( by Private Notice ) asked the Patronage Secretary whether the Government will consent to give a day for the discussion of Irish affairs by putting down the Irish Estimates, for, say, the salary of the Chief Secretary, for some day next week?

The Government quite recognise the reasonableness of the request of the hon. Gentleman. The House knows that the whole of Thursday next has been allocated for the Post Office Vote. Right hon. and hon. Gentlemen opposite asked for that Vote, but they have also expressed their wish to fall in with the desire of the hon. Gentleman and his friends, and it has, therefore, been arranged that the Chief Secretary's salary shall be put down as the first order on Thursday, and the Post Office Vote as the second Order, on the understanding that the discussion on the Irish Vote shall be terminated before dinner.

Motion made, and Question put, "That the Proceedings on the Finance Bill be not interrupted this day at Five or half-past Five of the Clock."— [ Mr. Bonar Law. ]

The House divided: Ayes, 71; Noes, 31.

Before we proceed with this Clause, can I be informed with regard to the new Clauses dealing with charitable gifts to hospitals and university colleges which of them it is proposed to take?

There are six or seven Clauses dealing in different ways with questions of charitable gifts, some wider and some narrower in their scope. I propose to select for the purpose of discussion the one standing in the name of hon. and gallant Member for Bury St. Edmunds (Lieut.-Colonel Guinness) and along with that I hope there will be discussed in particular one standing in the name of the hon. Member for London University (Sir P.Magnus) and other hon. Members which deals with the more limited aspect of hospitals and universities. Taking these together will, I think, enable us to cover the whole ground.

That is the course which I think it most convenient to adopt.

Would the right hon. Gentleman mind stating now whether there are any of the new Clauses which he does not propose to call upon by reason of their being redundant or otherwise? It really would help us very much if we could know that.

There are a great number of Clauses on the Paper. Some of them have already been discussed in connection with the Excess Profits Duty. I was going to ask the hon. Member for the Chippenham Division (Mr. Terrell) if he will be good enough to indicate to me which amongst his numerous progeny is the one for which he has the most affection, as I then may confer my favour on it. With regard to the first three Clauses on the Paper ( "Repeal of Imperial Preference," "Preference not to apply to mandatory territory," and "Repeal of reduction in Excise Duty" ), if any amount of time is taken on the first, I shall be obliged to pass over the next two which, while dealing with practically the same subject, affect lesser points.

When we come to those, perhaps you will hear what we have to say on them.

The third one is really consequential on the first. The second one, no doubt, deals with a separate point, and I really think it is a rather more practical point than is raised by the first. I shall be anxious to preserve an opportunity for discussing the second if too much time is not taken on the first. The fourth Clause on the paper deals with the total repeal of the sugar duty. We have already had this question of indirect taxation discussed at considerable length, and I think it is undesirable to repeat it here on the Committee stage.

On a point of Order. While, of course, we have no desire to reiterate our arguments, I hope you will allow us an opportunity of recording our views by a vote on the sugar duty.

To some extent I must be guided by what happens on the earlier Amendments.

I understand that your remarks refer to all my Amendments on the Order Paper?

I was asking the hon. Member to indicate to me privately before we reach his proposed Clauses dealing with deductions from profits. amendment of law as to calculation of capital, extension of powers of Commissioners hearing appeals, and provision as as to remuneration of persons concerned in management, which is his favourite. I may say that the last-named deals with a matter which has already been disposed of.

I beg to move, "That the Clause be read a Second time."

This new Clause deals in a wide way with the whole question of Imperial preference. I should like to say at the outset as regards the second new Clause standing in my name "Preference not to apply to mandated territory," I do not propose to deal with that point in the course of the remarks I am now about to make, because I am in hope that I shall be able by avoiding prolonged discussion on the question of the duties in mandatory territories to be enabled by your ruling to discuss that point in detail. I shall deal briefly with the general question of the policy of Imperial preference as embodied in this Bill and as inaugurated in the Finance Bill of last year. The arguments we bring forward on this subject are more or less familiar to Members of this House, but there is this about it, that they grow in force in our judgment from year to year, and we think we can show by what has happened between the time the Finance Bill was introduced and the present time that the evil of these impositions has been aggravated by the circumstances that have taken place. The first argument is that if you are going to have a system of Imperial preference the machinery of these duties and of this tariff is absolutely unsuitable for the purpose. Their imposition is just an accident grafted on to a system created for a totally different purpose. The duties on sugar and tea, and so forth, were intended of course for revenue purposes, but as to the other duties, which are known as the McKenna duties, and which were imposed during the war, they were put on for totally different reasons; mainly, I believe, at the outset, to save tonnage and partly with the view of correcting the adverse balance of exchange. It was never contemplated that they would be substantially an essential part of the Tariff system in which preference would be given to various parts of the Empire. Our first object is that the system is lopsided, and I might almost say, absurd.

The second objection is, if you do give preference under these accidental duties you are doing something to perpetuate their existence. That may be very desirable in the case of some duties, but I do not think that even the most ardent advocate of the protectionist system would have selected beautiful boxes and clocks, watches, motor cars, cinematograph films as a basis on which to elaborate a scientific tariff. They were, as I say, accidental duties, and, if you use them for the purpose of giving preference to products from various parts of the Empire, you, in fact, make them a continuing part of the tariff system of the country, for the very obvious reason that if you give a preference you begin to establish vested interests. Supposing a man establishes in some part of the Empire a factory for the manufacture of clocks and watches. He invests his capital, he employs his staff, he puts up his buildings. Then he finds that there is a proposal for the abolition of the preference. Surely he would have a very strong case if he complained that he had been induced to risk his capital and was now being betrayed by the abolition of the preference. Therefore, the first objection that we have is that this is not a suitable basis for a preference, and that, by giving a preference on these articles, you are perpetuating the duties. When these duties were introduced, it was said by the Government, of which the right hon. Gentleman was a Member, that there was no intention that they should be anything but War duties. I have not the quotation by me, but I think the right hon. Gentleman then said that no one could conceive that such duties would be perpetuated as a permanent part of our fiscal system. That, however, is exactly what this Government is causing to be done.

The second objection that we have is that they involve a sacrifice of revenue at a time when there are so many clamant needs which should be first satisfied. I cannot elaborate this point except by the most casual example. The Unemployment Insurance Benefit is a case in point. I believe that the amount of money required to make the Unemployment Benefit 20s. per week instead of 15s. would be more than covered by the amount of revenue which the Chancellor of the Exchequer is sacrificing by means of these preferential duties. I can understand the right hon. Gentleman asking why we complain when he remits taxation on tea, to reduce which we ourselves have moved Amendments. He will see, if he looks at the answer which he gave on 24th June, showing the yield of the taxes at the preferential and at the full rate, that the largest amount of taxation gathered at the preferential rate was on tea, amounting to £13,000,000 as against £1,700,000 at the full rate. When we complain that he is losing revenue by this preferential system, he will say that really he is making a conces- sion to a class of the community on whose behalf we have ourselves often raised our voices. It lies with the Government, however, to show that the benefit of this concession is in fact being reaped by the tea consumers, and the figures which I have—it is a very complicated commercial topic on which it is unsafe to speak with great definiteness—do not show that there has been any corresponding reduction in price on account of the reduction of the tax on tea grown in the Empire. Unless the Chancellor of the Exchequer can show that the retail price of tea has been reduced by approximately the amount that he is remitting in the form of Imperial preference, we are entitled to say that it is not a concession to the tea consumer, but merely an advantage to a particular interest, namely, the Mincing Lane importers of tea.

I would call attention to some of the absurd results of these preferences. In the old days, when a large number of duties were swept away—I am speaking of the early part of last century—one of the main facts revealed by the investigations of a committee was that there were scores of duties of a complicated and harrassing character which were yielding nothing substantial or really worth collecting at the ports. I contend that the same is becoming true of these preferential duties. It is natural that it should be so, because, instead of selecting articles suitable for preferential treatment, the right hon. Gentleman has selected the adventitious list composed by Mr. McKenna for totally different reasons. I wish the Committee would look at the yield of these duties in the answer to which I have already referred. During the whole of the year the duty collected on cinematograph films only amounted to £400, and the duty collected on clocks and watches to £600. The Chancellor of the Exchequer would be very hard put to it to tell us that the expense of having different systems of registration or whatever the machinery may be in order to determine whether a clock or a watch comes from an Imperial factory or not does not amount to more than £600. It is obvious that the cost of collection must be considerably in excess of the yield of the tax. It is also obvious, if only £400 in one case and £600 in the other be collected, that the advantage to any one manufacturing these articles in the Empire is nugatory. Therefore, you have duties which confer no benefit upon anybody in the Empire and which cost more to collect than they yield to the Exchequer. I submit therefore that there is a very strong case against some of these duties. I come now to the third point which is the effect on prices. We contend that the tendency of these preferential duties is not to lower prices to the consumer of colonial produce, but to make the consumer pay the same and enable the colonial importer or merchant to pocket the difference. I would ask the Committee to bear in mind the report of the Committee on Trusts, a very important report dealing with a subject of growing importance, and, in fact, of prime importance in economics today. In the Addendum signed by four members of the Committee, paragraph 2, I read these words: In considering the prevalence of capitalistic combinations in British industry, it is impossible to leave out of account the check upon profiteering which may be afforded by foreign imports. This operates, however, only so long as the foreign producers are not also brought within the combination. The report goes on to say that free trade is not a complete safeguard, but that it tends in the direction of making trustification of industry and the control of prices more difficult. The most important ground on which we object to these duties is that, however trifling and absurd they are in many ways, they are on the showing and by the avowal of the Chancellor of the Exchequer himself, a part of a larger and definite scheme to Imperial policy, to which we on this side of the House utterly object in principle. On the occasion of the last Budget the Chancellor of the Exchequer said that this was part of a larger policy, and that in the view of the present Government preference was not to be confined merely to customs duties. What has happened since? We find that in dealing with the Crown Colonies and various other parts of the Empire an attempt has been made to force those parts of the Empire to participate in this system of preferential treatment. An example of this is to be found in the £2 duty on palm kernels from West Africa which is part of the general principle that the Chancellor of the Exchequer is endeavouring to embody in the fiscal system of this country. I am aware that the right hon. Gentleman can say that, strictly speaking, this is not in the Finance Bill, but at any rate I am dealing with the principle which he says is the basis of these proposals.

Then there is a preferential duty on the export of hides from India. There was a reply given to me about a month ago by the Colonial Office stating that an invitation to consider the practicability of giving a preference to goods of Imperial origin had been addressed to all the Colonies, and this amounts to pressure being put on the Crown Colonies to force open their door in return for keeping our own door ajar. I wish to point out to Free Traders opposite, who are always contending that this thing is so small that it is of no importance, that it is in fact the principle that is forming the policy of the Government, and it is a principle which will lead them into supporting a full-blooded system of Imperial preference and tariffs for the whole Empire.

I have given India and West Africa as examples, and I have shown that we are trying to bring pressure to bear on the Crown Colonies in regard to this matter. On the question of mandatory territories, I think it would be better that we should have a distinct Debate. What is our objection to this preferential rate, and to the system generally. It is that it sets up economic friction and is adverse to the system of world peace which we wish to see established. War in the past has been initiated by many causes, but often by causes of economic jealousy. The policy we have adopted is already beginning to set up this very friction. Take for example the export duty on hides from India. In the answer given by the Secretary of State for India on this point we were informed that three of our Allies, France, Italy and the United States, have already protested against this preferential duty directed against themselves. Hon. Members opposite may say that that is a small matter which is of no account, but it does show that the result of our embarking on this system of Imperial preference is to set other people by the ears, and cause friction even amongst those who have been our Allies in the Great War. We hear protests against what the French do in the way of restricting imports. We have heard something about the United States giving a preference in the matter of shipping, and the result of all this will be to draw us into economic jealousies with other great Powers, and it will tend to destroy what has been the greatest asset of the British Empire, namely, the goodwill of the world, and the belief that where British rule was all countries had an equal opportunity for disposing of their wares.

This controversy is not a new one. It is in essence the same point as that which was involved in the great fight of 150 years ago which resulted in the loss of the American Colonies. It is the conception that your Empire is to be built up somehow on the basis of a cash or material connection, but that we entirely repudiate. We say there is something far stronger as a basis. I will not weary the House with quotations, but I would remind hon. Members that this very topic has been the subject of some of the most moving periods of our history. Burke said: Do not entertain so weak an imagination as that your registers and your bonds, your affidavits and your suffrances, your cockets and your clearances, are what form the great securities of your commerce. Then he went on to say: Do not dream that your letters of office, and your instructions, and your suspending clause are the things that hold together the great contexture of this mysterious whole. These things do not make your Government. Dead instruments, passive tools as they are, it is the spirit of the English communion that gives all their life and efficacy to them. It is the spirit of the English constitution which infused through the mighty mass, pervades, feeds, unites, invigorates, vivifies every part of the Empire even down to the minutest member.

I beg to second the Motion. I do not intend to follow the ground which has been covered by my hon. and gallant Friend, but I support this Motion on the very widest possible ground. We fight preference not because it is such a great matter at the present time, not because we believe it is so positively harmful to the trade of this country, as a full-blooded tariff war would be, but because it is the beginning of a theory of Imperialism which, if carried to its logical conclusion, will end in a great world catastrophe, and a war which will dwarf the late war into insignificance. It will be the end of civilisation as we know it, and the end of the whole social system that has been built up in this and every other Western country. We believe that giving of Imperial preference will be setting our foot on a very slippery slope, and if we take that false step we shall be landed with an enormous zollverein in which attempts will be made to corner all the raw materials in the whole of the territories forming our Empire, as well as in the new great mandatory areas of which we are accepting the guidance and care. We have the greatest and most populous Empire in the world. I believe we control, roughly, a quarter of the world's surface, and that we have approximately one-third of its inhabitants. In our Empire we have very great natural riches in the shape of raw materials which are essential for modern industry. If we are going to adopt preference and its natural conclusion, namely, a full-blooded tariff system, we are going to have a fight, because the other great industrial nations —including a revivified Germany, an industrial Austria or Poland or Bohemia, the new democracies that are beginning to flourish and advance in South America, and, even more important, the great new democracies that are presently going to arise in the East—are going to say, "Unless we have a free market in these great rich territories which you control, we shall be forced, inevitably, to fight, otherwise we shall find ourselves in economic bondage to you." I am drawing attention to the ultimate goal at which the Chancellor of the Exchequer and those who support him are aiming. They are aiming at a Zollverein, and the world will not stand it. We may talk about our might and our power, our mailed fist and our shining armour, but we shall follow the thorny and ruinous path that was trodden by the nation we have just beaten, using those very same arguments and threats.

