7.

8.

19.

25.

27.

39.

43.

24.

26.

28.

29.

30.

Following is the statement

There are relevant legal provisions in the Factory and Workshops Acts and the Coal Mines Act, 1911. The effect of the employment provisions in the Factory and Workshops Acts is that women and young persons (with certain exceptions) cannot be employed between 4 p.m. on Saturday (or where another short day is substituted for Saturday, 8 p.m. on. Saturday) and 6 a.m. on Monday. The exceptions are in respect of ( a) male young persons over 16 working in shifts in necessarily continuous processes in blast furnaces, paper mills and glass works, and ( b) women and young persons employed in creameries during the months of May to October. The hours of these workers are subject to special provisions. Section 92, Sub-section 3 of the Coal Mines Act, 1911, provides that no boy, girl or woman shall be employed above ground in connection with any mine on Sunday or after 2 p.m. on Saturday.

31.

33.

35.

36.

45.

46.

49.

47.

50.

52.

Reported, with Amendments; Report to lie upon the Table, and to be printed.

Bill, as amended, to lie upon the Table.

Reported, with Amendments; Report to lie upon the Table, and to be printed.

Bill, as amended, to lie upon the Table.

Considered in Committee.

[Sir DENNIS HERBERT in the Chair.]

3.34 p.m.

Now let us consider the out-turn of 1934, and it will only be necessary for me to draw attention to the salient points, because the details are in the Blue Paper which hon. Members have in their possession. I estimated for a surplus of £796,000, but, since the revenue exceeded the estimate by £9,921,000, and the expenditure only showed an excess of £3,155,000, the actual surplus realised was £7,562,000, a very satisfactory result. It did not prove necessary to use the powers that were given me by Parliament to borrow for the contractual Sinking Funds. The figure of expenditure includes £12,343,000 that has already been spent on the redemption of Debt, and, if we add that to the realised surplus, we see that the real out-turn of the year—that is, the excess of revenue over expenditure other than that applied to the redemption of Debt—was £19,905,000.

I come to a few details on the expenditure side. The Consolidated Fund charges show an excess of £519,000, owing to an under-estimate of the sums payable to the Post Office Fund and to the Exchequer of Northern Ireland. The Supply Services exceeded the Estimates by £2,636,000. This figure may seem to hon. Members to be rather low as compared with the amount of £18,000,000 which was the total of the various Supplementary Estimates presented during the year, but it must be remembered that in my original Budget I had already included a sum of £7,600,000 on account of the restoration of cuts, and moreover a sum of £4,275,000 which I had provided for the Unemployment Assistance Board was not required in consequence of the suspension of the regulations. Certain other services also have cost rather less than the provision I had made, so that the total expenditure came out less than might have been expected, considering the amount of the Supplementary Estimates. I do not think there is anything further that requires mentioning on the expenditure side.

On the revenue side Customs and Excise yielded £289,696,000, which seems a remarkably close approximation to my estimate of £290,000,000. I ought, however, to remind the Committee that last July, in accordance with a recommendation from the Import Duties Advisory Committee, I reduced the Silk Duties, which involved a loss to the revenue of about £2,000,000. In spite of that, however, we obtained £3,500,000 more from Customs and Excise than we obtained in the previous year. Most of the individual duties came out very close to my expectation. I might, however, just mention a surplus of nearly £700,000 from the duties on articles coming from the Irish Free State. That was partly due to the new Coal-Cattle Agreement, but the other imports from the Irish Free State were rather larger than I had expected.

Inland Revenue gave me £388,500,000, £16,000,000 more than the estimate. That increase was mainly due to Income Tax, which produced an excess of £9,377,000, and Death Duties, which yielded an excess of £5,356,000. I think perhaps a word of explanation is required in connection with these two increases. In some quarters it has been suggested that this large increase in Income Tax proves that I displayed an undue pessimism last year in estimating the profits and incomes which would come into assessment, and, if that were really true, it would, of course, encourage a very highly optimistic view of the future of the tax, but, unfortunately, the matter is not so simple as that. Only £2,000,000 out of this £9,377,000 can be attributed to a greater amount of income and profits coming into assessment than I had estimated for. Of the remainder, £1,000,000 is accounted for by a closer collection of the arrears coming forward from the previous year, while no less than £6,000,000 was due to a reduction in the amount carried forward for the next year over what I anticipated. The fact is that in the March quarter the Inland Revenue collected a record percentage of the tax, and, although that is a striking testimony to the public spirit of the taxpayer and also to the conditions which made it possible for him to fulfil his obligations so promptly, it will be obvious to the Committee that the process is not one which can be expected to recur in future years. As to Death Duties, which are always a speculative item, the increase was due to a rise in the value of securities. A rise of that kind benefits the Exchequer twice over, because, not only does it increase the actual value of the estates, but it also brings them into the range of a higher level of duty. The other Inland Revenue duties included the Surtax, which was up by £1,000,000, and that was due entirely to a better rate of collection; Stamp Duties, which were short of estimates by £1,000,000, but were still About £1,500,000 better than in 1933; and then the £2,000,000 which we got from Excess Profits Duty and Corporation Profits Tax show that the last dying convulsions of these two imposts, once so vital to us, are still capable of returning a perceptible contribution to this bumper yield of Inland Revenue.

