay the Super-tax. I do not think anyone will object to that, but it will be a great hardship if a man should have to pay in respect of income which he has spent or dealt with in the year prior to the date at which the Super-tax is imposed. I think the right hon. Gentleman will find many cases to which that would be applicable.

I think a good deal could be said against the present method of taking a three years' average for the purpose of assessing Income Tax, but, on the whole, the balance is distinctly in favour of that average. I am not sure, from the individual point of view, that a much better method could be found. By taking the average income for three years you assess a man at a certain amount instead of on an income which fluctuates from year to year. But of this I am perfectly clear, that from the point of view of the revenue it is undoubtedly a good method. It enables us to get a steady income derivable from Income Tax. Otherwise, in times of good trade, our income from this tax might rise beyond what the country requires, and in a year of bad trade it might fall far short of our requirements from the point of view of the Exchequer. Therefore, from the point of view of the Exchequer, it is infinitely better to have the three years' average in order to get a steady income. The right hon. and learned Gentleman (Sir E. Carson) said you cannot follow that principle with respect to the Super-tax. I do not see why there should be any difference in connection with the Super-tax.

The new tax only applies in respect of the last six months.

This is the only way in which you can arrive at the amount on which to assess. It is simply a date at which you are able to ascertain the basis on which you are to get your tax. The right hon. Gentleman says, "Supposing I am unable to earn my income this year," but there is also another side to this. Supposing the right hon. Gentleman had doubled his income, he would only pay on the average of the last three years. I put it in another way. Supposing that last year a concern in which a man held shares paid 5 per cent., and this year it pays 6 or 7 per cent. the Revenue would undoubtedly suffer. On the whole, this three years' average has been found to work well for the individual taxpayer and the revenue. Next year, if a man's income goes down he will not pay more than the average of three years. I hope the Committee will not disturb this principle on which Income Tax has been levied for 50 or 60 years. It has worked uncommonly well. If there was any real hardship at present I might say that there might be a case for altering the method of assessment, but as that does not apply I do hope it will not be altered.

I do not think the Chancellor of the Exchequer quite appreciated the request made by my two hon. Friends. My hon. and learned Friend (Sir E. Carson) did not object to the assessment taken on the three years' average, and for my part I agree with the Chancellor of the Exchequer that it is certainly a great advantage to the revenue, not because it gives us more money on the whole, but because it gives a steadier income than would otherwise be the case. It will protect the revenue in lean years, when money is most wanted, at the cost of some sacrifice in fat years, when it is less wanted. I agree also that in the bulk of cases it works quite fairly to the taxpayer, always subject to the consideration that it does work hardship, especially since the change which was made by the Prime Minister when Chancellor of the Exchequer, in the case of incomes which steadily decline, not merely in periods of depression as the result of fluctuations up and down. In the case of a steadily and permanently rising income the advantage is with the taxpayer. If it is a steadily falling income, because business is coming to an end, or in the case of an individual whose exertions are put an end to by sickness, or any other cause, then it does work with very great hardship. That hardship is all the greater when you come to a special tax like the Super-tax we are now discussing. It assumes that a man has a large income to start with of not less than £5,000 before the tax can be levied at all, and then it is levied on so much of the income as exceeds £3,000. My right hon. and learned Friend supposed the case of a professional man who is making a big income, and whose activities are suddenly arrested by ill-health, or it may be by his retirement from business, having arrived at an age when he thinks he may enjoy rest and recreation. In that case this method of assessing the Super-tax will weigh very heavily. While that man was earning his income he was laying by capital which now produces his present income. He made at that time a much higher income, and, therefore, you are now going to tax his smaller income at the rate which was chargeable on the higher income. That is a hard case. It is a hardship which exists to a certain extent under the present law, but it will be aggravated by the new proposal of the Super-tax. That was not exactly the point which my hon. Friends raised. They did not ask the abolition of the three years' average as I understood them. What they asked was that we should assess for the purpose of the Super-tax the income of this year, and not the income of past years. Take the income of the present year and levy your new tax upon that.

How are you to ascertain the amount?