The great curse to-day in Central and Eastern Europe is restriction on trade. All these new little States that have arisen out of the ashes of the great War have set up their Customs barriers and embargoes and their little tariff systems, and they are blockading each other and making war. Those hon. Members who have had the opportunity of reading the remarks of our own officials and of the economists who have travelled on behalf of the Government in Central and Eastern Europe, will have had brought home to them that this is the root of half the present troubles in Europe. As has been admitted in the one or two brief discussions that we have had on the Peace Treaties, we are going to do our best to persuade these new nations that have arisen to modify their action in this respect. Surely we should be the first to set an example. Otherwise, they can point to our differentiation towards the trade of different parts of the world as an example in support of what they themselves are doing. They will say that ours is a great, wealthy, far-spread world-Empire, while they are little compact States, in some cases landlocked, and in others bordered by hostile neighbours, and they will ask, why should they not do the same as we are doing? Following that argument, you have the cry of the starving children in Vienna and the rioting of unemployed workmen in Bohemia. It is our place, above all, at the present time, to set a great example, as we have so often done before in the history of the world. We are doing exactly the opposite; we are not practising what we preach. This argument as to the need of an example to a misguided fiscal world in Europe is new in our controversies. It is war-born. It is a new argument which reinforces our objection to preference, and I only wish I were capable of doing it full justice. It is more powerful, to my mind, than any argument that has ever been used before. We have now a great new means of transportation. We have not yet begun to visualise the developments that are to come in air transportation. Has the right hon. Gentleman ever thought that he may live, please God, to see the usual route to India an overland route by air?

That argument is very much in the air. The hon. and gallant Gentleman is taking a very distant survey of the subject. As we are in Committee, we must keep to the actual matter before us, namely, the repeal of the preference given last year. We cannot go further than that.

I will not pursue the very enticing prospect of air developments in the future, but I would point out that any embargoes, duties, or custome on goods passing between countries are made much more irksome to them because, in the near future—

The whole question of Customs on any article whatsoever is far beyond our scope at the present time.

I am among those who wish to see all Customs and embargoes removed on all articles.

We do not want to know the hon. and gallant Member's views on all questions, but only on the matter now before the Committee. I do wish he would try to be a little more relevant.

I admit that I was approaching my point by a rather round-about route. Imperial preference, we think, is entirely harmful. Now is the time, above all, for removing all trade restrictions. I do not think it has benefited our people during the last year. The principal preference has been on tea, the preferential duties on which are something like £13,500,000, while the non-preferential duties are £1,700,000. That means, of course, that people who drank China tea before have gone on drinking it, while the poor do not get their tea any cheaper. What we have done has been to irritate China and set a bad example to our neighbours, and I hope that for these reasons the Committee will support this Clause.

The hon. and gallant Member, in the earlier portion of his speech, built a very large superstructure of assertion on a very small basis of ascertained fact. I think that neither of us can wisely speak very dogmatically as to the effect of preference, seeing that, for the most part, it only came into operation last September, and we have not had a sufficiently long experience of it to measure its results. The hon. and gallant Gentleman raised, in that portion of his speech, two objections to our proposals. He said, in the first place, that they must have added sensibly to the cost of collection, and, in the second place, that our consuming public has received no benefit from them. It is really not worth our while to make the minute calculations which would be necessary to enable us to say exactly what sum should be charged in respect of one particular part of the many functions entrusted to the Board of Customs and Excise. But I may reassure the hon. and gallant Gentleman on this point. I hold here a list of some fourteen new duties imposed by the Board of Customs and Excise since the outbreak of the war, of which by far the most costly in every way—but for my particular purpose I am referring only to the cost of its administration—has been the great extension given to the Old Age Pension system under the Act of last year. In spite of that enormous addition to their duties the cost of the staff compared with the revenue collected, which was 3.24 per cent. in 1914ߝ15, has fallen to 1.39 per cent. in 1920–21. I do not want to lay unfair stress upon it because with a great increase of existing duties you naturally do not require a corresponding increase of staff, nor when you super-impose a new duty on existing duties do you require the new staff that you would require if the new duty was the only duty that was in existence. At any rate the figures I have given are sufficient to reassure the hon. and gallant Gentleman as to the economy of Customs administration. As regards the effect of preference on prices, my information—and I think it is the best information that can be obtained, from people experienced in the trade—is that the benefit of the reduction of the preference on tea, of which 90 per cent. of our consumption comes from India, has undoubtedly gone to the consumer.

Why has there been no reduction in the retail price?

Prices vary for many reasons, and not only because of any rise or fall in Customs. These things are not capable of mathematical demonstration, but I believe if the hon. and gallant Gentleman will put aside prejudice and go to competent people who are unprejudiced and ask them as a matter of fact what they think has happened, he will get confirmation of the information which I have received, that the benefit of this reduction has gone, as he would expect it to go under such circumstances to the consumers in this country. I believe the same is true of the preference in Colonial wines. In the case of sugar, where a very small portion only comes from within the Empire at present, I think the benefit has gone to the Empire producers and not to the customers in this country. I am content whether it goes the one way or the other. After all, the object of the preference is in the first place to give a practical exemplar in this sphere of Imperial unity and in the second place to promote Imperial development. We draw no tribute from any of our dependencies.

Surely the preferential duty on the export of palm kernels is tantamount to drawing a tribute.

1.0 P.M.

No, of course it is not. I beg pardon, if my retort seems discourteous. It was not so intended. I cannot even understand what the hon. and gallant Gentleman means, that because a dependency or a protectorate levies an export duty on its produce when exported at different rates according as that produce goes to the Empire or elsewhere, that we draw a tribute from-that country. It seems to me that language has no meaning when it is applied in that way. We draw no tribute from any portion of our Empire. We have received contributions from them. Do not let me be thought to be unmindful or ungrateful for what they have done. But they have been voluntary contributions in the great War in which we have been engaged or voluntary contributions for the maintenance of the naval forces of the Crown. But the advantage that we derive is in their growing prosperity and in the resulting increase of the trade they do with us. If therefore this preference goes in certain cases to encourage production in those countries our practical benefit will be none the less real if it would encourage the development of Imperial trade and increase the amount of business that we do.

I come now to the real point which the hon. and gallant Gentleman wanted to raise. It was not disputable and comparatively trifling points of the kind I have been discussing, but it is the great principle whether Preference is a good thing or a bad thing. There we are divided, as we always have been. The hon. and gallant Gentleman considered that any preference which we afford to an Imperial product in our market is a cause of friction and a disintegrating element in our Imperial life. For many years we have enjoyed Preference for our goods in the markets of our Dominions. Have we ever found that it was a cause of friction or a disintegrating element? Our manufacturers know how much they have owed to it and have in the main expressed their preference for it, and whilst the Dominions have never sought to interfere in our domestic affairs, and have indeed carefully eschewed any appearance of intervening as parties in our domestic differences, every leader of every party in every Dominion has expressed his approval and his desire for a system of Imperial Preference. At last under the impulse of the war and of the sentiments which it evoked a Government was found to give effect to it. No one can say, whatever you might have said before the last election, that we have not authority to do it. It was plainly put before the country as part of the policy on which they were asked to return us, and the majority by which we were returned was sufficient to carry out the promise we made in this respect.

The hon. and gallant Gentleman (Lieut-Commander Kenworthy) who the other day intrigued the House by speaking with confidence and apparent authority as to what we would do when we came into power, has to-day taken to himself an even wider mandate. He has undertaken to tell us that the world will and will not stand. I wonder that the hon. and gallant Gentleman, speaking with so much authority, does not occasionally visit other portions of the world and impart his advice and directions to them. His contention, and that of the hon. and gallant Gentleman (Captain Benn), is that this country alone may not do what every other great Power does and has done for years. The hon. and gallant Gentleman is afraid that if we show any preference to the Dominions of the British Crown we shall outrage the sentiment of America. Has he ever heard of their commercial relations with Cuba on a preferential basis, although Cuba is not part of the United States?

I did not refer to the United States.

When the hon. and gallant Member spoke for the world, I presume that he did not mean to confine himself to one hemisphere.

I do not think the hon. Gentleman quite grasped my point. I was referring to the great democracies on the Continent, and that when they recover they will have no colonies.

The hon. and gallant Member says he was referring to the great democracies, and he appears to think that that excludes the United States of America. That is a reason for an early visit on his part to that country. The hon. and gallant Member (Captain Benn) appeared to think that there lies a danger to the future peace of the world in any such proposed friendly arrangement among the different portions of the British Empire.

Hear, hear.

If the whole of the British Empire were contiguous no such question would arise in the minds of either of the hon. and gallant Gentlemen, but because we are communicating across the ocean that which is possible to any other empire is to be forbidden to us. It is nonsense. How many times has it been said that the sea unites the spirit of the British Empire, and yet we have here in this House what remains of the Liberal party now in Opposition, erecting the ocean as a barrier instead of a highway between the scattered portions of the Empire. What basis is there for these fears, or for the optimistic conclusions which are their correlative? In the days when this controversy was a live controversy and not a dead issue the hon. and gallant Gentleman used to say that if we had a preference it would bring about war. We used to ask them whether if we maintained Free Trade it would avert war. Did it? We were told that we were irritating Germany. Did Free Trade save you from war?

Did Protection save us?

I will tell you what saved you in the War.

Free Trade.

I will tell you what saved you in the War, or at any rate helped you magnificently to the victory you won. It was the loyalty and voluntary assistance of those Dominions and Protectorates beyond the seas, the slightest commercial concession to whom is obnoxious to the party opposite.

The conclusion of the Chancellor of the Exchequer's speech was quite reminiscent of the old Tariff Reform days, and it received the usual applause from the Tariff Reformers, who now crowd the opposite benches. The Chancellor says that we are attempting to revive a dead issue, and that it has been settled. What is settled? The policy of his distinguished father is settled, which was this: It is no good fiddling with these little things. They are of no value from the major point of view. Colonial preference means taxation upon food, upon corn— I can well understand the hon. Gentlemen opposite do not like this— and upon other commodities which the Dominions send here in large quantities and in regard to which they compete in our markets with foreign countries. The Chancellor of the Exchequer said that nobody could say that a surprise had been sprung upon the country; that it was part of the policy of the Coalition Government when they went to the last General Election. It was part of their policy, and I should like to know what the colleagues of my right hon. Friend would have thought if they were here to-day listening to the settled policy. Now we know. The Secretary of State for War in other and, I think, better days, said about this system of duties that it is a working model of the full practices of the Colonial preference policy fought for in 1903 and beaten, as we thought finally, in 1906. It is quite evident to me that the more this thing is discussed the clearer it becomes.

Hear, hear!

The Tariff Reformers have won. For the time being they have won. There is no question about it, and I hope that every Liberal in the Coalition will take due note of the fact and what it means. It is the logical consequence of the association which they have formed. While I do not intend, in pursuance of your ruling, Mr. Whitley, to further elaborate the arguments on this matter, I would conclude by saying, on behalf of those for whom I speak, that so long as we are in this House we will go on fighting this issue, steadily fighting it, certain as we are that better days are coming, better days for the country and the world, when better ideas emanate from this House than at the present time. That is what the world is wanting, and not the setting up of barriers, confining one great Empire and fighting the rest of the world in this way. One of the main causes of the difficulties among the new nations in the Near East is the setting up of Customs barriers. A fine example we are setting to them, when one of the first things we do is to set up these barriers of trade and commerce! Though the numbers that go into the Lobby against the renewal of this section in the last Finance Bill may be small, they will by no means represent the feelings of the country with regard to the maintenance of complete Free Trade in the whole sense of the term. That is what we are going to fight for o the end.

I should like to congratulate my right hon. Friend, because if he has not exactly displayed the British virtue of never knowing when he is beaten, he can take his beating like a man. He takes it in very good humour, and one cannot help being amused by his attempt to throw a fly across the other side of the stream, in the hope of getting a "rise" from a Coalition Liberal. I have no doubt that by his good humour he hopes to create a certain amount of trouble in those waters. Let us take note that right hon. and hon. Gentlemen opposite who come forward with this old, stale controversy, and say they are going to stand for the full doctrine of Free Trade, are now supporting statutory wages, statutory control, statutory rent, and every conceivable thing that is the absolute

negation of everything that was understood by Free Trade. The one thing they are relying upon now is unsound economics and bad history. Because I suppose that my right hon. Friend endorses the view of my hon. and gallant Friend (Captain W. Benn) that the policy of colonial or dominion preference is the same sort of policy as that which brought about the war with America. Could there ever be a greater travesty of historical truth? It is the exact opposite to the policy which brought about the American war. That was a policy of control and coercion, and imposing from here upon the Colonies a fiscal policy which they repudiated and hated. That was the opposite to this, which is giving reciprocity to colonies who have already offered us preference, and entering into it in a spirit of free and unfettered union.

Question put, "That the Clause be read a Second time."

The "Noes" have it.

The "Ayes" have it.

On a point of Order. Have you not already collected the voices?

Very nearly, but the hon. and gallant Member woke up in time.

The Committee divided: Ayes, 39; Noes, 130.

I beg to move, "That the Clause be read a Second time."

The right hon. Gentleman has not given notice.

I beg to move, "That the Clause be read a Second time."

This Clause, which stands in my name, is intended to exclude from the ambit of the preferential system those territories which are the subject of a mandate granted under the Covenant of the League which is formed under the Peace Treaty. Our conviction as regards this is not necessarily our conviction as regards the general objection to preference but I think that it is possible that hon. Gentlemen opposite, who might be opposed to us on the general question of preference, would agree with us in reference to this Clause. Whatever may be thought of the desirability of setting up a system of preference which will include the whole Empire it is very undesirable to declare, in the way in which it is declared in the Bill, that the territories which come under our guardianship as mandated territories under the Peace Treaty are, for commercial and fiscal purposes, an integral part of our Empire. The reason is obvious. The Peace Treaty ostensibly treats the territories which we got from our late enemies not as they might be treated after former wars, but according to a new ideal, different from the ideal of previous peace treaties. In the case of former wars the idea was that at the end the victor took the spoils: those who conquered got what they could in the way of material benefit from the conquered. In this war the contention was that instead of pursuing the old policy, which after all is only part of the vicious circle and in turn will bring fresh wars, we should adopt as a new policy the conception of trusteeship. We do say there is a breach of the spirit which informed the terms of the Peace Treaty. That spirit was that these territories should not be treated merely as a material advantage to be exploited in the interests of the victors, but that under the League of Nations, which represented a supernational party, a trusteeship should be established and that the Power which became the trustee for one of these territories should treat the territory not merely as part of its resources, but in a fiduciary manner to be governed and ad- ministered in the interests of the people of the territory. It is obvious that certain very great advantages will flow from a strict adherence to the spirit and the letter of this new conception of international diplomacy. The first would be that we would get rid of all the friction that must come from economic jealousies.

The effect of our accepting the mandate for Mesopotamia was not primarily to put a material advantage into our pocket, but so to administer Mesopotamia in the interests of the Arabs living there as to make it a territory under the guardianship. of humanity. Then any feeling of jealousy or friction that might be engendered in the minds of our competitors would be very largely abolished. The Chancellor of the Exchequer may say, "This is only to enable them to have an advantage in our markets. Surely there is no harm in our opening our door preferentially to their products. It is not as if we were asking them to give us a benefit in their market." While on the surface that argument might be maintained we know that in fact we are opening our door only in order later to force them to open their door. It is no good saying that it is done voluntarily, because we know that in the case of our Crown colonies they have been invited to give us a preference in their markets. There is. not the least doubt that if we reject this clause we shall later on find that some inducement will be offered for us to have a benefit in their markets, and then the world will say justly that instead of maintaining the high ideals and the magnificent standards with which we entered into the conflict and for which the major sacrifices were made—most men were attracted by the higher things and few by the material benefits—we have departed from those ideals. I say, do not let us lower those ideals. It is a difficult, a new, a rocky and an upward path to tread, but we think that it should be trodden in the interest of humanity.