The Post Office net receipts of £12,250,000 are below the estimate by £1,750,000, which was partly due to the restoration of cuts in pay, and partly to the surrender of revenue involved in the recent reduction of telephone charges. The Exchequer share of Motor Duties and receipts from Crown Lands came out pretty well according to plan, but Sundry Loans and Miscellaneous Receipts fell short by £4,303,000.

Before I leave the past year, the Committee will expect me as usual to make a short statement about the National Debt. In April last I repaid, at the earliest date that was possible, £105,000,000 of 4 per cent. Treasury Bonds, and also £11,000,000 3 per cent. Bonds, which had been drawn for redemption in the previous December. To provide for these maturities, and also to give a small margin for the reduction of floating Debt, I raised in April £150,000,000 by the issue of a 3 per cent. Funding Loan. Last December I took advantage of the continued cheapness of money to give notice to draw for repayment one half, that is, £44,000,000 of the remaining 3 per cent. Treasury Bonds. Since then £34,000,000 of those Bonds have already been purchased and redeemed out of Sinking Fund money, so that the redemption of the remainder, which takes place to-day, will be carried out without any disturbance of the market. I must once again make grateful acknowledgement of the repayment last summer by the Government of the Union of South Africa of the balance of their War Debt amounting to £7,500,000, which has, of course, been applied to the redemption of Debt. The net effect of all these transactions, together with the operation of the Statutory Sinking Fund, has been the reduction in the nominal amount of the National Debt by £21,750,000 during the year, and also of the annual interest charge by £1,650,000 a year. Last year I mentioned to the Committee that the Exchange Equalisation Account then showed a profit. This year I may repeat that observation with somewhat greater emphasis, and I should like also to express my gratitude to the Committee for their forbearance in not asking me for details of the working of the account.

I am now ready, and I dare say the Committee is ready also, to begin the examination of the prospects for the coming year. The first subject to claim our attention is the Fixed Debt Charge. I am sure that hon. Members have not forgotten the warning which I addressed to them last year that in future there would undoubtedly have to be a larger allocation to the Fixed Debt Charge in order to provide for Debt reduction on a more appropriate scale, and also to cover the estimated average cost of interest on Treasury Bills and Savings Certificates over a period of years. At the time when I uttered that warning short-term interest rates stood at a level which appeared abnormally low, and I did not anticipate that there would be any considerable redemption of Debt during the year. As a matter of fact, however, there has been no important change in conditions during the past twelve months. Treasury Bills have remained at the extremely low average rate of about 12s. 6d. per cent., and the encashment of Savings Certificates has actually been lower than it was in 1933. Partly in consequence of this, and partly as a result of the Budget surplus, there has in fact been a redemption of Debt by £20,000,000, and in these circumstances I have felt justified in retaining the Fixed Debt Charge at the same figure of £224,000,000. If the interest rates on Treasury Bills continue to remain at anything like their present level, that figure ought to contain something available for Debt redemption out of revenue, but I think perhaps that it would be advisable, in order to guard against contingencies, to ask Parliament to give me powers again to borrow for the purpose of the contractual Sinking Funds.

There are three other smaller items charged on the Consolidated Fund: Northern Ireland, which I put at £6,750,000; Miscellaneous Consolidated Fund Services, £3,700,000; and the payment to the Post Office Fund, which in accordance with the out-turn of 1934, will be £1,130,000. That brings the total for Consolidated Fund Services up to £235,580,000.