I do not quite see why you should not tax on the income of the present year, even if some rectification had to be made afterwards. The Financial Secretary to the Treasury said that the proposal of my hon. Friend would necessarily involve abolition of the three years' calculation. It might involve some modification of the original proposal, but at any rate you should take the income of the current year as the basis of your new tax. The Super-tax should be assessed on the income of the year in which you impose the tax. That may be a good or a bad proposal, but it is not a proposal on which the Chancellor of the Exchequer said one word in the reply he made. He devoted himself entirely to the three years' average which my hon. Friends do not propose to dispense with. I agree with the Chancellor of the Exchequer that it is necessary to maintain the three years' average in the interest of national finance.

I should like to have this matter cleared up. As I read the Bill, I do not gather that the three years' average is to come in. Will the Chancellor of the Exchequer explain Sub-section (2), which says: "For the purposes of the Super-tax, the total income of any individual from all sources shall be taken to be the total income of that individual from all sources for the previous year, estimated in the same manner as the total income from all sources is estimated for the purposes of exemptions or abatements under the Income Tax Acts.…" I may be wrong, but I believe that the manner of calculating every year for the purposes of exemptions or abatements is not the same as the manner of calculating for the payment of the tax upon the income. Therefore it seems to me that the Super-tax will be calculated upon the amount of the previous year's income, without any respect to the income of the present year. I hope the Chancellor of the Exchequer will clear that up. As far as I know the system of averaging only applies to incomes derived from professional sources or business. Of course, the Super-tax will be charged on the incomes of a large number of people whose incomes are derived from investments. It might very easily arise that a person who had invested in 1908 has received a dividend of 6 or 7 per cent., but in 1909 the dividend might be reduced to 3 or 4 per cent., or it might be non-existent. That might happen if the capital was invested in the ordinary stocks. An hon. Friend reminds me that in the case of preference shares or debentures in breweries the Chancellor of the Exchequer is going to charge on revenue derived in 1908, while the revenue derived in 1909 will be very different. Therefore, I maintain that the Amendment of my hon. Friend has very great point if only for that reason alone. There might be another case where quite honestly, and without desire to evade the Super-tax, it might be that someone had given away a considerable portion of his fortune to his daughter or his son, but he will have to pay Super-tax upon that income which was derived from that portion of the property which he has already given away. Therefore I think, as this is a new tax put upon an old basis, that the Chancellor of the Exchequer ought to accept the Amendment of my hon. Friend to substitute ten for nine, which will leave the Clause as regards the averages in exactly the same position as it stands at present.

No doubt as the Clause now stands you calculate your Super-tax according to the same rule as that on which you calculate your 1s. 2d. Income Tax. You apply the three years' average to Schedule D, and to Schedule D alone. With regard to the others, you take the dividends in the ordinary course. The right hon. Gentleman said the point is not any question of three years at all. He submitted that the income on which you collect your Super-tax ought to be the income returned for the present year. The effect of that would be obviously to postpone the Super-tax altogether. You are only going to take the present year. You must have several returns after the close of the year. As the right hon. Gentleman knows very well, we send out papers inviting those whom we propose to tax to give an account of their income. In Scotland these papers are sent out in September, and in England somewhat later. You have got to alter all that. If we are going to charge Super-tax for the first year in respect of this year's income, you will only send your papers out after 1st January next. If you sent your papers out after 1st January you cannot expect to get any returns until the end of that month, and then these returns have to go through the usual processes, so that there would be considerable delay. I do not think that is quite the object of the right hon. Gentleman in this matter. At any rate, the only way in which you can raise revenue for the present year is to proceed on the ordinary basis—that is, by taking the income for the previous year as the basis as far as four or five are concerned and taking a three years' average as regards the other.