I have considerable sympathy with the ideals and objects behind this new clause. I think members of the Committee know there is no section of the Government of the League of Nations which is nearer to my heart than Article 22. On the carrying out faithfully of Article 22 I think a great deal depends for the future peace in Asia and the future development of Africa. That Article is one of the most important things in the Peace Treaty, and I hope that the Government will never forget the exact provisions of it. I am rather afraid that the way in which this new clause is drafted loses sight of the terms of Article 22. While it is obvious, in the case of Class B mandate, namely, the Central African colonies, that the system of the open door and any question of preference must necessarily be ruled out, and while it is still an open question in regard to Class A mandates, namely Mesopotamia, Syria and Palestine, we have already had the matter rather decided for us in regard to Class C mandates both by the terms of Article 22. itself and still more by the action of the Mandates Commission in Paris late last summer. The action of the Mandates Commission seems to have been dictated. largely by General Smuts, and I think hon. Members who are keen on the League of Nations cannot accuse General Smuts of being behindhand in his zeal both for the conception of the mandatory system and for the League as a whole. The position is this, that in Class C Mandates the mandated territories are to be administered as integral parts of the Mandatory Powers' territory. Therefore, in the case notably of German South-west Africa, I do not see how we can press the Amendment. In that case, as soon as the mandate is finally approved, the territory will be administered as an integral part of the territory of the Union of South Africa. I do not think you could have preferential rates of duty in this country on articles coming from German South-west Africa and: and from the Union of South Africa. I think, in view of the action of the Mandates Commission and the terms of Article 22, if we give any preference to any products of the Union of South Africa, we must necessarily give the same preference to similar products of South West Africa. Therefore I do not think this new Clause could be pressed so as to apply to South West Africa or what was German New Guinea. But obviously, by the terms of Article 22, this Clause does apply. and I think must necessarily apply, to German East Africa and to Togoland and the Cameroons, for which we are going to be responsible. It is definitely laid down in Article 22 that it is to be a condition of the mandate that there are to be equal opportunities for trade and commerce to all members of the League: Therefore, any preferential arrangement in those three areas would necessarily be a contravention of Article 22. It is quite clear that giving a preference to those Colonies or those Colonies giving a preference to us would be contrary to the terms of the Berlin Congo Act.

What I think is most important is that we should know exactly where we stand in regard to a possible preference given to us by Mesopotamia, Syria and Palestine. That brings in the question of France, and whatever France does Syria no doubt we shall do in Mesopotamia, and whatever we do in Mesopotamia no doubt France will do in Syria. Syria and Mesopotamia are on all fours. I think it is essential both from the point of view of the inerests of our own Colonies and the interests of the world that before we take any step to extend the preferential system in Mesopotamia we should quite clearly know what that involves as regard Syria. On its merits I am inclined to think that before the Arab State for which we are trustees is set up in Mesopotamia and can decide with its own voice on a question like preference to the British Empire or any other country, we should not commit that State. The recent announcement in Bagdad and Lord Curzon's speech on the 25th May make it clear that our policy in Mesopotamia, is to create an independent Arab sovereign State in course of time. Before we extend preference to that State we should have it clearly decided by the Free Assembly of that State and should not commit them here and now. I do not think this Clause is necessary provided that we get a clear declaration of policy in this matter from the Government. I should like to ask what is their policy in regard to a possible extension of preference to Mesopotamia.

I do not propose to follow my hon. Friend into the rather technical aspect of this question which he has submitted. I have no doubt that when these mandates are formulated, the Government will suit the policy of this country to the requirements of the Treaty. I should like to refer to the more general aspect of the case dealt with by the hon. and gallant Gentleman (Captain W. Benn) who appeared while elaborating his arguments to show the most complete misunderstanding of the meaning of the Preference which he was attacking. He drew a contrast between the ideals of the recent War and the wars of other days, when belligerents were out for loot and to get material advantages for themselves. He implied, if he did not state it in terms, that this policy of Preference was a reversion to the older type of war, and implied that we were out for some material advantage or loot for ourselves. Surely the exact opposite is true. What we do here, provided it is in accordance with the terms of the Covenant of the Treaty, is to offer to those mandated territories the full advantage of British citizenship, and offering them more, probably, than we are under any obligation to do. My hon. and gallant Friend, speaking, apparently, on their behalf, actually objects or raised objection to this country extending to them benefits which are reserved for members of the British Empire, and which are not given to those who are outside of it and who are regarded as foreign nations. He wants us to say to these mandated territories, "You are to be in the position of outsiders, and that, although it is quite true we offer certain fiscal advantages to those who are within the Empire, yet although you are mandated territories you are not to be allowed in." In other words, if they had been annexed by the Treaty they would have had great fiscal advantages which they are to be deprived of because they are only in the inferior position of mandated territory. That appears to be a most untenable position for any Member of this House who professes to speak on behalf of those territories to take up.

The hon. and gallant Gentleman in defending his position tried to justify it by saying that in future it would mean that we should try to get an advantage out of them, and he used the expression that we should be forcing their door. Surely the hon. and gallant Gentleman is able to see, however much he may dislike the question of Preference, that Preference is a derogation from customs duty. What he wants if he objects to these mandated territories being given preference, and what he insists upon apparently, is that they should be given the right to maintain a higher tariff. If they are induced, for their own advantage or for any other reason, to reduce their tariff in regard to certain articles for which they will get full consideration by preference in our markets, that is something which we are unrighteously forcing upon them. It is impossible for me to conceive of a more complete misunderstanding of what appears to me to be the true meaning of this preference. I have not given the study which my hon. and gallant Friend has given to it, and I do not know to what extent the technical power to grant or withhold preference is dealt with by the Treaty of Peace, but what I feel quite confident about in my own mind is that unless it is contrary to the Treaty of Peace, which I can hardly believe, to withhold from the mandated territories the preference which we are giving to the other members of our Empire, would be very rightly resented most hotly by those territories themselves, and that my hon. and gallant Friend is very far from doing them a friendly act when he moves this Clause in the Bill.

The hon. Gentleman who has just sat down has spoken with the ingenuity which always characterises him, and anybody listening to his speech as he put it would, I admit, conclude without any further material knowledge that there was practically no answer to his case, but we have to examine the proposal and what it would really mean or might mean. The intention of the Government, I suppose, in regard to these mandated territories is nothing but quite friendly, but it is at the very commencement of these things that we must start, if we can, to examine what may happen. Take one of these mandated territories; what might happen is this, that they might be compelled to give, to their own detriment, a preference to other parts of the British Empire as compared with the rest of the world, as we are doing in this country at present, at a loss to ourselves of £2,000,000 or £3,000,000 a year. The case as put from the Government Bench is that that is trifling in view of the greater consolidation of the Empire that is got by it. From the point of view of those who hold that view that may be a quite legitimate transaction, and defensible. I do not agree with it, but I understand the argument, but it is not for us to impose that upon any mandated territory which is granted to us.

Do I understand, then, that what the right hon. Gentleman is apprehensive of is that the right of these mandated territories to impose a protective fiscal policy for their own advantage may be encroached upon?

Very likely what might happen is that they would be forced to give to a part or to the whole of the British Empire a preference which they would wish not to do. That is as well as I can put it. With regard to what the hon. Member for Stafford (Mr. Ormsby-Gore) said as to this proposal not really fitting in with the existing conditions, of course, if he has any suggestions to make by way of Amendment to the proposal before the Committee we shall be happy to consider it. He speaks with very considerable knowledge of the subject, and I suppose that what he really means by "C" mandates is the paragraph at the bottom of page 16 of the Covenant which refers to territories such as South-West Africa and certain of the South Pacific Islands, which, owing to the sparseness of their population or their small size — can be best administered under the laws of the mandatory as integral portions of its territory. I quite admit that there is considerable force in what the hon. Gentleman says, and any Amendment which would meet that point, of course, we should be very happy to fall in with. Coming back, however, to the point of principle upon which this Clause is moved, as a result of the discussion which took place on this question last year this Clause was put in. I suppose if we had left it alone we should not have had that Clause in the Act at all, and it was well to have had the discussion, because we began clearing up the ground as we went along, and we know now to some extent where we are in any future transactions that may take place. The first Clause of Article 22 is what our whole case is really founded upon, namely: To those Colonies and Territories which as a consequence of the late war have ceased to be under the sovereignty of the States which formerly governed them, and which are inhabited by peoples not yet able to stand by themselves under the strenuous conditions of the modern world, there should be applied the principle that the wellbeing and development of such peoples form a sacred trust of civilisation and that securities for the performance of this trust should be embodied in this Covenant. Those are very striking words, showing that the intention of the framers of the Act was that every possible means should be taken to avoid any reasonable ground of suspicion and that a Power taking a mandate should deal with the subject matter mandated to them with the most meticulous regard to their interests, and it was because of that that we raised the debate last year and that we have raised it again to-day. I urge again, as I did last year, that the Government should make some statutory alteration in the law as it at present stands so that we should remove from the mind of any reasonable person any ground of suspicion that we have under the Act now on the Statute Books taken powers which might be used by us to the detriment of the territory a mandate for which we may have accepted.

The subject we are discussing is not a very simple one, and I think it is possible that Members of this Committee may not be very clear about the position as it now stands. I feel that my hon. Friend, the Member for Stafford (Mr. Ormsby-Gore) has raised points which really do not arise. If this Clause were to be passed by the Committee, the result would be that we should lay down in a statute, irrespective of whatever powers might be conferred upon us when the terms of the respective mandates were agreed upon, that we should in no circumstances be allowed to offer preference to those mandated territories. That, of course, is perfectly clear. It is a resolution which I should expect to be supported from the other side, but it is a resolution that cannot be supported by my friends on this side. I think also that, perhaps, the Committee do not realise that the second Schedule of the Finance Act of last year is the Schedule which contains the terms of preference, and under Section 8 of the Finance Act itself those terms of preference are to be given to all the countries in the British Empire. Then in that Section come a proviso specifying that, Where any territory becomes a territory under His Majesty's protection, or is a territory in respect of which a mandate of the League of Nations is exercised by the Government of any part of His Majesty's Dominions, His Majesty may, by Order in Council, direct that that territory shall be included within the definition of the British Empire for the purposes of this Section. That means that the terms contained in the Second Schedule only become applicable when the Government for the time being have received the terms of the mandate, and, on finding that the terms of the mandate for this or that territory allow of preference, then they may—not "shall"—by Order in Council give that preference. That insures, by the time the Order in Council has to lie before this House, that an opportunity is given to raise the matter, and to debate it in this House. It seems to me that, except for hon. Members who naturally desire to challenge this question as a matter of political principle as far as the principles of the League of Nations hold good, to discuss this matter now is premature. We made every provision in the Finance Act of last year, when we debated the matter at some length, that the hand of the Government would be free when the terms of the mandate were known. The terms of the mandate are not yet known, and I say that the time to make an alteration of this nature, if ever such an alteration be desirable, is not yet.

2.0 P.M.

I endorse what the right hon. Gentleman has just said, that this is a very complicated question, and we have got to be very careful what steps we take in dealing with it; but, so far as the hon. and gallant Gentleman who moved this Clause is concerned, I wish to congratulate him on his very persuasive speech, which struck a very high note. I hope his attitude is not only based on his signal success last night. I join with him entirely that it would be a grave danger to the peace of the world if the idea were to get abroad that we are looking upon mandates as precursors to absorbing those countries in the British Empire, and, while the terms of the Clause might be open to amendment, as was suggested by the right hon. Gentleman who followed him, I do press upon the Government the necessity of dealing with this, not merely sympathetically, but taking the widest view, because it would be a world tragedy if any country were to imbibe the idea that at the back of our minds there rests ulterior motives, and that we are looking upon these mandatory countries as part of a future addition to the British Empire. Therefore, as strongly as I possibly can, I urge upon the Government, if they cannot have these words, that they will reconsider a form of words that will remove the possibility of suspicion that we are looking for additions to our Empire while helping these people.

I hope the hon. Gentleman will allow me to meet him halfway in the admirable sentiments he has just expressed. It is presumption, no doubt, on my part to say so, but it is particularly delightful to hear sentiments of the sort he has just expressed from the benches opposite. Of course, in this matter we have to be very careful what we say. Our words will not only appear in the OFFICIAL REPORT, but they may be repeated in half a dozen Chambers in Europe, and may be used against us. May I ask the Chancellor of the Exchequer, who will have a great voice in this very important matter, to forgive me if I ask him to look at this for a moment through the eyes of French or Italian statesmen? I am going to try to put to him what they are thinking and saying now. These distinguished foreign statesmen are saying that during the war, they, in France and Italy, had vulnerable land frontiers which they had to defend. It was very hard on that account that the work of conquering the territories of Turkey and Africa fell to us and called for the use of a good many troops. Naturally the country whose army has occupied those territories is invited to undertake the mandate, and if we are to differentiate against French or Italian merchants, I think the French and Italian statesmen will be able to make a very just protest, and, unfortunately, it is the case that there are many grounds of friction already between the Allies who fought so valiantly together. I think it would be becoming, and most valuable, if the Government at the moment would accept this proposal. It may be necessary, of course, to modify it in the next Finance Bill, but not one of the terms of the mandate have been laid on the table of this House. Accusation has been made against us in different parts of the world that we are pursuing a policy of grab in the Peace settlement. and I think it would do an immense amount to rehabilitate our reputation for disinterestedness and high motives in the War if the Government could really accept this Clause.

It has been pointed out that there would be a real difficulty in the case of Samoa, which has been practically incorporated in the territories of Australia for administrative purposes, and of German South West Africa, which will be absorbed, for all administrative purposes, by the Union of South Africa, and therefore it would be extremely difficult for us to give a preference to certain manufactured goods from Australia or South Africa, and refuse to give them to German South West Africa or Samoa. I cannot see that difficulty at all. I see no more objection in the case of German South West Africa, even although it is administered by officials sent from Pretoria, than in the case of preference given to French West Africa. I think the difficulty has been exaggerated by both hon. Members who have raised this point. I do not think it should prevent us from passing this Clause, and I believe the passing of it would be of the greatest assistance to the Prime Minister and his colleagues at Spa. It would really be a gesture almost of nobility if we were to say that in the fiscal arrangements and preferences with our Colonies and others the mandated territories, which we are taking over as a sacred trust for civilisation, will not be included, and that the merchant of any nationality, any creed, any colour, will have just the same chance to buy and trade as has the British merchant.

There is one comment I should like to make on the speech of the Financial Secretary to the Treasury (Mr. Baldwin) which seemed to me to be admirable and almost conclusive, except on one point. As I understand the position it is that you cannot extend preference to any mandatory territory without an Order-in-Council. That is a very satisfactory position. Does it mean the House will have a chance of discussing it? That other point seemed to me to be left in doubt, and if we could have an assurance from the Chancellor on that point, I am inclined to think it would remove the necessity for passing this Clause. The position in regard to the mandates, I understand from what the Prime Minister has said, is as follows: The League of Nations has nothing to say as to who is to be the mandatory power. That is settled by the Supreme Council, but I understand the terms of the mandate are to be communicated to the League of Nations for their approval. The question I desire to put is: Will this question of extended preferential treatment in relation to the mandated territory be one of the terms of the mandate submitted to the League of Nations? If the right hon. Gentleman can give us that assurance I think that, coupled with the fact that preference

cannot be extended to the mandatory territory without an Order-in-Council, would remove the necessity for this Clause.