The Estimates for the Supply Services are already known to the Committee. They amount to £490,390,000. But there are several items which are not included in that. There is the subsidy for beet-sugar, there is the cattle subsidy, and there is the increased cost of unemployment assistance, all of which will require Supplementary Estimates later on, and although, as usual, I expect that there will be savings available to make some set off against these charges, I think it is only prudent to provide an additional margin which I may put, in round figures, at £4,000,000. The Supply Services, therefore, for 1935, will cost £494,390,000 If that figure be compared with the original Estimates for 1934, the Committee will see that there is an increase of very nearly £25,000,000.

That is a very formidable figure. It is not due to any relaxation of control over administration. It is accounted for by certain definite decisions which have been approved by Parliament. I have had to provide £10,500,000 extra for the deficiencies in the Army and Navy, and for the increase in the Air Force, and I have to provide £14,500,000 extra for civil and social services. Part of that last increase is due to the fact that the restoration of cuts in salaries and wages only operated last year for nine months, whereas, of course, now we have to provide for 12 months. Then we have also to take account of the automatic increases in certain items like old age pensions. But the two main causes of the increase are the additional £4,500,000 required for the industries of shipping and agriculture, and the extra £5,000,000 which must be provided for the unemployed, chiefly in connection with the provisions of the Unemployment Act of last year. I do not think that hon. Members will regret having eaten this part of their cake, and I am sure, therefore, they will be neither surprised nor resentful to find it no longer figures in the fare on the table.

Outside the ordinary expenditure there are two self-balancing items— the Post Office and the Road Fund. The Post Office Vote shows a substantial increase at £64,000,000, due partly to the restoration of cuts, and partly to the expectation of a general expansion of business, which is always a welcome sign of more active trade. The Road Fund I put at £26,500,000, which is very near the receipt in 1934, but exceeds the estimate for last year by £2,250,000, although it includes the full effect this year of the

reduced licence duties which came into operation on 1st January last. Omitting these two self-balancing items, I can summarise the expenditure as follows:

What revenue can we find to finance this enormous outlay? I take the smaller items first. The Exchequer's share of the Motor Vehicle Duties remains at £5,000,000, the minimum fixed under the arrangement embodied in the Finance Act of last year. The Post Office Net Receipt, in spite of the extra business which we expect, must be reduced to £11,850,000 as a result of higher expenditure on account of the restoration of the cuts, and also on account of that reduction in telephone charges which my right hon. Friend undertook recently with the approval of the Treasury. Crown Lands I put at £1,330,000, a casual increase of £100,000 over last year's estimate. Sundry Loans are £3,900,000, and Miscellaneous Receipts, always a variable item, I put at £21,500,000.

Then I come to the. Inland Revenue Duties. The receipts from Income Tax last year were just below £229,000,000, but I have already pointed out to the Committee that £6,000,000 of that was due to the acceleration of collection owing to the fact that in the March quarter we exceeded all our anticipations, and, in fact, had the best proportion of collection that we have experienced since the end of the War. But the result, of course, of this acceleration was to diminish the arrears which are carried forward into the current year, and therefore the gain of 1934 is the loss of 1935. We must, therefore, compare our Estimates for 1935 not with £229,000,000, but with £223,000,000. I hope, of course, that the Income Tax payer will continue his good work of last year, and even improve upon it, but the rate of collection is now so high that I am afraid we must not expect any more considerable gain from a still further increase in the rate of collection. In 1935 we have to bear the extra cost in a full year of the reduction of Income Tax last year, and I estimate that extra cost at £3,000,000. On the other hand, we may expect to gain in assessment, because the profits and income in 1934 on which is based the Income Tax for 1935 were greater than the profits and income in 1933, upon which was based the Income Tax of 1934.

All the information which I have been able to gather shows that there was a substantial improvement in trading conditions in 1934, and, taking all things into account, I estimate that I may receive from Income Tax in the current year £237,000,000, which is £14,000,000 more than in 1934, leaving out the amount due to the acceleration of collection. Surtax I put at £51,500,000—about the same figure as last year. I have to take account there, also, of the fact that there was a speedier collection last year, and the Committee is aware that there is a lag of a year between Surtax and Income Tax, and we shall therefore have to wait for another year before Surtax shows an expansion comparable to that which I have provided for in Income Tax. Death Duties I put at £80,000,000, that is nearly £1,500,000 less than last year, butt last year the yield from large estates was certainly on the high side. Stamp duties, I think, should show a continued improvement, and they ought to reach £25,000,000. The remaining Inland Revenue Duties including Excess Profits Duty and Corporation Profits Tax, are expected to yield £2,500,000. I, therefore, have a total for Inland Revenue of £396,000,000, made up of Income Tax, £237,000,000; Surtax £51,500,000; Death Duties, £80,000,000; Stamp Duties £25,000,000, and the remainder £2,500,000.