The right hon. Gentleman spoke of the difficulty of getting information about the tax if my hon. Friend's Amendment is accepted, and if you are to attempt to levy a tax on the income of the current year instead of the past year. For the moment I set aside the question of averages altogether to avoid complexity; I treat it simply as a case of this year, not last year. He said that in Scotland you usually send out your papers inviting a statement from the taxpayer in the month of August or September, and that in England it is later. I have had about three applications already from his officials, two two or three months ago, so that he will see that his officials have been far more active and far more early in the field than he imagines. No doubt they imagine it is the early bird that catches the worm, and they will doubtless do the same in as many cases as they can. Accordingly these papers have already been sent out to large numbers of people. What are sent out in January are what are called threatening notices, the notices saying that you have not made your return, and now you have got to pay or worse will happen. What I want him to consider is, of what earthly use for the purpose of the Super-tax are the notices he has hitherto sent out? All the information which he has obtained is no doubt contained on forms of request to assess a person for his ordinary Income Tax; but that will not disclose whether he is assessed for Super-tax or not. I will give the Chancellor a personal case. I have filled up, I believe, some forms this year. Two of them would be filled up in other places, and in one case where I made my return it was filled up nil, because I had no income to declare for Income Tax from which the tax had not been deducted before it reached me; so that as evidence to the Chancellor, of the Exchequer when he wants to decide whether I am a person on whom to levy Super-tax or not that information is useless, and until his Budget passes, be it on the 30th September, or October, or November, or December, or in January, he will not get me to answer any form as to my total income or to give him any information which will enable him to say whether I am assessable for Super-tax or not. And everybody else will do the same thing.

Why should they give the Chancellor of the Exchequer any account of their total income for the purpose of levying a Super-tax before Parliament has approved of that Super-tax at all, and before the Chancellor of the Exchequer or his officials have any right to ask for any such thing? Clearly he will not get the information, and accordingly the Chancellor, who is basing himself upon the assumption that all this while his Inland Revenue officials are collecting information which will enable him to levy the tax, is, if I may say so, living in a fool's paradise. He cannot collect that information until he has got Parliamentary authority to demand it and to enforce the supplying of it by the taxpayer. Accordingly he must wait until the Bill is passed before he can get that information. That will be very near to the close of the year. Under those circumstances, the taxpayer will presumably be able to answer with very close accuracy what his income for the year is likely to be, and there are provisions known to the existing Income Tax, and, I doubt not, known to the Chancellor of the Exchequer, by which, if there be an error in the calculation one way or the other, it can be readjusted later on. There are such provisions in the case of new businesses, I think, started within the year, and other cases of the kind, and that is what I had in my mind when I suggested to the right hon. Gentleman that he can get his money this year on the income received this year, with any slight adjustment which might be necessary owing to full information not being the possession either of the taxpayer or the Government at the close of the year. I hope I have made it clear to the Chancellor of the Exchequer that the procedure cannot be that which he appeared to think in the speech which he delivered just now. I think he may have some difficulty in applying any procedure so as to collect the whole of his money within the financial year, but I do not see that there need be any greater difficulty, considering that he cannot do anything until the Bill is passed, if my hon. Friend's Amendment is accepted than if the Bill were left as it now stands.

There is one point as to the question of the average of the last three years. The Chancellor of the Exchequer said that the three years' average as it now exists will continue to exist and to be applied to the Super-tax. I confess that that statement surprises me, and for two reasons: In the first place, I understood the Chancellor of the Exchequer to say—no doubt wrongly; I am trusting to my memory—that the three years' average would not apply to the Super-tax, and ought not to apply to the Super-tax. The second reason it surprises me is because I do not see any way by which the Chancellor of the Exchequer can apply the three years' average to the Super-tax in the same way and to the same extent as it is applied to the ordinary Income Tax. You can apply it to the Super-tax of the professional man if the whole of his income is derived from his personal exertions. But take the case of a man whose income is derived from business. How are you going to apply the three years' average there? His income is received from a business of his own or a number of businesses in which he holds shares. They declare their dividends free of Income Tax, and the Income Tax is calculated on the three years' average; but when you come to the Super-tax he has got to return the income which was received, and the three years' average can no longer be applied, although his income is derived from ordinary businesses to which in ordinary circumstances the three years' average is applicable. I would ask the Chancellor of the Exchequer to describe to us how the man's income, which is derived from businesses assessed under Schedule D, is to get the benefit of the three years' average when he makes his return for the Super-tax? Take the case of a person like myself, whose present return is nil, all his Income Tax being deducted at the source. Suppose that the total income is over £5,000, how is he to apply the three years' average, applicable to all the income which he has received, to the Super-tax? He has no knowledge of the annual profit, and is he to be allowed to substitute for the triennial average of the concern the triennial average of his own income? I think that that might be rather valuable to the taxpayer, but I do not see how the Chancellor is going to do it, and I do not see anything in the Bill which would give the taxpayer the power to insist upon it. I hope the Chancellor of the Exchequer will give us light on both these points before we part with the Amendment.