The question is—

May I have an. answer on that point?

The answer is "No."

Question put, "That the Clause be read a Second time."

The Committee divided: Ayes, 45; Noes, 148.

I beg to move, "That the Clause be read a Second time."

This is a proposal to repeal the Customs and Excise Duties on sugar. It is a tax which bears very hardly on the poor people.

It was understood that this question would not be debated at length.

That is so, but I understood that we should be permitted just to state our reasons, and then, as far as we are concerned, there will be no

further Debate after the speech of the Mover.

I was not aware that there was any under standing of that nature. We consider that this tax bears very heavily on the poor. Sugar is a food and a necessity for children, and it is becoming more and more a necessity. This tax now places 2¾d. upon every pound of sugar, whereas before the War it was only ¼d. per pound, and the cost of sugar now is from 1s. 2d. to 1s. 4d. per pound. The Sugar Duties bring in about £30,000,000, which will, I suppose, pay about two-thirds of our expenditure this year in Mesopotamia. We feel that we can save the poor the amount of this tax by adopting a different policy, and that is why I am putting forward this new Clause.

Question put, "That the Clause be read a Second time."

The Committee divided: Ayes, 40; Noes, 155.

I beg to move, "That the Clause be read a Second time."

This Clause provides for exemption from Income and Super-tax of income devoted to charitable purposes up to a maximum of 5 per cent. of the total income of the claimant, and as Corporations pay neither Super-tax nor make claims for exemption or abatement from Income Tax, it has been necessary to make this applicable to them by another new Clause which stands next on the Paper. I understand that on this Clause it will be in order to discuss various aspects of this matter. There are Amendments in the names of hon. Members representing English universities and others asking for this advantage in a rather more modest form. I hope that the Chancellor of the Exchequer will take it in the wide form which I am asking. Of course, the arguments for this exemption apply equally to the other Amendments, and if the right hon. Gentleman cannot give a full concession as to Income Tax I hope he will go some way to meet us by allowing an exemption from Excess Profits Duty and Corporation Tax or any other of the rival claims on the pockets of the charitably disposed who are now so much restricted in their responses to appeals on behalf of various organisations. I do not think it. is necessary to weary the House with figures about the position of charities.

On a point of Order. Before we proceed further, may I ask whether we shall be permitted a general discussion on this Amendment, or will the Debate be confined to the Excess Profits Duty?

It has already been agreed that there shall be a general discussion.

It is notorious that charitable associations are now finding great difficulty in raising necessary funds. I suppose no Member of this House opens his letters in the morning without finding evidence of that fact. Unfortunately, side by side with the stringency due to smaller income, hospital and other organisations find very great demands upon them owing to the increased cost of labour, of wages, of repairs, of provisions and of other matters connected with upkeep. I saw it stated in a leading article in a paper two days ago that the trouble with hospitals was largely due to the fact that the War profiteer had not yet developed the tradition of giving. I do not think that is the whole story. I am afraid the real trouble is due to the competing claims of the Chancellor of the Exchequer. Pre-War days, when the Income Tax and Super-tax took no more than 2s. 6d. in the £ on the larger incomes, could not possibly be compared with the present position, when the Income Tax, coupled with the Excess Profits Duty and the Corporation Tax, is claiming not less than five times as much. I believe if the Chancellor of the Exchequer would free a certain proportion of income, if devoted to charities, it would have a very strong moral effect. It is not only the working classes, but it is also the Income Tax payer who like to get 9d. for 4d., and that is about the proportion he would pay if the Chancellor of the Exchequer accepted my Amendment. No doubt the right hon. Gentleman will point out that this would be an indirect subsidy from the State towards charitable objects. I agree with him, but it is not only in the public interest in the widest sense, but also, in the more narrow sense, in the interest of our national finance to take steps to save the charities from their present difficulties, as, otherwise, there is a great danger that the whole of the cost of many of the services now performed by them will be thrown on the State. It is unthinkable, if no other solution is found, that the functions now performed by the hospitals should be neglected. The State would obviously have to take them over, and that would mean a great financial loss, not only owing to the shutting down of charity, but also to the great increase of cost, for the State never runs these things as economically or as efficiently as private people. It would further mean a great loss of efficiency in the work itself.

I hope the right hon. Gentleman will do something in this direction. I would draw his attention to the example set by the United States of America which has gone much further than I suggest here. I have only asked for 5 per cent., but in the United States a reduction of 15 per cent. of the taxpayer's net income is allowed for religious, charitable, scientific and educational purposes as well as for gifts for the prevention of cruelty to children and to animals. If the right hon. Gentleman thinks that my Amendment is drawn too widely, so far as the words "charitable purposes" are concerned, I would suggest that its operation be confined to hospitals, medical research, and educational as these objects are all quite apart, and would necessarily have to be taken over by the State if private organisation broke down. The only other point I will make is that there is already one precedent for this distinction being made because insurance premiums have long been exempted from assessment to Income Tax and Super-tax up to the extent of one-sixth of the total income. ["No, no."] At any rate they have been to a limited extent, and that shows that there is no administrative difficulty in my proposal. Surely, if it is right by exemption from Income Tax to encourage private thrift it is far more justifiable by the same means to encourage public charity in the particular channels which I have mentioned, and if, as I believe, there is no administrative obstacle then on the merits I venture to say it is in the public interest to accept this Amendment, which will do so much towards the amelioration of the financial position which now threatens so many charities that are doing work of vital importance to the nation.

As was indicated by the Chairman at the opening of to-day's proceedings, it will be for the convenience of the Committee that we should on this proposed new clause discuss the whole series of alternative proposals which in wider or narrower form raise the same question of whether any abatement is to be allowed as regards taxation in respect of contributions made to charitable or educational objects. I must say at once that I could not possibly accept the clause of my hon. and gallant Friend or make any concessions in this respect in regard either to Income-Tax or to Super-tax. The proposal has been made again and again to my predecessors, and one and all, whatever their political com- plexion, they have repulsed it with a unanimity which is truly wonderful. I find myself in the same position of unalterable opposition to it, and I think I can convince the Committee that it is not right or fair. Observe what happens. The richer the man the greater the proportion of his so-called subscription which is found by the State. The poorer the man the greater the proportion of his so-called subscription which is found by himself. That cannot be right. Let me take a very simple illustration. A, a married man, earning £250 per year, paying no Income-tax, gives £5 to a hospital, and, as he pays no Income-tax, he gets no relief. B, a married man, earning £500 a year, pays Income-tax on £225 at 3s. in the £1. Of the £5 which he nominally gives, 15s. 1s contributed by the State. A married man earning £750 per year pays Income-tax on £225 at 3s. and on £225 at 6s. Of his £5 £1 10s. is contributed by the State. Let us come to the really big incomes. Another man has an income of £35,000. On the highest £5,000 of his income he pays Income-tax and Super-tax combined at the rate of 12s. Accordingly, of the £5 which he nominally gives, £3 comes not from his pocket but from the State. I do not think that is tolerable. We cannot make that kind of distinction. We cannot allow an individual taxpayer to spend at his sweet will on particular charitable institutions which attract his sympathy money which is not his money but which as to the major portion he would otherwise have to pay in taxation. Therefore, without going further, I cannot make any exception to the rule laid down by my predecessors either in regard to Income Tax or Super-tax.

There remains the Excess Profits Duty. That is an abnormal and temporary tax arising out of temporary and abnormal circumstances. It may be argued that that heavy charge does come in direct competition with these charitable appeals and does adversely affect the response. The need of these institutions at the present time is as abnormal as the tax of which I have spoken. Specially temporary circumstances have gravely affected their situation, and finding that the temporary tax arising out of the same abnormal conditions does adversely affect these institutions at a moment of great need, I am willing, in spite of all the wisdom of my predecessors—not without hesitation, but still I am willing—to throw a sprat to catch a whale. My hon. and gallant Friend asks me to throw a whale to catch a sprat, and that is not a profitable transaction. I am prepared to throw a sprat to catch a whale and to abate something in the hope that it may encourage the great trading concerns to recognise their corporate liability to the communities in which they live, and among which their revenue is earned, and may enable directors to persuade their shareholders adequately to recognise what I think is a growing responsibility of these great bodies. In the old days, when limited liability companies had made much less progress, the great institutions of our different cities were habitually supported, and generously supported, by the firms or partners who traded in them. Then those firms and partnerships were turned into companies. The shareholders are spread over a much wider area. The directors are often slow to recognise, and the shareholders slow to admit, that they have a duty to the place in which their profits are earned. Having taken the place of the private individual who in his day discharged his duty, the shareholders as a whole ought to take the burden upon themselves and make a similar contribution. As my hon. and gallant Friend has foreseen, I cannot simply take charitable institutions without ally distinction. If the Committee will accept it in satisfaction or in lieu of the many new Clauses which have been put down, I will at the end of the proceedings—I understand that I can move it only at the end of our proceedings—move a new Clause. If hon. Members will withdraw their new Clauses and accept it as a reasonable compromise and as reasonably meeting the difficulties of the moment, I will move a new Clause in the following terms: Where out of the Profits of a trade or business any contribution has been made after the sixteenth day of July,— that is the present day— nineteen hundred and twenty, to any trust, society, or body of persons in the United Kingdom, established solely for the purpose of the relief of the poor or the sick or for the advancement of education or for scientific research, there shall, for the purposes of Excess Profits Duty, be allowed in the computation of the profits of the trade or business arising in the accounting period within which such contribution was made a deduction in respect of such contribution of an amount not exceeding 5 per cent. of those profits as calculated for the purposes of Excess Profits Duty (before adjustment for increased or decreased capital and before making any deduction under this Section) and not exceeding 20 per cent. of the amounts of such contribution. This Section shall not apply to any contribution which, apart from the provisions of this Section, would be admissible as a deduction from profits for the purposes of Excess Profits Duty. The Committee will see that it is proposed to give relief for the purposes of Excess Profits Duty only, which is an exceptional and temporary tax, levied, as I have said, upon abnormal profits to which the institutions in question might not unreasonably look for some contribution towards meeting their abnormal need. I beg the Committee to bear in mind that this is a concession for which, I believe, there is no precedent, and it is one which has been resisted in any form by all my predecessors. It is as far as I feel justified in going.

Is it absolutely necessary that those who were generous enough to make their contributions before they knew what we now know of the acknowledged generosity of the Chancellor, should be penalised as against those who subscribe later?

If I made it date back at all, it might equally well date back to the very beginning of the Excess Profits Duty. There is no sacredness about any particular date. I cannot make it retrospective. The object is to encourage donations which have not been made. All honour to those who have already made them; I hope they may be tempted to make further donations.

As I have an Amendment later on the Paper which deals with the Excess Profits Duty, I rise to respond, as far as I can, to the proposal of the Chancellor of the Exchequer. It will not do, of course, for us to look a gift horse in the mouth, and, although I am disappointed at the very severe restrictions which the Chancellor of the Exchequer has put upon this concession, yet I am grateful, and I am sure the Committee will be grateful, that he has gone further than any previous Chancellor of the Exchequer has gone, and has met, to a certain extent, what I think is a national desire, and a desire put forward in the national interest. I would point out that the Chancellor of the Exchequer has already conceded a considerable point in this direction. I think he has allowed that, if any institution or system of research or scientific inquiry has been established in connection with a special business, the cost of it may be deducted from excess profits. Is it not a fair demand that, if this inquiry is not confined merely to the advantage of a special business, but extends further and is for the general advantage of the community, it should also be considered as a fair subject for deduction from the Excess Profits Duty? I am glad that the Chancellor of the Exchequer has made even this limited concession, because, as he recognised in the speech just now, it is evident that the Excess Profits Duty, in itself, has caused a severe curtailment of the contributions to universities, hospitals and other institutions of the kind. A man makes his contribution from the extra prosperity of the year, but if he finds that his extra profit is severely curtailed by the State, he feels justified in saying, "Very well, the first things that must be curtailed in correspondence to this must be my contributions towards public efforts and public objects." Therefore the Chancellor of the Exchequer is only recompensating to a certain degree a loss which, through this tax, has fallen indirectly upon the great hospitals and educational and scientific institutions. However, half a loaf is better than no bread, and I know that my best way of requiting this concession, limited as it is, will be to save the time of the right hon. Gentleman and the Committee, and I will, therefore, say no more than that I shall look forward hopefully to the Clause which he proposes to introduce.

After the concession which the right hon. Gentleman has made, it will not be necessary for me to say more than a very few words. I wish to say, first of all, that the universities which I represent are far from failing to recognise the great assistance which they have received in the past from the Chancellor of the Exchequer. The demand of the universities for remission of Excess Profits Duty upon donations made to their funds has come universally and unanimously from the universities which I represent. At a meeting of the graduates of the University of Birmingham, in which, I think, my right hon. Friend is likely to take a considerable interest, a unanimous resolution was passed asking for this concession. The Chancellor of the Exchequer has said that the difficulties in which the universities are placed Pare likely to be temporary, but my impression is that they are not temporary, but permanent and increasing. The reasons are very simple. If we go on spending, as we are spending, from £50,000,000 to £70,000,000 a year upon primary and secondary education in this country, we shall be producing the raw material of university students at a much greater rate than has been the case in the past. We are, as it were, enlisting in an army a very much larger number f recruits than we have the possibility of mobilising. It is useless to turn out educated young men and women up to the point where they are ready to be taken in hand by the universities, if the universities are utterly unable to take them in hand. It is, probably, not generally realised how desperate is the need of the universities at the present time. Their endowments have been halved in value, and the number of their students has suddenly been doubled. Their equipment is insufficient to cope with the difficulties of the situation. In one of the universities of which I speak, they have, for instance, to take eleven sessions of students to follow one another hour after hour within a single laboratory to do their work, and that is quite an impossible conditions of affairs. In a chemical laboratory it is impossible for students to follow one another hour after hour in that rapid succession. Lectures have to be repeated, once or twice to successive audiences, and the work of professors and lecturers is thereby not only rendered much greater than it was before, but it is much heavier than they can possibly perform. I should like to ask the Chancellor if he would kindly explain what is the exact scope of the concession he has made. I heard the words of it for the first time, and they are a little complicated. What is the meaning of this 5 per cent. and 10 per cent.?

I suggest that the Committee should terminate this discussion, and allow me to move the Clause. I will move it, and on consideration on Report hon. Members will be able to see the scope of it. I agree that we ought to have an opportunity of seeing its terms. I do not think I shall be able to convey more by way of explanation than they will learn by reading the Clause.

The first part of the right hon. Gentleman's speech was a great disappointment to me, but I think he has gone far to reassure us by his later statement and by the announcement of his intention to submit this new proposal. In case I should not have an opportunity at some later stage of associating myself with it, I should like to avail myself of this opportunity and give it such support as I can. I do that, not really from the educational side of the question in relation to universities and colleges, the development of which is of such great importance to the working classes as well as to other classes. I do it because a very large number of the working class population and of the lower middle classes are feeling severely the condition of handicap in which the different hospitals are finding themselves. From one cause or another they have struggled bravely in recent years, in face of the enormous increase in the cost of living, and they have had additional difficulties. One point I should like to impress on the right hon. Gentleman. Charity is not universal. I am afraid that, whilst it is expensive, there is a considerable number of people in the community who could afford to give but do not, and it would appear that many institutions dependent upon the support of the charitably disposed have to appeal to the same people, the same organisations, the same companies and the same trading concerns time after time, and all I ask is that as the State cannot undertake this work it should give at least such encouragement as it can to those who are disposed to give. I am glad it has fallen to the lot of the right hon. Gentleman to make what is a good start—hereafter we might be able to improve on it—and I trust the Committee will give its full support to him.