Turning to Customs and Excise, I think I may expect, without undue optimism, that most of the duties will respond to the general expansion of trade. Contrary to recent experience, I am expecting an increase of £1,400,000 in the receipts from the Spirit Duty. That is not because I am anticipating an increase of consumption, but because I expect the realisation of clearances which were postponed last year, presumably in the hope that there might be some reduction in that duty. I am allowing also for substantial increases in a number of other items: Beer £1,300,000, wine £300,000, tobacco £1,600,000, oil over £1,000,000, silk £300,000, entertainments nearly £300,000. I anticipate an increased consumption of sugar, but I cannot expect

increased revenue from it, because of the larger proportion of sugar which is now coming from the Empire and which consequently enjoys preferential rates. In the tariff duties, under the Import Duties Act, I am allowing for a fall of £400,000. The Ottawa Duties also show a downward trend, which again is what one has to expect seeing that the purpose of those duties was to divert trade from foreign countries to countries of the Empire. Therefore, from that source, instead of £7,400,000 which I obtained last year I am expecting only £7,000,000. On the other hand, the duties on goods from the Irish Free State seem to keep up their yield. They gave £4,700,000 last year, and I am now estimating them at £5,000,000. Further details will be found in the White Paper which will be available to hon. Members when I resume my seat. The total figure for Customs and Excise is £296,000,000, or over £6,000,000 more than was received by the Exchequer in 1934. That makes a total estimated revenue, on the basis of existing taxation of:

Before we decide what to do with that surplus, I have one or two other matters to speak about. I will deal with one which, although it forms part of the financial proposals of the year, does not affect either revenue or expenditure. We are at present financing the Local Loans Fund by 3 per cent. Local Loans Stock. That stock dates from 1887, the year of the Goschen conversion scheme, and it is in the form which was common to longterm Government stocks at that period. It is a perpetual annuity. The holders have no right to claim redemption, but Parliament reserved the right to order redemption at par at any time after the year 1912 by giving one month's notice. There has been no occasion up to now to alter the method of borrowing, but hon. Members will see what a curious anomaly it is that we should be financing our Local Loans Fund by what purports to be and was intended to be a long-term stock, but one which, ever since 1912, has been redeemable at one month's notice. There was no practical importance in the anomaly so long as the yield on Government securities at the market price was well over 3 per cent., and so long as Government Departments were easily able to absorb any stock, so that it was unnecessary to make a public issue. But I am sure the Committee will agree that the time has come when we ought to have additional powers for any future borrowing, to enable us to issue stock in such form as may be best suited to modern conditions. Accordingly, I shall propose a Clause to that effect in the Finance Bill. I shall also ask for further powers to be exercised if and when the conversion of existing stock should be feasible. These powers, of course, will not make any difference to the rights of stockholders. They will be merely concerned with machinery. I want the Committee to understand that I am not now taking upon myself the role of prophet. It is quite clear that conversion is not practicable at the present moment, and, indeed, I cannot give any indication of when it may be possible to convert, but it is desirable that powers should be ready in the hands of the Treasury, so that they may be used at the appropriate moment in whatever form is thought best at the time. The Committee may remember that my predecessor, Lord Snowden, in the second Budget of 1931, obtained powers for the conversion of the War Loan at a time when that operation certainly did not seem to be within the range of possibility, but that later on those powers proved to be extremely convenient.

Now I have to deal with one or two minor points. I shall have to bring forward a Resolution connected with the Beer Duties, but hon. Members will be relieved to know that this is not to impose any fresh burden upon beer. It is merely to put the law into harmony with what has been for some time the established practice. I shall also have Resolutions to correct an anomaly in the charge of Sugar Duties, to authorise an increase in the duty on rice in husk, to impose a new duty upon soya beans, and to cover a Clause in the Finance Bill to amend the definition of value of imported goods for Customs purposes. There will be another Resolution to deal with the classification for taxation purposes of vehicles on the borderline of the goods class.