The Chancellor of the Exchequer said that there would be a difficulty in adopting any rule except the rule applicable in the ordinary triennial period. May I call his attention to two sub-sections of the Act of last year? I think they are merely repeating the sections of the Act of 1842. I refer to Section 24, Sub-sections (2) and (3). The first sub-section deals with where a man really starts within the triennial period, or within the three years' assessment. In that case there is no difficulty whatsoever in effecting a settlement. The settlement may be made at the end of the year, or, at all events, by making such an arrangement, that it would not work unjustly in a case of that kind. That is one case which is very appropriate to the point raised on this Amendment. There is a more appropriate one, namely, Sub-section (3), where a man discontinues business during the course of the year. In those circumstances it would be, of course, very unfair that after the previous two years the assessment should be in relation to the year in which he discontinued his business. The provision in that case is this: If it worked out unduly the Commissioners would consider the matter, and having regard to the fact that he had discontinued business, they would make an allowance. Take the case of a man who had a large income last year which would have brought him under the Super-tax if it had been in force. Take it that he had retired from business at some time during the present year, so that he lost a considerable amount of money compared with what he had in previous years. In that case, surely the proper way of assessing him would be to take the three years from the time he started, but to have some provision such as you have as regards the triennial period, in order to deal with his having discontinued business during the year, so that even if he did pay on the average of the three years, at the end of the year in which he discontinued business the matter could be adjusted in such a way that no injustice would be done, and you could make him pay the tax in conformity with the income he had received. I am perfectly sure that the Chancellor of the Exchequer will find that many cases will arise where very great hardship would be put upon a man by having to pay Super-tax this year in relation to income which he had last year. I think these provisions of the Income Tax Act to which I have referred will show the right hon. Gentleman that it is a matter which has been actually laid down in relation to the triennial period where a partner has discontinued business during the year.

May I ask the right hon. Gentleman two questions? There may be confusion caused by this Clause. The three years' average for the purpose of the ordinary Income Tax is for the current year and for the two previous years. This proposal for a Super-tax is not for the current year at all. It is for the previous year, and for two years before that. There will be no basis at all for the tax. You take the total income of the individual from all sources for the previous three years. It is pretty plain that it refers to incomes. The income of the year is to be taken, and to be considered in relation to two years before that, so that you have got to go back four years instead of three years. I certainly cannot see the object of bringing in the three years' average in relation to the Super-tax. It is going to introduce an element of unnecessary confusion; it will be of no advantage to the Government that I can see; and if I may venture upon a general criticism of all this new taxation proposed in this Budget, it is that it is extraordinarily complicated, and will be difficult for the individual taxpayer, who has not got the whole of the resources of a staff at his disposal It is perfectly easy, no doubt, for the right hon. Gentleman the Chancellor of the Exchequer and the right hon. Gentleman the Secretary to the Treasury, though I have observed during these Debates that not infrequently the Chancellor of the Exchequer himself has had to go and consult the officials of the Treasury as to what this taxation really does mean, and as to what exactly is the interpretation of these words. Will they apply their own difficulty, with all the technical knowledge they possess, to a consideration of the position; of the ordinary taxpayer? I believe the interpretation of these words for the purpose of exemption or abatement under the Income Tax Acts is extremely difficult. It is extremely difficult to know whether they involve the three years' average at all. I cannot see myself how these words can cover or quite distinctly enact that there is to be a three years' average. In regard to the present year it is clearly a great hardship. Any income which a man receives this year would be subject to pay tax, and a man would be justified in reserving a portion of his income to meet the tax owing to the State; but, in regard to a past income, there could be no possible expectation of that kind; yet you are going back three years, and you propose to impose a retrospective tax upon income which has been received and which has been properly expended in the past two or three years. The Secretary to the Treasury defended his proposal by reference to the provisions of the Budget, but I think he will admit that no other Budget has ever resembled this one. You cannot lay down what has been proper in regard to an old tax as being proper in regard to a new tax of this kind, and no tax ought to be retrospective on income which has been properly spent. I do hope that the Chancellor of the Exchequer will adopt such a course as will enable the person who has to pay the tax to know where he stands, and I trust that he will abandon this really most complicated and, I think, ridiculous provision that this tax is to be levied on the three years' average in regard to some parts of a man's income.