In view of the concession the right hon. Gentleman has made, I beg to withdraw the Clause.

Motion and Clause, by leave, withdrawn.

I beg to move, "That the Clause be read a Second time."

3.0 P.M.

This Clause has for its object the helping of people who are making profits, but, owing to the nature of their business and the tying up of their money and the reduced value of stocks, have not the money at hand wherewith to meet the Excess Profits Duty. There are businesses in which the bigger the profits the greater the difficulty in meeting the tax. I will read a short extract from a letter I have received from a leading firm of woollen merchants. They say: It would be difficult to curtail our operations, much of which is with foreign countries. We fully agree the financial position must be met, and are ready to do our share; but owing to poor pre-War years we are one of the sufferers. If Parliament supports the 60 per cent. Excess Profits Duty, could you urge upon the Chancellor the need for granting a legal right for the payment to be spread over a reasonable period. This would help us. It is not just that we should be dependent on the goodwill of a local collector. Some may be lenient, others not. The right to deferred payment should be statutory. The Chancellor knows full well that some firms have now got their backs against the wall. He knows they are not at all likely to avail themselves of the opportunity given upder this Clause except as the very last resort. No firm would be desirous of having the Government more or less in the position of a sleeping partner. I would ask him what the alternative is likely to be. Does he contemplate putting honourable firms, whose honour is just as dear to them as is his honour to any Member of this House, in the County Court when they cannot make payment? Unless he does, I do not see what steps he can take to enforce it. There is one other point which may not have occurred to him. He acknowledges that he has £190,000,000 of arrears. If he could see his way to adopt this Clause, or something similar to it, this £190,000,000 of arrears would automatically become income-producing and would yield at 7½ per cent. about £15,000,000 a year. If he says that would not be so for any reason whatsoever, the only possible alternative is that the firms owing these arrears would, to get rid of the interest, pay up their arrears. So that either way the Treasury has the advantage. It is therefore for the single purpose of safeguarding businesses of this character that I urge upon the right hon. Gentleman to help them to meet their payment of this tax—not to escape it—by some such Clause as this.

I cannot accept this Amendment. It would work very unevenly, and I do not think it is required for the case which my hon. Friend has in mind—the really genuine case where a delay is necessary, and time must be allowed for payment. It is not a matter of indifference to the Treasury as to when the money is paid. We want the money, and we do not want merely an interest-bearing security. Therefore, the onus must be on the taxpayer to show, and we must have very strong proof, that he is in such a position that he must defer an obligation which his neighbour is called upon to discharge at once. My hon. Friend proposes that The Commissioners shall, upon due and reasonable proof being shown that payment of the duty by cash would entail hardship or create financial difficulty"— that is a loose and wide term— accept, in lieu of cash, mortgage bonds or other form of bonds reasonably secured. Again, these are very loose words. It would be easy for the most flourishing concern to satisfy the Commissioners that their bonds were reasonably secured, but there would be greater difficulties in the case of a less prosperous firm to give an assurance that the bonds they might give would be reasonably secured. This covers a point which was dealt with, in a different form, by my right hon. Friend the present Leader of the House a few years ago, when he inquired from the Federation of British Industries whether, if they contemplated any such proposal, they would give anything in the nature of a corporate guarantee of the bonds. They did not respond to that invitation, and I do not think my hon. Friend would be surprised. In these circumstances the securities which in certain conditions the Commissioners of Inland Revenue would have, are not likely to be a very marketable security. There is a section in the principal Act which is relevant to the cases which my hon. Friend has in mind. It deals with the cases for which we ought to provide. In cases of real and proved difficulty, insurmountable difficulty, the Commissioners may allow payment by instalment, instead of requiring the whole sum to be paid at once, and they have exercised that discretion in cases where it was required. That would meet the cases which my hon. Friend has in view, and I hope he will not press a proposal which, like my predecessor, I cannot possibly accept.

I should like to ask the right hon. Gentleman a few questions on the question of payment by instalment. My experience of the taxing authorities is that payment by instalment is only delayed for one or two months at the most. It is not a delay for a considerable period. I thought the right hon. Gentleman would have given some information as to the difficulty which he has in mind. Is it a question of the Floating Debt, the Funding Debt or the National Debt? The whole question of the Floating Debt, which I assume is one of the matters which prevent him from accepting the Amendment—

The Finance Bill is designed to produce revenue required in the year, for all purposes. It is true that the Excess Profits Duty which is levied this year is in the nature of things largely payable next year. The cash is required next year and it cannot be a matter of indifference, quite apart from the date or the form of the expenditure at any given moment, whether the revenue is acquired in a year or five or ten years later.

That is the answer I wanted, because it proves the point that if it is next year for which the right hon. Gentleman requires this revenue the remedy is to cut down the expenditure to a very considerable extent, as he can do. So far as the Floating Debt is at present concerned if he requires the money this year or next year for that purpose I cannot understand why the Financial Secretary should come down to the House and move a Clause which is intended to increase the Floating Debt. I fail to see what ground there is for not accepting the new Clause, which seems to me an entirely reasonable Clause. It provides for payment in bonds for hard cases and for the interest on those bonds. There are cases where people are a very considerable amount in arrears in the payment of their Excess Profits Duty, and I fail to see why those people should not be asked to pay interest on the arrears. If they were asked to pay interest on the arrears we should find that those arrears would be very largely paid up. I hope my hon. Friend w ill press his Clause to a division.

This refers to present debtors, not to prospective debtors.

I am trying to prove that future debtors should be treated in a much more drastic way. I should have thought that from the very gracious way in which my hon. Friend treated my right hon. Friend in the Debate that he would have received much more generous treatment.

I do not think that in a matter like this the Chancellor of the Exchequer ought to be guided by precedent or by any decision of his predecessors. This Amendment relates to a Duty which is a new one and is regarded as temporary and everything should be done to enable people to meet their obligations without imposing upon them further financial difficulties or hardships in connection with their trade. The object of the Clause is not that any person who makes a claim is to have the claim met. It seems to me that all this Amendment is asking is that traders actually either in difficulties or, having prospective difficulties, should be assisted by this accommodation between the revenue authorities and themselves. Our interest in an Amendment of this kind is that unemployment is sometimes caused through financial difficulty or some momentary internal dislocation in the way of a trades difficulty which employers are up against. Therefore from the standpoint not only of trading interests and smooth internal working between those companies and the Treasury as well as from the standpoint of the interest of those whose income comes from continuity of work, the Chancellor might further consider the demand which is made in this Amendment.

I join in the appeal to the Chancellor of the Exchequer to accept this new Clause. I have had some most distressing cases submitted to me of firms who were in the greatest possible difficulty who have been pressed by the Treasury for payment of the duty and are in this position, that unless they can get some relief and the Treasury show a little more consideration, they will have to close down, and a number of people will be thrown out of work. Unless the Treasury are lenient and show consideration they will have a very great responsibility, because they are not acting at all in a sympathetic manner. Vast sums have been spent by firms for the improvement and development of works for War purposes, sums which have been provided out of profits, and now that money is called up by the Treasury in the form of cash. I hope that my hon. Friend will press this to a division because I am oppressed with the unsympathetic attitude, which the Chancellor of the Exchequer shows to these cases of great hardship, and which causes a great deal of hostility to the Government in the country, which is much to be regretted.

I waited to hear what the Chancellor would say in reply to my hon. Friend, and it did not seem to me to justify the positions from the Government point of view. The Chancellor says, to use an American expression, he "needs the money." We all sympathise with him in that attitude, but this Amendment deals with those cases in which all the power possessed either by the Chancellor or the Treasury cannot get the money, except by putting in a receiver and winding up the business. What is his alternative to this proposed Amendment in cases where it can be

proved that the firm is not in a position to tender cash for obligations in respect of Excess Profits? I admit that the Amendment is loosely worded, but it conveys a very clear impression of its sense. If it is not set forth in the Ministerial manner what the object to be attained is I am sure that the Chancellor could reduce the intention of the Clause to very exact language if he accepted the spirit of it. I hope that we shall hear from the Chancellor that he is prepared to give the Amendment further consideration. The Chancellor referred to difficulties in dealing with the merits of the case. In my experience Government officials are sufficiently alive to business matters to be able to hold a very perfect inquest upon balance sheets and businesses from which they desire to extract revenue. I cannot see why a properly-appointed official representative of the Treasury should not be competent to form an opinion with regard to the status of the business from a careful examination of its duly-audited accounts and balance sheets. I press the Chancellor to reconsider the question from the point of view on which he rests his case—that he needs the money—and if he can show commercial men how, by merely threatening or by bringing pressure to bear on their businesses, he can turn into current coin of the Realm he will be rendering a service to the business community and at the same time filling coffers of the Exchequer.

Question put, "That the Clause be read a Second time."

The Committee divided: Ayes, 36; Noes, 70.

I beg to move "That the Clause be read a Second time."

I understand that the Government look sympathetically upon this particular proposal, but not in the exact words of the Clause. I wish, therefore, to Withdraw the Clause and I will put down a new Clause for Report.

Motion and Clause, by leave, withdrawn.

I beg to move, "That the Clause be read a Second time.". This arises from the provisions of the Finance (New Duties) Act, 1916. When the Act was passing through the House on 17th April, 1916, the present Member for South Paddington (Sir H. P. Harris) moved that a Sub-section be added to the Bill as follows: Nothing in this Section can be deemed to impose any Entertainment Duty on nominal payments made for a programme or seat at musical performances given in any public park or open space. The Home Secretary of that time, who was in charge of the Bill, said in reply: I do not think the duty would attach in the case to which my hon. Friend refers. If you pay for a programme you do not pay for admission, and if you pay for a seat in a place in which you are entitled to stand you are not paying for admission either. In any case, in administering the Act there is no intention to administer it in that way."—[0FFICIAL REPORT, 17th April, 1916, Col. 2157, Vol. 81.] The proposal to add the Sub-section was thereupon withdrawn. Later on, in answer to a question, it was stated by Mr. McKenna that In the case of band performances in public parks the Entertainments Tax is not leviable on any payment made merely for the use of a chair, provided such payment is not made, directly or indirectly, for admission to an enclosure, but when the arrangement of the chairs is such as to constitute an area reserved for the occupants of the chairs, the payment must be held to be a payment for admission to an entertainment and is subject to tax accordingly. If the chairs are not within an enclosure—at all these public performances there are chairs inside and outside the enclosures—the chairs outside do not pay anything. The arrangement of chairs in question, which has been in operation for years, is such as has been found from experience to be the most suitable in the circumstances, as it facilitates the collection of the charges and adds to the comfort and convenience of the audience. In view of the large numbers which attend the performances no other arrangement is practical. If people are allowed to move their chairs all over the place it is obviously much more difficult to collect the charges made. It would be easy for a man, when he saw the collector coming round, to move to another place, and later to return to his original place. I do not think that the Chancellor of the Exchequer can possibly make any difference between chairs placed in an enclosure and chairs placed outside, because in many cases they are only a few feet apart. The real importance of this Clause is that these musical entertainments in the parks are of an educational nature. They have a great moral effect and they attract to public places a lot of people who in many cases have very little to do and keep them out of mischief. For these reasons and owing to the fact that these entertainments educate the public into a taste for good music I feel that they should not be liable to this particular form of duty. There is a provision at present which exempts educational entertainments in certain circumstances, one of which is that the entertainment is not conducted for profit. These entertainments are not conducted for profit. In the case, for instance, of the corporation of Glasgow, they do not cover the cost, and the balance is imposed on the rates by the Parks Assessment. If this particular duty was taken off it would lighten the rates, and when it was put on it rather discouraged local authorities. The only reasons I can see which can prevent the Chancellor accepting my proposal is that this might entail a serious loss of revenue, and I do not believe that is the case, and secondly, that it might cause cinema proprietors to say that he was giving special preference to local authorities in the case of entertainments. This Clause stands in my name and in the name of the hon. Member for West Leyton (Mr. Newbold) That hon. Member cannot be here this afternoon. He is, as the Committee knows, the one Member in the House who is very much interested in cinemas, and he wished me to say on his behalf and on behalf of that profession that they have absolutely no objection to an Amendment of this kind, because they do not consider that it is a question of competition.

The acceptance of this new Clause would lead to results which I am sure the hon. Member who moved does not contemplate. It might for instance lead to a charge being made in the Royal Parks, where music is provided by the First Commissioner of Works. I do not dwell on that, and I submit that the hon. Member has not made out his case. No tax is charged where the payment received for a seat or for a programme is not regarded as payment for admission to the entertainment, and accordingly a tax is not levied on payments for moveable chairs scattered about Hyde Park or other parks, even though a band may be playing in the neighbourhood. But if seats are within an enclosure, or are so arranged as to constitute an area reserved for their occupants, then the payment for any such seat is taken as payment to an entertainment, and the tax is levied accordingly. Similarly, if the admission to the enclosure can only be obtained by a charge for a programme, the programme becomes the equivalent of a ticket of admission, and is subject to tax. My hon. Friend's motion would draw a distinction between payment for a seat within the enclosure and payment for admission, and would render the tax nugatory. He referred to the case of cinema proprietors or cinema palaces. It may interest him to know that one proprietor attempted to evade liability by advertising that admission to the hall was free, and that payment was only charged for a seat. A somewhat similar attempt was made by a proprietor of a pierrot show at a watering place. In both those cases proceedings were taken and the defendants were convicted. The cases point not only to the danger of recognising any such proposal as my hon. Friend suggests, but to the probability that if I were to accept this new Clause all musical performances provided by local authorities in any public park or open space the basis of admission would be arranged so as to escape liability to the tax. Probably if I made an exception in one case I should at once be confronted with cases over the border-line, which would become an ever-widening line until the tax, which is so far a tax, and which is a profitable tax, would be eaten into and destroyed. Exceptions are now made for educational and some other objects.

Why not include this?

I could not include general music in the parks to be educational merely because it happened to be provided by local authorities. I do not think that is possible. I do press the Committee not to endanger the revenue derived from this tax by encroaching further on it. If we were to make concessions of this kind it would make the tax absolutely unworkable and destroy the whole revenue from it. We are not in a position to forego this revenue. I hope my hon. Friend will think that I have made out a good case why he should not press this Amendment, and that he will not think me unsympathetic with the desire and effort of public authorities to provide music in public places for the enjoyment of our people.

I cannot agree with the Chancellor's statement. I regard the provision of music by local authorities as a great educational influence. I can speak from my own experience in this matter. People who cannot afford to go anywhere else can gather in open spaces, and if they are enabled to listen to good music it is certain to have very good effects. For that and for the further reason that I am absolutely opposed to putting on to the public this form of indirect taxation, I support the proposal.

Question, "That the Clause be read a Second time," put, and negatived.