I have a small change to propose in the Liquor Licence Duties. I cannot afford a general all-round reduction, but I do propose to make a concession in the minimum licence duties, which vary at present according to the population. The result will be that, subject to a minimum, which for public-houses will be £10 in urban districts and £5 in rural districts, and for beer houses £6 10s. in urban districts and £3 10s. in rural districts, the small houses will be put into the same position as the large ones, that is to say, their licence duties will vary according to their annual value. That change will come into operation on 1st October next, and it should, I think, be of considerable benefit to the small licence holders. I have received from the Brewers' Society an assurance that their members will pass on the concession to the licence holders. The Finance Bill will contain a small concession in the Estate Duties. Where a deceased person has provided during his life for an annuity at his death for the benefit of his family or others there is exemption at present, under the Finance Act of 1894, for annuities which do not exceed £25 a year. It has been represented to me -that that limit of £25, fixed 40 years ago, is now too low. I agree, and I propose, therefore, to extend the exemption to annuities not exceeding £52 a year. These minor changes are not going to produce any great effect one way or the other upon the revenue. Some of them mean small increases, others small reductions, but the net effect on the whole I estimate will be an increase of about £145,000 in the current year.

I come now to the next point, which concerns road vehicles. I dare say a good many hon. Members are aware of a development in recent times which, however admirable in itself, does threaten a considerable danger to the very important revenue which I derive from the duty upon light hydrocarbon oils. This development is an increased use of what are known as Diesel engines, particularly in the heavier types of goods and passenger vehicles. There has been a very marked growth of these heavy-oil engines in recent years. There are now said to be over 7,000 of them on the roads, and they are increasing daily. This development is not merely due to the inherent advantage of the particular type of engine. It is true that a Diesel engine, with one gallon of fuel, will do as much work as a petrol engine does on a gallon and three-quarters of petrol, but when the Committee consider that the duty on the heavy oil is only a penny a gallon, whereas the duty on petrol is 8d. a gallon, it will be seen what an enormous fiscal advantage accrues to the Diesel engine. In 1933 the licence duty on these heavy-oil vehicles was increased to a greater extent than that on the corresponding petrol vehicles, but, of course, the licence duty does not bear any relation to the amount of work performed, and as a counterpoise of the enormous difference in the oil duty it really has very little effect. Last year, I am told, in consequence of this development—and I may say that the total taxation on the heavy-oil vehicle doing only a moderate mileage is from one-half to two-thirds of that on the corresponding petrol vehicle—I lost £1,300,000 in revenue, and if that loss remains unchecked it might well rise to £2,200,000 in the coming year. There-fore, I cannot contemplate with equanimity a threat to my oil duty of that character, and while I certainly have no desire to cramp the development of the Diesel engine, which I am told has considerable advantages, I must ask it to make a somewhat larger contribution to the revenue.

I propose, therefore, to remove this differential licence duty and to substitute for it a more adequate and more equitable form of taxation by raising the duty on heavy oil used as fuel by road vehicles to 8d. The duty will, of course, be confined to oil used in road vehicles, and though the duty is equalised, the Diesel engine will still retain the advantage which it already possesses in consequence of the greater mileage it can do per gallon. In fact, if I took account of that, the duty would have to be raised not to 8d. but to is. 2d. per gallon. These engines can work upon a very wide range of fuel. That makes it impossible to adopt the ordinary method of taxing a specified grade. I am obliged to fall back upon taxing every kind of heavy oil used as fuel in road vehicles. As it will be necessary that the duty should be backed by prohibition, supported by heavy penalties, on the use in such vehicles of untaxed oil, and as I cannot bring these things into operation until the Finance Bill is passed, I cannot raise the duty until August next. If I had been able to get the advantage of the higher duty in a full year, it would have brought me in £1,200,000. As it is, I can only count upon £800,000 in the current year.