The hon. and gallant Member's speech is based on a wholly false assumption. He assumes that when you calculate the three years' average it includes the current and the preceding two years. If he looks at the Income Tax rules he will find that we really have followed precedent. The rule says that the duty shall be charged upon the full amount of profit on a fair and just average of three years ending with the year immediately preceding.

I said the current year of this tax, and you have to go a year further back.

That is not the impression the hon. and learned Gentleman conveyed, though it may be that it was the impression he desired to convey; but, certainly it is not the impression he did convey. The whole point was that we were departing from precedent, and that we were charging in respect of the preceding year, and to that extent we were departing from precedent. We are doing exactly what Schedule D does. The first time Schedule D was imposed it was imposed exactly in the same way as the Super-tax will be imposed. When it was first set up it was charged on the past year. It is the only way to do it; otherwise we would have to wait until 1st January before the notices could be sent out. No man can tell you on 1st January what his profit was on 31st December. He has first of all to make up his general accounts.

Supposing I started business on 5th April, 1909. Am I to return my Income Tax in the annual return when I was not in the business last year?

That is the point which has been raised by the right hon. and learned Gentleman (Sir E. Carson), and with which I mean to deal. But the general case presented here is that we ought not to charge in respect of the past year. I say it is the only way in which you can do it. When Schedule D was first set up, the assessment under it was on the previous 3 years. As I said, no man can tell on 31st December what his actual profits were for the preceding year; he cannot do it. He has got to make up his accounts; it will take a long time and some calculation before he has any notion of what his profits were in previous years. We would send out our notices and we could not expect any replies until the month of February. We have got to examine them and to send them back for explanation it may be, and 31st March would be upon us before we got a penny of the Super-tax. The Super-tax would be in regard to businesses and some of them very considerable businesses.

This is what I understood the Chancellor of the Exchequer to say: that it was to be a tax on individual income over a certain amount. It has nothing to do with businesses, but merely with individual incomes. A business may be earning enormous profits which may be divided among a number of people with small portions, and the Super-tax only becomes payable when an individual has an income of over £5,000. If that be so, what on earth have businesses to do with the matter? It is the income of the individual and not the profits of a business.

Let me point out that a man may be engaged in business, and he pays Super-tax in respect of the share he derives from the business, as well as in respect of any other part of his income. He would have his share of the profits whatever they amount to, and however large the number among whom those profits might be divided. If he pays Super-tax it shows that the business is an enormous one, and there would be all the greater difficulty in ascertaining its profits before they could arrive at the amount of an individual share of those profits. Take the case of a man engaged in a big trading concern and who wants to find out whether he has to pay Super-tax. He has declared what his income is during the current year. He has got his returns from investment, and yet he wants to find out what he will derive from the business in which there are other partners. Before he knows what his share of the profits is it must be ascertained what are the profits of the whole concern, and he cannot get to know the amount of his share until the whole of the profits have been ascertained. It is quite impossible for this to be done unless the Super-tax is imposed in respect of the past year. Therefore, we have just followed precedent in what we propose. It is the only way in which we could do it. The right hon. Gentleman put another point as to a case where a business is stopped, say in April, and where there is not a full year. There is special provision for that.