In regard to the two Clauses proposed by the hon. and gallant Member for the Shettleston Division of Glasgow (Rear-Admiral Adair) ("Duty on meals served in restaurants" and "Entertainments Duty"), the first one would be a tax on the subject, and cannot be moved except by a Minister of the Crown, and would require a resolution in Ways and Means. The next one proposes a new schedule. Not being an expert in this matter, I had to consult the best expert available to me, and he informs me that this, too, would involve a fresh charge on the subject, which also would require a Ways and Means Resolution.

I beg to move, "That the Clause be read a Second time."

I wish the Chancellor of the Exchequer could see his way to accept this very reasonable Amendment. The proposal is that for the purpose of Excess Profits Duty full depreciation for wear and tear and for contingent losses should be allowed. It is common knowledge that though the allowances for wear and tear have been materially increased in the last few years, yet they are not anything like the allowances which a prudent business man would make in his business. I do not ask that any sum which an owner of a business might demand should be allowed, but only such sum as the Commissioners for general and special purposes think might reasonably and justly be allowed for those purposes. It is most important from the point of view of firms registered in this country which carry on their business in the main or wholly abroad. It was stated in the House the other day that in taxes from these companies we are deriving £35,000,000 a year, and there is a feeling amongst them that they are not being justly treated.

There is nothing about people doing business abroad in this Clause. It seems to be a general provision.

Yes, it is, but it particularly affects companies which carry on business abroad, because they are not getting what they consider is a full allowance for depreciation, and it is particularly on their account that I press my right hon. Friend to allow an appeal in these matters to the Commissioners. He is on very difficult ground, because there is every evidence that many of these firms are thinking of transferring their registration, and they are suffering from a sense of grievance, because here we have a higher taxation than in any other country in the world, and they think they are not getting the full allowance which they would get in any other country. I therefore appeal to my right hon. Friend to make things a little easier for them and not to drive them too hard.

I hope I shall be able to satisfy my hon. and learned Friend, although I am not prepared to accept his Clause. He attaches particular importance to the allowances for wear and tear.

And for contingent losses.

That is one of the difficulties of dealing with my hon. and learned Friend. The moment you approach him on one point he diverges on to another.

The two things are distinctly stated in my Clause, and I am not withdrawing any part of the request which is made in this Clause. One part is depreciation for wear and tear and the other is for contingent losses, and the two things in substance go together.

What I was referring to was the fact that my hon. and learned Friend in the course of his speech said he hoped I should be able to meet him, especially in respect of wear and tear, and from that I inferred that it was the wear and tear allowances to which he attached special importance. There is full provision for allowances for wear and tear already, and if the taxpayer is dissatisfied he has the right of appeal to general or special Commissioners. Therefore, in respect of the first part of his proposal, the law as it stands provides all that he requires. The subject of these allowances was investigated by the Royal Commission on Income Tax, and they reported as follows: Suggestions were made to us for further safeguarding the rights of the taxpayer in regard to depreciation allowances, but we believe that if in any trade the allowances are insufficient, complete provision already exists for their rectification by the tribunals to which appeals may now be made. The individual trader can appeal either to the General Commissioners or to the Special Commissioners; and an industry as a whole may either agree rates with the Board of Inland Revenue or may carry their case to an entirely independent body, the Board of Referees. I do not think much more satisfaction could be devised to show that these allowances are adequate. When my hon. and learned Friend goes further and asks that we should allow for contingent losses, that is a one-sided application with which I cannot for a moment comply. We do not claim to tax contingent profits, and we cannot allow for contingent and unrealised losses. The second Dart of his Clause, therefore, strikes at the root of our system of taxation and cannot be accepted.

I think the crux of the whole question is contained in the right hon. Gentleman's remark about "industry as a whole." I think it has been decided that an appeal can only be made by a trade association and not by an individual.

The individual trader can appeal to the General Commissioners or the Special Commissioners, and an industry as a whole may either agree rates with the Board of Inland Revenue or carry their case to the Board of Referees. The individual, therefore, has an appeal as an individual.

I am grateful for the explanation, of which I was not aware, and I am sure it is very valuable to the Committee. There is the question of the British companies which are trading abroad and which are faced, as my hon. Friend has pointed out, with very considerable possible losses. They may be paying Excess Profits Duty this year when they know there is a possible loss next year, or the year after, for which they cannot provide. I have in my mind a company which is situated in Rio de Janeiro, which has the work of attending to the sanitation of that city. It is a British company registered in the United Kingdom. That company is faced with very considerable loss, and is liable to Excess Profits Duty, and unless some wider provision is made they are going to be very badly hit. I submit there is a real ground for companies registered in the United Kingdom who do their business abroad for some clause of this kind. I hope the right hon. Gentleman will reconsider the question.

Question, "That the Clause be read a Second time," put, and negatived.

I beg to move, "That the Clause be read a Second time."

4.0 P.M.

The object of this Clause is that capital shall include debentures and mortgages. Under the 1915 Act, the capital is arrived at by deducting debentures and mortgages, and it has always seemed to me a very unfair and an unreasonable interpretation. Surely debentures should be treated as part of the capital of a company. I understand, of course, it makes a very great difference to the Treasury, but we ought to remember that the original Bill was passed hurriedly, that no proper consideration was given to it, and everyone was willing to do his best to contribute what money could be found for the purpose of the War; but now the thing should be interpreted reasonably, and capital should be deemed to include debentures. Some firms have a very small nominal capital, but they have good credit, and are able to obtain good money on debentures, and yet those debentures are deducted from the value of their assets for the purpose of ascertaining their capital. That is very unfair. Then, again, you may have quite a modern firm with very large capital and no credit at all, and unable to borrow on debentures, and they get the advantage because they have a big nominal capital and no debentures, whereas another firm with no capital but good credit and debentures is put in a disadvantageous position.

My hon. Friend is, of course, aware that this matter has been discussed fairly fully on previous occasions.

When?

When the Excess Profits Duty was under discussion, at the time of its inception. The question was discussed whether debentures and similar money should be regarded as capital for the purpose of calculation for the Excess Profits Duty. There was a great deal to be said on both sides, but it was finally decided that they should be excluded, and not considered as capital. On that basis, during all these years, the calculation of excess profits has been made. Now to alter, after that time, so essential a part of the calculation of liability would have two effects. It would lead to a complete upset of the present incidence of the tax among different firms, and to the loss of a very considerable amount of revenue. I am afraid that, in those circumstances, having regard to the fact that this method of assessment has held good from the beginning of the tax until the present day, and from the fact that we now hope we are getting towards the end of the imposition of this particular form of tax, the Government cannot see their way to make the modification my hon. Friend asks. I feel that we must, therefore, resist the Clause.

I must say I am very disappointed that time after time the Government turn down our Amendments, and say they cannot give us any help or assistance. It seems to me we are not receiving any concessions what ever, in spite of the promise that was given by the Chancellor, when the Debate took place, for the reduction from 60 per cent. to 40 per cent., that some of these new Clauses would receive his careful consideration. There has only been a very small concession. I feel with my hon. Friend very strongly about this important Clause. It is one in which the business community are deeply interested. It

bites very deeply into their interests, and I hope my hon. Friend will divide the Committee on this question. A great many Members of this House voted with the Government on that Amendment because they felt on that occasion they were going to get concessions which they have not received.

Question put, "That the Clause be read a Second time."

The Committee divided: Ayes, 22; Noes, 189.

I beg to move, "That the Clause be read a Second time."

Under paragraph (5) of the first Section of the Income Tax, certain allowances are given on the assessable value of certain subjects, one-eighth for land, and one-sixth for housing, and it was further provided that in the case of houses under £12 rental, if it could be proved that the average for five years exceeded the sum of one-sixth, allowance must be given for this additional expenditure. Under last year's Finance Act, the Chancellor of the Exchequer provided that instead of the £12 limit, the same concession should be given in the case of houses in the metropolitan district under —70, in Scotland under £60, and elsewhere under £52. That was done in order to place these concessions in line. Since the Finance Act of 1919, another Increase of Rent (Restrictions) Act has just been passed, raising the limit, and my Amendment is simply to amend Section 19 of the Finance Act of last year, in order to bring all the houses under the present Increase of Rent (Restrictions) Act, and under the concessions provided in Section 19 of the Act last year. It is a very small matter. The concession only becomes operative in certain cases, where it can be proved that the average cost of repairs for five years has exceeded one-sixth or one-eighth, as the case may be. The Committee is well aware that the cost of repairs has enormously increased, and, if it was necessary to give this concession under the Rent Restrictions Act of last year, I am sure that the Chancellor of the Exchequer will be equally ready to extend the same concession under the new Rent Restrictions Act of this year.

I should prefer to leave the matter where we left it last year, until we can deal with the recommendations of the Income Tax Commission on this subject as a whole, and fulfil the various suggestions that they make. The transitory period through which we are passing is recognised by the Commissioners, and it is very difficult to arrive at a final conclusion, but I recognise the force of my hon. and gallant Friend's appeal that, just as last year we adjusted the limits to the limits fixed by the Rent Restrictions Act, so we should adjust them now to the new limits introduced this year. That is certainly a logical proposal. I imagine it will seem to the Committee a reasonable proposal, and I think I shall be pursuing the path of wisdom if I accept my hon. and gallant Friend's new Clause.

Clause read a Second time, and added to the Bill.

I beg to move, "That the Clause be read a Second time."

The object of this new Clause is to preserve a rebate which is given under certain conditions. In the first place, a rebate was given in respect of the restricted hours imposed upon license-holders. Subsequently, a larger rebate up to one-fourth of the whole of the Licence Duty was given to license-holders whose supply was restricted by various orders of the Minister of Food. Those restrictions on supply have now ceased, but, owing to the working of the Finance Act, 1915, it appears that the rebate on account of the restriction of hours will be also lost. It is a very well established principle that if the ordinary hours during which licensed premises may be open are for any reason restricted, such as in the case of a six days' licence instead of a seven days' licence, a corresponding reduction should be made in the Licence Duty. The purpose of this new Clause is to carry on the rebate for restricted hours imposed by the Central Control Board (Liquor Traffic), notwithstanding that the concurrent and larger rebate on account of restricted supplies has ceased, owing to the lapsing of the orders of the Minister of Food. The case of Scotland is a particularly hard one—

The hon. and gallant Member is now talking about Scotland. I presume that he has passed over the first Clause ( "Repayment of part of Licence Duty" ) and is moving the second one ( "Rebate of Licence Duty in Scotland" ).

I propose to take them together.

The hon. and gallant Member has put them down as two Clauses.

That is a mistake. The Clause is drawn as one. I am not quite sure that my right hon. Friend, the Chancellor of the Exchequer, understands the real meaning of this very complicated matter. I do not think it right to the Committee that I should endeavour to argue the case. I could read out many Sections of Acts of Parliament, but it would weary the Committee to a great extent, and if my right hon. Friend will tell me he will look into the matter I have every confidence he will see that I have a real case here.

I am naturally anxious to do what my hon. and gallant Friend has asked. I do understand this Clause and it. would not be quite frank for me to say that if I reconsidered it I might very likely come to a different conclusion on the Report stage. During the War when restrictions were first imposed certain abatements were made, and when the restrictions were removed those abatements automatically came to an end. My hon. and gallant Friend says that although the general restrictions were removed others are still imposed for which abatement ought to be made. I think it has been shown that the legitimate habits of the people have suited themselves to the new hours—the shorter hours which have proved not only salutary to the community but profitable to the trade which has been enabled to do practically the same business within a lesser time, thereby saving a considerable amount of expense. I cannot find from the facts of the case or from the Income Tax returns there is any justification for the continuation of these abatements. In the case of Scotland at the time the restrictions were first imposed—it was before the War—any such abatements of Duty were refused, and the abatements were only given when the restrictions became general at the outbreak of war. It was not intended, however, there any more than it was in the case of England that the abatements should be permanent. I see no reason for more favourable treatment of Scotland than of England. I think the time has come to bring these rebates to an end, and, much as I could wish to respond to my hon. and gallant Friend's request, I cannot honestly say that I could alter my opinion after having already gone fully into the subject.

I do not think I should be right in trying to proceed further with this matter. I would only say that I cannot agree that my right hon. Friend is correctly informed as to the result of the curtailment of hours, although there may be a certain convenience in certain cases. The taxes, however, are a very heavy burden, and I cannot agree that this concession is not due even at the present time. However, the matter is a highly technical one, and, in order to make my case clear, I should have to take a great deal of time and go into many technical points. Accordingly, I shall probably be consulting my right hon. Friend's convenience and that of the Committee if I ask leave to withdraw the Motion.

The Temperance Act (Scotland), 1913, was passed as a compromise between the supporters of that Act and its opponents at that time. A time was put into the Act postponing its operation as regards a great many of its Clauses, and that time is running out and will come to an end this year. The Clause, however, relating to the opening at 10 o'clock of premises for the sale of liquor, was a Clause which was meant to come into operation, and did come into operation, immediately the Act was passed It has been in operation ever since, and any infringement upon that would be an infringement upon the policy embodied in the Act, and would he going back upon the arrangement made at that time. I enter a protest here against any such alteration being made, either now or later.

Motion and Clause, by leave, withdrawn.

I beg to move, "That the Clause be read a Second time."

As every Member of the Committee is aware, a man is entitled to deduct from his Income Tax assessment the amount which he pays as life insurance premium. A very large number of men who served at the front and who were wounded or suffered some disability through their service are to all intents and purposes uninsured. There came before my notice a short time ago the case of a man who was badly hit in his right arm, which was partially disabled, and a leading life insurance company had refused to take him. If that is the case with a man who is only damaged in the arm, how much more serious would it be for a man who, say, was shot through the lung, or had a piece of shrapnel lodged in his skull or near the base of his spine? He would not be taken as a risk by any insurance company in the country. Not only is a man like that handicapped through not being able to insure, but he is actually penalised through having to pay more Income Tax than the man who did not go to the front and is consequently considered a first-class life. We all agree that the allowance in respect of the amount paid as insurance premium is sound. A man is thereby making provision, should he die, for his wife and children, who otherwise might easily become chargeable on the finances of the country. The object of this Clause is to give the same privileges to a man who has been more or less seriously injured or disabled in the service of his country. Not only is the wounded man penalised by being unable to insure, but he is actu- ally fined up to £30 a year through being unable to deduct from his Income Tax assessment the amount which his more fortunate fellow citizen pays in his life insurance premium. This Clause cannot cost the Treasury a very large sum. The cost will probably be quite insignificant. The objection has been advanced that it is rather loosely worded and might include men whose ill-health is due to other causes than service to the Crown. I should have no objection to including those, because surely ill-health is handicap enough to a man through life without having, in addition, to be penalised by having to pay taxes in excess of what a healthy full-blooded citizen has to pay. It is handicap enough to go through life with a weak heart, indifferent lungs or bad digestion without being fined additionally in this way.

I wish to support the Clause. The principle has already been accepted in connection with workmen's compensation and disabled soldiers, sailors and airmen.