In spite of the reduction of the horsepower tax by 25 per cent. last year, the licence duty on road vehicles produced. £800,000 more than it did in the year before. At the same time the outgoings. of the Road Fund were curtailed by the reduction in programmes which followed upon the crisis of 1931, and the result of that is that on 31st March last there was in the Fund a balance, an apparent surplus, of £7,000,000. I say apparent surplus, because part of it, namely, £2,530,000, was a debt owing to the Exchequer in repayment of the loans in 1931 and 1932. The relevant Acts give the Treasury discretion to appoint the times and conditions of repayment. As I did not require the money last year, I did not give the order for repayment until this year. Accordingly, that sum is included in the estimate of Miscellaneous Revenue which I have already given as £21,500,000. That leaves a balance in the Road Fund of £4,470,000. The need for curtailment of programmes has passed. Already, during last year, we have considerably increased our commitments, and recently the Government, through my hon. Friend the Minister of Transport, invited the local authorities to submit a five years' plan of road construction and improvement. The replies to that invitation are not yet complete, but when they are we hope, with the cooperation of the local authorities, to embark upon a programme which will be considerably in excess of anything that we have yet achieved in a similar period of time. This, of course, will involve additional calls upon the Road Fund, but those calls will only come in as the commitments mature, and in the near future the income of the fund, both present and prospective, will be amply sufficient to meet all the calls that will come upon it.

There is, therefore, no need, for the purposes of the Road Fund, of this £4,470,000, but, on the other hand, it has occurred to me that there is a very pressing need for it elsewhere, as an addition to my modest surplus to be used for the relief of taxation. Accordingly, I have informed my hon. Friend the Minister of Transport that I propose to transfer it to the Exchequer. I should say that my hon. Friend has expressed some reluctance to assume even temporarily the role of the dying Sir Philip Sidney, but I have endeavoured to console him with the assurance that if, in fact, during the course of the next year or so, more money should be required for roads than the Road Fund can supply, he will, in my opinion, be entitled to ask for consideration. The result of that transaction is to raise the figure for Miscellaneous Revenue to £25,970,000. Perhaps it will be useful to return to that prospective surplus and see how it has been getting on while I have been talking. When it was last seen, it stood at £5,610,000, and it has now been fortified by the addition of £145,000 for Minor Items, £800,000 for the yield on the Heavy Oil Duty and the £4,470,000 for the increase of Miscellaneous Revenue. I now find myself in possession of a sum available for distribution of £11,025,000.

In dealing last year with a much larger surplus than this, I based myself upon a dictum of Lord Snowden, that in common justice the first relief ought to be given to those classes who suffered most when the crisis was acute. I see no reason to depart from that principle now. As it is obvious that I have not enough at my disposal to enable me to make a complete restoration, I must adjust my distribution to try to meet the most pressing needs. Among these the first that I deal with concerns the Entertainments Duty. The emergency Budget of 1931 reimposed a duty on admission for payments over 2d. up to 6d., which had been free since 1924, and it also increased the scale of duty on payments over 6d. It will be recollected that in imposing these extra charges Lord Snowden expressly stated that he desired to give an opportunity to all sections of the community to contribute towards the nation's needs. I have had a good deal of evidence to show that the intentions of the author have not been altogether fulfilled. Particularly, the duty on the cheaper seats in the cinema houses and that on those entertainments in which living performers have been putting up a very gallant struggle for survival against the competition of mechanical performances, seem to have fallen largely on the proprietors rather than on the public.

It is time they had some relief. To revert to the old scale would cost in a full year £2,700,000. Out of that not less than £2,300,000 is attributable to the duty on the seats up to 6d. Only £400,000 comes from the rest. I propose to allocate the whole of the £2,700,000 to the relief of the Entertainments Duty, but I want to take the opportunity of remodelling the scale which existed before 1931. I propose to relieve from all duty all payments up to 6d. costing, as I have said, £2,300,000 in a full year. The remaining £400,000 I propose to apply entirely to the reduction of the duty an seats over 6d. in entertainments given by living performers. They have claimed total exemption; I cannot give them that, but I am sure they will not fail to appreciate the importance of a change which, for the first time, differentiates between this kind of performance and another, and differentiates in their favour. Hon. Members will find the details of the new scales in the White Paper. The proposal will come into operation on the 1st July, and a Resolution will be moved accordingly. The cost in the present year is estimated to be £2,025,000.

Last year I took off the 6d. from the Income Tax which had been imposed in 1931, but I was not able then to deal with Income Tax allowances, or with the extra 10 per cent. that had been placed upon the Surtax. I have now to make some proposals about Income Tax allowances which involve some change of method. The old reliefs were never scientific, nor are they sacrosanct. They were imposed at a time when the cost of living was high, and some of them were afterwards increased at a time when the cost of living was falling. But there are other reasons for an alteration. In 1931, the increased taxation from reduced allowances was to some partial extent compensated for by an increase in the earned income allowance from one-sixth to one-fifth. To go back now to the exact system which prevailed before the change in 1931 would, therefore, involve the withdrawal of a concession which was very welcome at the time, and which has now, I think, become established in the tax. At any rate, I should be very sorry myself to alter it.