Take the case of partners in business, which is really the case I had in my mind. Assuming they have incomes over £5,000 they will pay a Super-tax on so much of that as is above £3,000, whether derived from business or not. Does the right hon. Gentleman mean to say that that will be on the undivided profits of their business? I assume they will pay on what they receive in the year, and that therefore they would know what they received from their business in the year just as much as what they received from other sources. If their business had earned some more, and if it had not yet been divided, that would fall into the next year, not this year; am I right or wrong in that assumption?

They do exactly as under Schedule D. Whatever the method is there that is the method which we apply now. We follow strictly the principle of Schedule D. All we want is to follow exactly the lines of Schedule D, and I think we have done it in that respect. Whatever benefit is now given to the trader under the sections quoted by the right hon. and learned Gentleman will be given in respect of the Super-tax in exactly the same way.

That is not in the Bill.

We treat them in the same manner as the total for the Income Tax is now estimated. That is the intention of these words, and if the right hon. Gentleman can point out to me that they do not follow that case—

I do not think they do. It never even occurred to me that the exemptions and abatements are exemptions and abatements which you would take into account in coming to the three years' average.

I think the right hon. Gentleman is wrong. Supposing the case of a man whose income is only £600, and therefore counts exemptions as it is under £700, does the right hon. Gentleman doubt that a man who could claim these exemptions could not do so under this provision? The person paying the Super-tax ought to get the full benefit of these Clauses, and that is undoubtedly the intention. I am advised by those who are responsible for its drafting that they will get the whole benefit of whatever claim an ordinary Income Tax payer can possibly put forward. The right hon. Gentleman (Mr. Austen Chamberlain) says, "Suppose you have not got replies to the returns in September or October?" Then in that case, we would have to send them out in November, when the Bill has passed, because we must get our returns. There is a great difference in inviting returns in December and November in respect of last year, and in sending out those returns in January in respect of incomes which could only be calculated as to 31st December. In the first case we can get them—we cannot get them all, but I have made an allowance for that.

I think most people who read Sub-section (2) of this Clause understood that the income was to be taken as the income for the previous year, without any average at all. I know many gentlemen who are experts in Income Tax Acts, and who read it in that way, that there would be no average. I assume, of course, that the Bill must be read as the Chancellor says, and that you are to take an average of three years; but there remains this point, which has not been mentioned, and that is what three years are you to take. According to the Chancellor, you are to take your income for last year on the average of the three preceding years. In other words, you are to go back four years in all for the purpose of ascertaining your Super-tax for this year. It you were taking the income for Schedule D this year, I quite agree you must go back for the last three years preceding this year; but to ascertain the Super-tax for this year you are not to go back the three years preceding this year, but the three years preceding last year. I do not see the sense of that or why it is done. I am quite sure it is not fair. Surely the simple plan to ascertain the Super-tax of this year is to call upon the man to make a return as if he was making a return for Income Tax for this year—that is, under Schedule A, which gives the actual income, and then under Schedule D, under which he gives the average for the three years expiring April last. That is the simple practice, which might be perfectly well followed. As has been said, you might have had a loss last year, or you might have had land which you have given away, and in that case it would be a gross injustice to go back. Surely the point is a very simple one. It ought to be the average up to the end of last year, and not up to the end of the year before last. Sub-section (2) says the total income is to be "the total income of any individual from all sources…for the previous year." That is referring to last year, and the income for last year must be estimated on the average for the preceding three years. I am quite sure I am right in my reading of the Bill—at least the Bill would be read by other people as I read it—and if it does not mean what I take it to mean it ought to be altered. The farther you go back the greater would be the injustice.

I understand the point is a matter of drafting. This means not three years' average but four, because it means three years taken from the end of the year before. I am advised that is not to be the case, but it is a point of drafting, and that is not the meaning which the Government intends it should have. I will be perfectly ready to alter it if there is any doubt, and the mere fact that the hon. and learned Gentleman (Mr. Cave) has a real doubt about it is quite enough to make it necessary to make it all the more clear. It ought to be made quite clear that that is not the operation to be carried out by the Bill.