I know it must be the case. I feel it myself that there is widespread sympathy in the House for an object of this kind, but I beg the Committee to consider whether this is really a proper way of giving expression to their sympathy or to the obligation which the country owes to those who have been injured in its service. We recognise this obligation by the payment to them of pensions as such reparation as we can offer to men who have been incapacitated either in limb or in health in the service of their country, and I think that is a better way to express our sympathy than to introduce a provision of this kind, which works very unevenly and, I think, would be liable to great abuse. I will not dwell upon the fact that a man might buy £100 of stock merely for the purpose of getting this exemption, and sell it the next day. More than that, have my hon. Friends considered that it surely would work very differently in different cases? There are many men who could not fulfil this provision at all. A. and B. have both served in the War, have both received the same injury, and are both similarly incapacitated. A. has no money except the pension which the State allows him, and can derive no benefit from this provision, B. has investments which enable him, without difficulty, to put £100 into Government stock, and at once gets the exemption. So that your assistance would be determined not by the necessities of the person, but by his capacity to make the investment which you invite him to make. I do not think that would be satisfactory. I do not think you can deal with it on the analogy of encouraging insurance. The right way in which to recognise their services and the injury which they have suffered is by the provisions we have already made.

There are cases which the right hon. Gentleman ought to try to meet. Take the case of a man who insured before the war. The practice of the Insurance Companies was in most cases to keep his insurance on and pay the full amount of the insured if he was killed in the war; but there were cases where a man insured during the war and lie only got a limited amount if he was killed. If he came back after the war and said to the Insurance Company: "I am now good health. Place me in the same position that I should have been in if I had insured before the war, and give me the full benefit of my insurance," the Company would say, in many cases: "You are not insurable now, owing to your service. You cannot be insured to the full amount as before." Therefore, his position would be that, owing to his service, he has failed to be able to renew his insurance which he had made during the war. That is a clear case of hardship and the Chancellor of the Exchequer ought to make provision for a case of that sort, where, before he was injured, he did show his desire to insure but had not been able to get the full benefit of it. There is the further case of the man who comes home from the war and he has a small income, out of which he is desirous of insuring his life, but he cannot do it owing to his circumstances. Is it beyond the power of the Chancellor of the Exchequer to devise some means of making provision for such a case as that? I refer specially to cases of people with limited means. It would not be reasonable to say to a man of large means: "We will make you a deduction although you have your pension, because your life has been so long insured." Could not the right hon. Gentleman by the Report Stage devise some means of meeting the case of the poor class of man who wants to insure but finds he cannot do it?

The right hon. Gentleman has not met the case. Because "B" is not able to oppose insurance I do not see why "A" should be penalised. The right hon. Gentleman has not met the case of the two brothers, one of whom was probably exempted for business reasons and remained at home and was able to insure himself and his wife and family against penury, and the other went to the front and returned shattered in health and is now uninsurable and is penalised. Because we are legislating for the men who are not absolutely on the poverty line something ought to be done to meet the undeniably hard cases. There are more of these cases than would appear. There are a number of men who have been assessed for small pensions and who are not seriously injured, but they are rapidly developing serious symptoms owing to gas poisoning. They have not got to the bottom of the trouble due to the use of chemicals in the War. There are all sorts of lung troubles developing and

these men will have great difficulty in insuring themselves. The Chancellor of the Exchequer tells us that the proper way to go about it is to increase the pensions. Some of us have said that for a long time. Meantime, we want to do something in the Finance Act to meet the special cases. If the Government cannot meet us here, the least they can do is to introduce some scheme of Government insurance for these men who cannot get insurance in the ordinary commercial companies.

I am very sorry that the Chancellor of the Exchequer is unable to meet us in this respect. I am only asking that where there are two men, each with say, £1,000 a year, one of whom has been wounded while the other stayed at home, the man who has been wounded should pay the same Income Tax as the man who stayed at home. In the circumstances I feel it my duty to divide the Committee.

Question put, "That the Clause be read a Second time."

Committee divided: Ayes, 45; The Noes, 141.

I beg to move, "That the Clause be read a Second time."

I could not accept the exact wording of this Clause, but if the hon. Member will defer the matter to Report, I shall hope to deal with it then.

Motion and Clause, by leave, withdrawn.

I beg to move, "That the Clause be read a Second time."

The anomaly which this seeks to abolish is so glaring and unjust that I appeal with the greatest confidence to the Chancellor of the Exchequer. The case I wish to bring forward is the case of those firms, and especially the small and progressive firms, whose financial year ended just after 4th August, 1914. The pre-War standard in those cases should, I submit, be the average of any two out of the three pre-War years, 1912, 1913 or 1914. The end of the financial year being the 31st August, 1914, or 27 days after the War started, such companies were thrown back to the 31st August, 1913, with the result that their first year of war profits began on the 1st September, 1913, and ended on 31st August, 1914. An actual case was submitted to the right hon. Gentleman's predecessor on the 4th December, 1915, and I give the facts from the letter which is in the office of the Chancellor. This was the case of a young firm which, until the year 1910, made no profit at all. In its three pre-War years 1911, 1912 and 1913 the profits were: 1911, £2,084; 1912, £3,000; 1913, £6,002. Choos- ing the two best years, we arrive at a pre-War standard of £4,500. If the year 1914 is taken into account, up to the 31st August, the end of their financial year, the profit in that year was £10,240, and if they were enabled to take that year along with 1913 for the calculation of the standard, the result would be, by adding £6,000 and £10,000 together and averaging, the pre-War standard would be £8,120 instead of £4,500. To show the glaring nature of this case, let me tell what actually happened. On the 31st August, 1914, this firm under the Regulations became responsible for one year's Excess Profits Duty, although the War was only 27 days old. In fact, this firm has paid for that period to the 31st August, 1914 a sum of £2,737 or, roughly, £100 for every day of the War. That £2,737 was arrived at as follows: The profit in 1914 was £10,000. The pre-War standard, adding the years 1912 and 1913 together, was £4,500. Therefore you deduct £4,500 from the £10,000 profit made up to 31st August, 1914, and the Excess Profit was £5,670. If you deduct £200 allowed under Section 38 of the Finance Act, 1915, that is £5,475. The Excess Profits Duty was at that time 50 per cent., and, taking half of £5,475, that gives £2,737, which was, in fact, paid to the State in Excess Profits Duty as due on 31st August, 1914. The next year the firm increased its profits, and made £11,000. It deducted the same pre-War standard, namely, £4,500, leaving a total of £6,478. It deducted the allowance, under Section 38, of £200, leaving a total of £6,278. Dividing that by two, to give the 50 per cent., you get £3,139, and in the two years 1914 and 1915 a total of £5,876.

5.0 P.M.

I want to show what would have been the Excess Profits Duty this firm would have had to pay if allowed to exclude its profits made in 1914 up to 31st August. On 31st August, 1914, it would have had to pay, of course, no Excess Profits Duty at all. On 31st August, 1915, its position would have been as follows:—In that year it made £11,043 profit. The pre-War standard, by bringing in the profit for the. year 1914, which was £10,000, would have been £8,121—a very different story from £4,500. Deducting £8,121, pre-War standard, from the £11,000 profit, we get a total of £2,922, and deducting £200 under Section 38, we get a total of £2,722. Dividing by two to give the 50 per cent. Excess Profits Duty, we get a total payable on 31st August, 1915, of £1,361, as against the total of £5,876 which this unfortunate firm has actually paid. I have taken the facts of an actual firm, of the circumstances of which I knew nothing until ten days ago. This pre-War standard is based on the principle of disallowing the profits of 1914 up to 31st August altogether. So that the firm is thrown back to find what was the pre-War profit to 31st August, 1913. This is double-barrelled, because not only is the pre-War standard much less than it would have been if the profits were taken up to the beginning of the War or to 31st August, but it is a recurring injustice every year. Not only do the firm pay Excess Profits Duty for eleven months of peace time, but every year that has followed since that, the excess profit was greater than it need have been with justice, because the pre-War standard had been artificially lowered. There are two possible alternatives to remedy the case. I am sure the right hon. Gentleman will point out Section 51 of the Finance Act, 1916, which attempted to deal with the case. That enabled a firm to take an interim account of its profits, but that section has become an absolutely dead letter. There have been three test cases, and in two of them the Revenue authorities made it impossible for firms to avail themselves, as I am informed, of that Section 51 for this reason. They said that to take an interim account of their profits it was essential to look at their stock. "All right," said the firm, "we will show you our books." The Revenue authorities said, "No, we must have an account ad hoc. You must go back to 1914,"—which, of course, it is impossible to do—"and have a special stock-taking and show exactly what your profits were." That being impossible, the whole of Section 51 has become a dead letter. The actual firm to which I am referring brought an action under Section 51, and failed under that section to get the interim account. To take an interim account is the only fair way.

The other alternative I suggest is the new Clause which stands in my name. I am informed that it will bring about a remedy of this extraordinary state of affairs, and if the Chancellor of the Exchequer cannot give me three months, perhaps he will give me two, and if not two then one. All I am pleading for is one of two things—either put the matter right in the way I have asked, or make it possible to have an interim assessment, so that in fact the opening day of the War shall be the day which divides the assessment of the pre-war standard from the assessment of the Excess Profits Duty, and in any case set right this glaring anomaly of a firm—and there are many of them—who have been compelled to pay Excess Profits Duty for eleven months of peace time, and whose financial year ending on 31st August, they have to pay a year's Excess Profits Duty for twenty-seven days of the War. The Chancellor of the Exchequer may say that it is impossible to go back—that it would spoil all his Budget. This is only a glaring anomaly in the case of the small and progressive firms. In the case of the young firm which I have mentioned, which was making £2,000, £3,000, £4,000, £6,000 and then £10,000—doubling profits nearly every year—the anomaly is as glaring as it can be. I would point out that the Amendment moved by my hon. and gallant Friend the other day in which he asked that there should be an appeal in hard cases like this raised a totally different issue. In that case I do not think he objected to the way the pre-war standard was arrived at. In my case I say a gross injustice is being done not only in law but in fact, because the pre-war profits were not allowed to run until the beginning of the War. It is not the principle of the Excess Profits Duty that this new Clause wishes to alter, but the method of its assessment. Finally, I would beseech the Chancellor, with all earnestness, if my method in the new Clause is no good, to put right this injustice, to tell men how it can be that so glaring an anomaly has not been set right up till now; how is that all this money has been paid to the State to which the State has had no earthly right? I implore him to suggest a method—in fact I appeal to him with the greatest confidence to suggest a method by which this injustice shall be put right.

In my hon. Friend's speech he gave us the circumstances of one firm as an illustration, and dwelt somewhat largely upon them. I do not know whether that is the firm which has been at the expense of sending as many as three telegrams to individual Members of Parliament—

I hope the right hon. Gentleman does not suggest that I have anything to do with that. I do not know—well, I do not know about the thing, but I had nothing to do with it, nor am I aware of the arrangements made by the firm.

I do not suggest that the hon. and gallant Gentleman has a knowledge—

Of course it is a very clear case.

I was not imputing to my hon. and gallant Friend any responsibility in this matter. I was only suggesting that the firm that spends money so freely was doing very well. The hon. and gallant Gentleman has produced a case which I daresay has struck Members of the Committee with more or less force; but he has not produced an offer. This matter was very fully discussed at the time the tax was first imposed. All the difficulties, points, and allegations of injustice which have been suggested by my hon. and gallant Friend were fully discussed. After full discussion the House decided that the basis of the tax was to be on the accounting period, that the first tax should be levied on the profits of the first accounting period after the War began, and that the pre-war standard was to be arrived at by reference to the previous year's trading of the firm. The hon. and gallant Gentleman asks that after the Act had been in operation all these years, and that, as we hope, it is drawing towards its end, I should recast its basis. I really cannot do it. To this I would only add that if it were to be done at all—my hon. and gallant Friend himself sees this as the Amendment chooses another purely arbitrary date—were I to accept it, the concession might at once be made the basis for another speech by another hon. Member, not of such eloquence as that of my hon. and gallant Friend, and based upon the circumstances of another firm with another accounting period. An hon. Member opposite called out, "Three months." If three months is suggested, why not five months or six months. Under these circumstances, I hope my hon. and gallant Friend will not think me disrespectful if I confine my reply to his arguments to what I have said.

Will my right hon. Friend reply to my argument about Section 51 of the Act of 1916, and my allegation that it has become a dead letter?

May I ask if this firm, which has sent three telegrams to every Member of Parliament, will be allowed to deduct that as a trade expense?

I think I may safely trust the Commissioners of Inland Revenue not to permit the cost of political agitation to be put down as a trade expense. I do not think Section 51 was intended for cases of this kind, and it was not intended for the purpose to which the hon. and gallant Member wishes to apply it.

Question, "That the Clause be read a Second time," put, and negatived.

I beg to move, "That the Clause be read a Second time."

Before this Clause be accepted, I should like to know exactly what it means.

I understand the Clause is accepted by the Government, but I am only too ready to explain it. This proposal is really intended to get the House to affirm what was decided by Parliament in the Finance Act of 1915. Under the Finance Act of 1910 an hotel or restaurant is entitled to an abatement of the Excess Profits Duty if the receipts from liquor are less in the case of a restaurant than two-fifths, and in the case of an hotel one-third of the total receipts. Four years after that, in 1914, a substantial increase was made in the duty on beer. The result of this was that the amount of receipts from liquor would increase automatically. The Finance Act of 1915 provided that when the receipts exceeded the proportion laid down on account of the additions of the Duty on beer imposed the year before, then the Finance Act of 1915 should have effect as if three-fifths were substituted for two-fifths and one-half for one-third. In this Finance Bill the provision of the Act of 1915 is not repeated, and I move it, and the Chancellor of the Exchequer says that he is willing to accept it, simply so that Parliament may confirm what it has already laid down.

Various appeals from various quarters have been made to the right hon. Gentleman, and he has made concessions in one or two special directions. All the other appeals he has rejected. I should like to know if this is another appeal involving a concession in another special direction, and also the extent of it.

Do I understand from the explanation of the Noble Lord that, while there was a rebate in the Act of 1915, now that the restaurants and hotels are obtaining more money because of the increased prices—

indicated dissent.

Well, perhaps the right hon. Gentleman would explain.

I think I can make the thing clear almost in a sentence. When the increased Licence Duty, which has relation to the value of the licensed premises and not to the sales, was imposed, it would have pressed very harshly upon expensive hotels and large restaurants where the liquor bears only a small proportion to the total business done. Accordingly, an abatement was allowed in their case, and obviously it was not merely just but in the public interest that it should be allowed. We have again and again increased the tax on beer, the tax on spirits, and now I have increased the tax on wines. Therefore, without the hotel people or the restaurant people being able to put one penny more into their own pockets, their charges as collectors of revenue for the State have risen, and the proportion of the sales of alcohol to the other sales on the same quantities sold has become higher. They are therefore deprived of the relief which Parliament intended them to have, not because they sell more liquor in proportion to the rest of their business, but because the Exchequer takes more revenue out of the liquor which they sell. This new Clause is moved purely to prevent them being robbed by the increased duties which they are charged of the relief which was given to them. I should like to say that since I accepted the Clause I find that it is not quite in the form in which it ought to be, and, if my Noble Friend will be good enough to allow it to be withdrawn, I will either supply him with the right form of words or bring the matter up myself on Report. This is not a new relief to the innkeeper, and it is not giving away money which he has hitherto had to pay. It is preserving him in his old position and preventing him from being deprived of the relief which Parliament has already afforded to him merely because we have increased the taxes on the liquor which he sells.

Then why did you not put it into your Bill?

I cannot put everything into the Bill. My attention was drawn to the matter by the Amendment of my Noble Friend. I told him I thought he had a good case and that I was prepared to meet him.