There is a further consideration which weighs with me even more heavily. I had to choose last year between a reduction in the standard rate and an alteration in the Income Tax allowances, and I deliberately selected the first, because I thought it was the more likely to give renewed encouragement and stimulus to trade. I am very glad that that has been borne out by what has happened. But I realised quite well at the time that that proposal conferred a greater benefit upon the large taxpayer than upon the small, because, of course, to the small Income Taxpayer the most important thing is the level of his personal allowances and reliefs, which makes to him more difference than an alteration in the level of the standard rate. Therefore I want this year to see the small taxpayer have his turn. I want the relief that I can give—and, as I shall show, it will be substantial—to go as far as possible to incomes near the bottom of the scale. It is pretty clear what is the best method of effecting that. It is to make an alteration in the zone which is subject to the lower rate of Income Tax. At the present time the rule is that the first £175 of taxable income—that is, income less the personal allowances—is charged Income Tax only at half rate, that is, at 2s. 3d. in the £. I propose to substitute for that a new rule, that the first £135 shall be charged only at one-third rate, namely, 1s. 6d. in the £.

It is not very easy for hon. Members to grasp at once what that means. It means, of course, that up to £135 of taxable income a taxpayer will pay at ls. 6d. instead of 2s. 3d.; and between £135 and £175 of taxable income he will pay at 4s. 6d. instead of 2s. 3d. But a man who has a taxable income of £175 has to calculate what is the net effect of the reduction and increase. It comes out that under this proposal 2,250,000 taxpayers, that is, about 70 per cent. of the whole body of Income Tax payers, who have taxable incomes not exceeding £135, will get a reduction of Income Tax amounting to 9d. in the £, that is to say, three times as much as they got last year. Another 200,000 taxpayers, whose taxable income lies between £135 and £175, will also get relief, but that relief will gradually diminish as they go from £135 to £175, until at the higher figure it has practicaly died out. Let me give the Committee an example to show how the plan works. It really gives a very substantial help to the small taxpayer. Take the case of a married man with three children and an earned income of £500. He has a taxable income of £120. At the present time he pays in Income Tax £13 10s.; under this proposal his tax will be reduced to £9. For technical purposes it will be necessary to move a Resolution in connection with this proposal.

That is not my only proposal; I have two more, both of which are designed to lighten the burdens which at present fall upon those who carry the responsibilities of family life. The first concerns the personal allowance of a married taxpayer. That now stands at £150; I propose to raise it by £20, to £170. The second concerns the children's allowances. These at present stand at £50 for the first child and £40 for each subsequent child. I must say that I look upon the continued diminution of the birth-rate in this country with considerable apprehension. At the present time it may seem that we have here a larger population than we are able to support in England. At the same time, we know the difficulty which the Dominions find in accommodating a larger population, when they themselves are troubled with unemployment. But I have a feeling that the time may not be far distant when that position will be reversed, when the countries of the British Empire will be crying out for more citizens of the right breed, and when we in this country shall not be able to supply the demand. I think that if to-day we can give even a little help to those who are carrying on the race, the money will not he wasted. I propose to raise the allowance for each child after the first to £50, however many children there are.

These two last proposals benefit all families, and, taken in conjunction with the first one, they give a great deal of relief to families with small incomes. I have already mentioned the case of a married man with three children and an earned income of £500, and have shown how his tax under the first proposal would be reduced from £13 10s. to £9. Under these further proposals he will get a further reduction of £3, bringing his tax down to £6. If his income is all derived from investments, instead of paying as he does now, £29 16s. 3d., he will only be called upon to pay £20 5s. A married man with £400 a year total income and two children, if his income is entirely derived from investments, now pays £18, and under my proposals he will in future pay £9 13s. If his income is all earned, he now pays £9; in future he will pay only £3 15s. A man with £300 total income, married but without any children, if his income is derived from investments, now pays £16 17s. 6d.; in future he will pay only £9 15s. If his income is earned, he now pays £10 2s. 6d.; in future he will pay only £5 5s.

I have one other minor amendment to propose. The smallest earned income which is at present liable to tax, in the hands of a single person, is £125. Such a person gets a personal allowance of £100 and an earned income allowance of £25, and his liability, therefore, is extinguished. But, if his income is derived from investments, he then has to pay tax on £25. That has pressed rather hardly on some people with very small incomes, where their income has been reduced by reason of the conversion loans. I am proposing in future to fix an exemption limit of £125 for all types of income, whether consisting wholly or partly of investment income; and I have to couple with that a special provision for incomes just over £125, so as to prevent there being a sudden jump in liability at that point. For incomes between £125 and £140 there will be an over-riding provision that the tax shall not exceed one-fifth of the excess over £125.

The Financial Statement will give a number of tables which will illustrate these proposals in detail, and I think I only need now give the Committee what the cost of these reductions will come to in the aggregate. In a full year the cost of these various amendments in Income Tax allowances will amount to £10,000,000; but, owing to the way in which the tax is collected, I shall only have to find, in the current year, £4,500,000. This £10,000,000 will, I believe, give a welcome relief to a very great number of small taxpayers. I am sorry that it is impossible for me this year to do anything to relieve the extra 10 per cent. put upon the Surtax payers, but I think the proposal I made last year reducing the standard rate, taken in conjunction with those I am now making, on the whole constitute a fair division of relief among the various classes of Income Tax payers.

There still remains for consideration that part of the cuts in remuneration which I was not able to restore last year. After thinking it over, I have come to the conclusion that it is advisable to make no further division of the process of restoration, and I am therefore proposing to clean the slate and to make a full restoration from 1st July, the same date as that on which the corresponding change was made last year. That will cost me in a full year £5,500,000 and in the current year only £4,000,000. In consequence of the provision of the Statutory Salaries (Restoration) Act of 1934 no legislation will be necessary, but we shall require an Order-in-Council and a Supplementary Estimate, which will be introduced at an appropriate opportunity.

Adding together the cost in the present year of these various reliefs, I find that they account for £10,525,000 out of the £11,025,000 which I have at my disposal. The final figures therefore are:

leaving me with a prospective surplus for the year of £500,000

So I conclude the fourth Budget which I have presented to this Committee; not quite as bountiful a Budget as last year, but yet one carrying a little further the removal of burdens and in particular bringing a larger measure of relief to certain classes who perhaps have not yet enjoyed their full share of our returning prosperity. Their voices may not be as strident as those of some others, but they are none the less deserving of our attention, for the small taxpayer's contribution to the needs of the country has been of the first importance. He has borne the long struggle to provide his contribution, often involving great distress of mind and the sacrifice of the scanty luxuries of his household, with a patience and courage that seem to me to be beyond all praise.

We are framing our requirements to-day at a time of fresh anxiety in Europe. We must recognise that our further progress may be powerfully affected by events over which we have little control. Moreover, we have ever before our eyes those districts, once the seat of our most prosperous industries, which to-day still lie under the shadow of world depression. We must not, we shall not, relax our efforts by any or every measure which offers a reasonable prospect of success to restore them to a position in which they can play their part in the normal life of the nation. But, taking the country as a whole, looking back over these 3½ years, we can see the improvement has been solid, continuous and steady. To that result many things have made their contribution—tariffs, conversion operations, cheap money, balanced Budgets, remissions of taxation. They have done it largely by creating a spirit of confidence. Confidence is the mother of enterprise, and, when it operates upon many individuals and through many channels, it is far and away the most effective form of promoting a general and rapid expansion of economic activities. Broadly speaking, we may say that we have recovered in this country 80 per cent. of our prosperity. Our task is now to win back the remaining 20 per cent. without jeopardising the confidence that we have already established. Given peace abroad and a fair measure of unity at home, I see no reason why we should not during this current year make a further substantial advance towards prosperity, and it is in that conviction that I have framed my Budget Estimates.

Motion made, and Question proposed,

"That, as respects payments for admission to entertainments held on and after the first clay of July, nineteen hundred and thirty-five, entertainments duty shall be chargeable subject to the following variations:

(a) the duty shall cease to be charged on payments not exceeding sixpence;

(b) the duty shall be charged at the reduced rates set out in the following table in a case where all the performers whose words or actions constitute the entertainment are actually present and performing and the entertainment consists solely of one or more of the following items, namely, a stage play within the meaning of the Theatres Act, 1843, a ballet, a performance of music (whether vocal or instrumental), a lecture, a recitation, a music hall or other variety entertainment, a circus, or a travelling show.

And it is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1913"

5.10 p.m.

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5.26 p.m.

Notice taken that 40 Members were not present; Committee counted, old 40 Members being present—

5.34 p.m.