The original concession was on the right lines. We should seek to give advantage to the house which sells a small amount of liquor in proportion to other things, but I do not follow the reasoning of the Chancellor of the Exchequer as to the necessity of an alteration, because, although the price of liquor has gone up very much, it is equally true that the prices of other articles have risen greatly. If they have gone up in exactly the same proportion no change is necessary. It may be the price of liquor has gone up more than that of other things, but I do hope that the Chancellor of the Exchequer in framing his new Clause will bear in mind it is not to be assumed that the price of liquor alone has gone up.

Let me inform my hon. Friends what has happened in the case of beer. The taxation has risen from 7s. 9d. per standard barrel to 100s.

It is not merely a question of taxation. It is a question of selling prices, and I doubt whether the selling price of beer has gone up much more than the selling price of food.

The relief should be in proportion to the taxation. The trader has to pay a tax on the article as well as an increased tax on his licence.

I understand the Chancellor of the Exchequer was ready to accept my new Clause in the way it was put down, but that he now has in mind other words which he has drafted, and on the understanding that he will put down those words for the Report stage I beg to ask leave to withdraw my Motion.

On a point of Order—

Leave has been asked to withdraw the Motion. Is permission given or withheld?

I object to the withdrawal, but I only wish to say that, having heard the explanation of the Chancellor of the Exchequer, I am perfectly satisfied.

Question, "That the Clause be read a Second time," put, and negatived.

I beg to move, "That the Clause be read a Second time."

I do not in the slightest degree desire to prejudice the reduction made in respect of contributions to associations which are bonâ fide carried on for trade or professional purposes. I believe that at one time no deduction was allowed in respect of such contributions, but I understand that now an allowance is made, and that seems to me to be perfectly fair. I am seeking, however, to prevent such a deduction being extended in directions which have really no relation to proper trades or professions. I have been led to put down this Clause by a printed memorandum sent to me by a friend in the country, and purporting to be a form for sending contributions to the British Empire Union. In the margin, in leaded type, are these words: We have obtained a concession from the Income Tax Authorities whereby trading members will be allowed to debit as a trading expense any contributions towards the funds of the British Empire Union. In spite of that, I might have supposed it to be a bonâ fide trading concern, but I read in the memorandum the following: Enclosed please find cheque for pounds, being my donation towards the campaign of the British Empire Union against industrial unrest and Bolshevism. Please send me copies of this letter for distribution. That having been sent to me by a gentleman in the country who feels very indignant about it, I felt it my duty to raise the question by means of this Clause, and I hope either that some satisfactory explanation will be given or that the Chancellor of the Exchequer will accept the Clause.

I hope I shall be able to satisfy my hon. Friend, and that he will not press this Clause. He and I are absolutely at one, both in regard to the view we take of that circular and in regard to the policy which we ought to adopt. A subscription to a trade association is a legitimate deduction from Income Tax, and my hon. Friend does not wish to interfere with that. There are associations, the subscriptions to which are partly applied to purposes within the meaning of the Income Tax Act, and partly to other purposes in respect of which a deduction is not admissible. It has been found, from the point of view of the trader, the association, and the Inland Revenue, to be convenient and economical to allow the subscription to be deducted by the original subscriber, but to charge it to Income Tax, in so far as it is chargeable, on the association which receives it. Often the subscriber himself does not know what proportion of his subscription is properly allowable as a deduction and what portion is not, and he would have to write to the association for a statement of the proportions in which their funds are expended. The Inland Revenue, also, would have to do that in order to check the statement made by the individual taxpayer. That is uneconomical from the point of view of Revenue administration and harassing to the trader, and, of course, it does not tend to encourage people to subscribe to the association. Accordingly, in the interests of all, where a subscription is partly a proper trade expense, but where some proportion is not, trading associations have to a growing extent availed themselves of the permission to make themselves responsible for the Income Tax due from their individual subscribers in respect of their subscriptions. I have made that plain.

What I do not understand is this. This is sending a cheque for a donation towards the campaign of the British Empire Union against industrial unrest and Bolshevism, and the very form which is issued for that purpose to the subscribers distinctly states that a deduction would be made from subscriptions so made. That is the point I am raising, and it seems very important.

I think the statement on the circular is most improperly expressed. When it was brought to my notice a month or two ago I at once communicated with the Inland Revenue authorities about it; and steps have been taken to see that no such statement is included in their future circulars. They have no special concession, and in so far as their subscriptions are contributed for the purpose there set forth, they will be taxed to the full. The association appeared from that circular not to be a trade association in the proper sense at all—I know nothing of it except through the circular—but a perfectly legitimate political association, and as such, it had no right to be admitted to this practice. But I find by far the major portion of their expenditure is legitimate trade association expenditure and I do not think I should be justified in leaving them out of a system which is of general application and to which they were admitted a good many years ago. But I can assure the right hon. Gentleman that in so far as any part of the subscriptions which they receive are devoted to other than proper trade purposes, and are devoted to political agitation of whatever class or character, even though it be of a perfectly legitimate kind, they will be taxed. They ought to be taxed, and I agree they shall.

How will you discriminate?

The association has to produce its accounts and prove the proportion of its subscription income which has been applied to the purpose. I think the circular, as worded in regard to Income Tax, is an improper circular. We have taken steps to see that that wording is not repeated. No special favour will be shown to this association, and no subscriptions to political objects will be allowed to pass untaxed.

I understood the right hon. Gentleman to say that in his opinion any contribution to a trade association is a legitimate contribution, and one that he would allow for the purpose of abatement. What is the difference between a contribution made to a trade association by an employer and a contribution made by a workman to his trade union, and if there is no difference, why is there a discrimination between the two, and will he take steps to give the workman the same benefit that the employer himself derives in his contribution to the association?

I understand that the accounts of this and similar organisations are audited by the Treasury officials or, at any rate, closely scrutinised. With respect to what is meant by "legitimate trade object," I understand that this very interesting association describes as a trade insurance propaganda against what they call industrial unrest, but which other people would call efforts to raise the standards of life of the workmen. They call that legitimate insurance of traders, and they claim exemption for it as a trade service. What is the view of the Treasury officials upon that matter? How far can the question of trade insurance be stretched to cover insurance against so-called unrest and enable them to send out cinematograph films and propaganda of that sort?

Propaganda of that character is not a trade expense within the meaning of the Income Tax Act. The Income Tax Act lays it down what is a trade expense. The matter mentioned by the hon. Member (Mr. Spencer) is very different. This arrangement in regard to trade expense does not confer a favour upon any particular association. There have been 1,800 associations admitted to this arrange- ment, which is a great convenience to them and to the Treasury, and a great convenience and economy to the Treasury in the collection of revenue. Because one circular has been, as I think, very improperly worded, I hope the Committee will feel that that is no reason why an arrangement of this sort—I will not call it a concession; it is not a concession—which is as convenient to the revenue authorities as it is to the individual taxpayer, should be upset. The arrangement provides that the association desiring to accept it shall bind itself to render copies of its accounts annually to the Inspector of Taxes and to furnish that officer with all the necessary information in regard to those accounts and the operations of the association, and to submit to an assessment of Income Tax under Schedule D on any balance of its receipts or members' contributions over expenses which may properly be regarded as incurred wholly and exclusively for the purpose of the members of the trade. The arrangement in terms specifies that the association should pay tax on the balance of income over expenditure computed in accordance with the provisions of the Income Tax Act. In actual working I do not think there is any possibility of abuse. I do not impute any wrong intention to the people who drew up the circular in question, but it was very improperly worded, it gave a wrong impression, and it has caused me a great deal of trouble, which I hope may be allayed by the explanation I have given.

The Committee are agreed that some relief should be given for purely trade purposes to purely trade organisations. If a draper joints the Drapers' Chamber of Trade, or a grocer joints his trade association or the local Chamber of Commerce, which are purely trade organisations, we are all agreed, but there has recently sprung up quite a number of organisations who call themselves the union of this or the union of that, and which are used to a certain extent for clearly well-defined political purposes, and there ought not to be any facilities given to such organisations. While we all agree that some of them which are legitimate trade organisations should receive every support, I think the Chancellor is exposing himself to the possibility of his good intentions being abused by such organisations. We have had evidence of that during the last few weeks. A well-known organisation which is not confined to one particular trade has been spending thousands of pounds on advertisements and telegrams to Members of this House for a cause with which I am in complete sympathy. That is not done by any particular trade or to the advantage of any particular industry. While that is possible under the system which exists at the moment I think that, before agreeing to the new Clause as drawn, we should ask for an undertaking by the Chancellor that between now and the Report stage he will go carefully into the question to see what action, if any, can be taken so that there shall be no extension of the abuse to which we have just had our attention called.

I thank the Chancellor of the Exchequer for the full and courteous reply that he has given me. I recognise the position which he has taken, which is exactly the position that I take myself. I do not in the least desire to interfere in any way with this deduction in respect of contributions to a bonâ fide trading concern. I say this in the interests of the traders themselves, because if they were unwisely used they might lose what is legitimate benefit to them. Having got that statement from the Chancellor I do not desire to hurt the societies, and ask leave to withdraw.

Motion and Clause, by leave, withdrawn.

I beg to move, "That the Clause be read a Second time."

On a point of Order. Can we not discuss the Clause which stands in the name of the hon. Member for Bury St. Edmunds (Lieut.-Colonel Guinness) in reference to the remuneration of directors and managers?

No, I am riot selecting that Amendment.

It does seem a rather important point in reference to directors' and managers' remuneration, and there has been another Amendment on the Paper on the point.

This point was discussed and decided.

I believe that some people argue that the contributions of employers and employés to superannuation funds are exempt from Income Tax, but my information from some of those associations is that they are not exempt. My object is to make the point quite clear, and I move the Clause so that there shall be no misunderstanding in connection with a matter of this kind. I understand that contributions under the Insurance Act are exempt from Income Tax, and I submit that if workmen and employers contribute to a fund which is going to be used for the purpose of maintaining workmen when out of employment, those contributions ought to be exempt from Income Tax as well. We ought to remember that the fact that these persons are contributing to a superannuation fund means that in the great majority of cases they will not take the Old Age Pension. It is, therefore, sound economy to exempt superannuation funds from Income Tax. The Royal Commission which considered the question of the Income Tax recommended that the contributions of employers and of workmen towards superannuation funds should be exempted and that the income arising from the investment of those funds should also be exempted. All I ask the Chancellor of the Exchequer to do is to accept the recommendations of the Royal Commission.

The Clause deals with three pointsâthe employers' contributions, the workmen's contributions and the income derived from their invested funds. Subject to the fulfilment of certain conditions, the normal practice is that the contributions of the employer and of the employed are exempt, but according to my information the difference between the practice and what is desired by my hon. Friend is in respect of the invested funds. It is quite true that the Royal Commission made on this point recommendations which, like a great many of their recommendations on detailed matters, I have not been able to take up in the present Finance Bill, but have reserved for the Revenue Bill, when- ever I can introduce that. I shall go into the matter very carefully then, and my expectation is that in regard to most of these matters I shall be able to follow the recommendations of the Commission and incorporate them. in the Bill. If the hon. Member has particular cases in mind where he thinks that the practice conflicts with that which I have described as the normal practice, I shall be much obliged if he will send me particulars so that I may have them investigated.

Ts it not the fact that the only contributions which are exempt are the contributions which carry a benefit of not more than £1 a week. I am told by the Association of Municipal Employ£s that their contributions and the municipalities' contributions are not exempt. If the right hon. Gentleman is prepared to give sympathetic consideration to the principle contained in this Clause, when dealing with the Revenue Bill, I do not know that I shall press the matter now.

I certainly shall give most sympathetic consideration to the recommendations of the Royal Commission in respect of it. They are rather complicated and will require a good deal of legislation. I will make further inquiries on the matter and will communicate to the hon. Member the result.

Motion and Clause, by leave, withdrawn.

I beg to move, "That the Clause be read a Second time."

Section 42 of the principal Act says: Where an application is made to the Commissioners of Inland Revenue for an increase of the statutory percentage as respects any class of trade or business or for a calculation of the percentage standard in the case of any class of trade or business in which the amount of capital employed in the trade or business is owing to the nature of the trade or business small compared with the capital necessarily at stake for that trade or business — the Commissioners, unless they are of opinion that the application is frivolous or vexatious or relates to matters already decided by a Board of Referees, shall refer the case to a Board of Referees.

The object of this proposed Clause is to extend to individual traders the right conferred by that Section on a certain class of traders. It is quite obvious that there may be cases of serious individual hardship. I may be told by the Chancellor that the result of this Clause would be to overwhelm the Board of Referees with a number of cases, but I have provided for that by making it permissive in the words "the Commissioners may if they think fit."

The hon. Gentleman has raised a point which has often been raised before, but I am bound to say he has protected himself against one of the answers usually given, that everybody would at once take his case to the Referees if he had a conceivable shadow of a case, and that in that way the Referees would be quite overwhelmed with work. Instead of that the hon. Gentleman proposes that the Commissioners may refer any case they think fit. That only means that the shower of applications would be transferred from the Board of Referees to the Commissioners of Inland Revenue. It is one thing for Parliament to say we will give to some authority discretion to deal with whole classes of cases by a general measure of relief applicable to them all. It is another thing for Parliament to say "We professedly impose a tax, but we really mean the Board of Inland Revenue to settle in the case of each man what the tax shall be, to settle the standard by which the tax is assessed." I doubt whether the House would willingly allow so wide a discretion to anybody but itself, and I cannot think that so wide a discretion could be made to work smoothly or with satisfaction to the general mass of the community. I am sure we should be assailed by accusations of favouritism and that we should be called upon to prove why we bad allowed it in the case of "A" and not in the case of "B." I hope, therefore, my hon. Friend will recognise the inherent difficulties and dis- advantages of the proposal and will not think it necessary to press it.

Question, "That the Clause be read a Second time," put, and negatived.

The next two Clauses on the Paper ( "Appeal to Commissioners as to Percentage Standard "and" Appeal to Commissioners to fix new pre-War Standards" ), standing in the names respectively of the hon. Member for Rossendale (Mr. Waddington) and of the hon. and gallant Member for Burton (Colonel Gretton), deal with matters already disposed of. The hon. Member for North-East Derbyshire (Mr. Holmes) is not moving his Clause ( Amendment to Fourth Schedule of Principal Act ). There are three Clauses in the name of the hon. and gallant Member for South-West Hull (Major Entwistle), of which the first ( "Alternative Mode of Payment of Increase of Excess Profits Duty" ) involves a charge on the Exchequer, and the last ( "Interest on Arrears of Excess Profits Duty" ) involves a charge on the subject, and they are, therefore, out of order. The hon. Member informs me he is going to move the other one ( "Exemption of Profits from Certain Patents" ) on Report. That disposes of the Clauses on the Paper, but there is a Government Clause dealing with charitable donations.

I beg to move, "That the Clause be read a Second time."

This is a Clause embodying the concession which I promised earlier in the day, and I move it, in order that it may be printed with the Bill, and that Members may have it on the Report stage.

Clause read a Second time, and added to the Bill.

Bill reported; As amended, to be considered upon Thursday next, and to be printed. [Bill 174.]

It being after half-past Five of the Clock, Mr. DEPUTY-SPEAKER (Mr. Whitley) adjourned the House, without Question, put, pursuant to Standing Order No. 3.

Adjourned at Two minutes before Six o'clock, till Monday next, 19th July, 1920.