UC-NRLF 356 TEN YEARS OF FINANCIAL ADMINISTRATION HJ J03O I A SPEECH RED IX THE HOUSE OF COMMON* ox THI: lout OF MAY 1876 DURING TIIK i ON THE BUDGET HUGH C. E. CHILDEES, M.P. CO LONDON LONGMANS, QEEEN, AND CO. 1876 LIBRARY OF THE UNIVERSITY OF CALIFORNIA. Accession clMS TEN YEARS OF FINANCIAL ADMINISTRATION LOSDOS : PRINTED BY 8POTTI8WOODB AKD CO., NEW-STREKT 8QFARK A^D PARLIAMENT STREET TEN YEAES OF FINANCIAL ADMINISTRATION A SPEECH DELIVERED IN THE HOUSE OF COMMONS 15iH OF MAY 1876 DURIKG THE DEBATE ON THE BUDGET BY THE RIGHT HON. HUGH C^E.^CHILDERS, M.P LONDON LONGMANS, GKEEN, AND CO. 1876 GENERAL EXTRACT FROM THE VOTES. Customs and Inland Revenue Bill, Order for Second Reading read; Motion made, and Question proposed, ' That the Bill be now read a second time : ' Amendment proposed, to leave out from the word ' That ' to the end of the Question, in order to add the words ' this House regrets that the progressive increase of expenditure recommended by Her Majesty's Government should have led to a proposal by Her Majesty's Government to add to the Income Tax in the present year,' (Mr. Rylands,} instead thereof : Question proposed, * That the words proposed to be left out stand part of the question : ' Question put: The House divided ; Ayes 263, Noes 175. " OF THE } UN/VERS/TY SPEECH. MR. SPEAKER, IT is somewhat unfortunate that the debate, which my honourable friend the member for Burnley (Mr. Ey lands) has brought on to-day, did not take place when the Budget Eesolutions were discussed some weeks ago. On that occasion my honourable friend was anticipated by the right honourable gentleman the member for London (Mr. Hubbard), whose amend- ment, not affecting this Budget particularly, but dealing with the whole structure and incidence of the Income Tax, occupied our attention. However, the postpone- ment of the debate is perhaps not to be regretted ; for my honourable friend's speech to-night not only was able and convincing, but stated the case with a minute- ness of detail which would hardly have been expected on the first night of a Budget debate. But before I deal with the special question of the increase in the public expenditure to which my honourable friend's amendment refers, I should like to say a few words on the additional taxation recom- mended to us by the Chancellor of the Exchequer. Assuming for the moment that further taxation is 98911 6 necessary, and deferring the consideration of the exact amount, which will be better discussed in Committee, the first question is whether the deficit should be made good by an increase of the Income Tax. The Chancellor of the Exchequer has told us that the only alternative would be to raise the Spirit Duty ; and in that I am disposed to agree with him. But if the Spirit Duty were to be increased; I doubt whether any- one conversant with our financial arrangements would propose that that increase should be less than one- eighth of the existing rate, or Is. 3d. per gallon. At the present rate of consumption, such an increase would give additional revenue to the extent of about 2,700,000/., or, after allowing for some diminution of consumption, at least 2,000,000/. In my opinion, it would be altogether impolitic to make this serious alteration, in our well-adjusted scale of indirect taxes, for the sake of the comparatively small deficit which the Chancellor of the Exchequer anticipates ; and I therefore am compelled to agree with him that we can only have recourse to the Income Tax. I must, however, express my extreme astonish- ment that this proposal should have come from a Government the head of which is the right honourable member for Buckinghamshire. It is only five years since the last increase of the Income Tax was pro- posed ; and, in 1871, the right honourable gentleman addressed to this House no less than five set speeches on the subject, denouncing in the strongest terms a proposition the exact parallel of that which the Government now make. Among a number of objections which he then forcibly and repeatedly stated, there were three upon which the right honourable gentleman especially in- sisted. The first was, that increase of taxation was objectionable, if direct taxation alone was dealt with ; the second, that no increase of direct taxation should take place in ordinary times ; and the third, that no increase of such taxation should be made to meet a small deficit. Let me read to the House one or two short extracts from the right honourable gentleman's speeches. He said, on May 18, that the House of Commons should ' wholly disapprove the course taken by the Government in meeting a deficiency by direct taxation, and especially by this form of direct taxa- tion,' viz., the Income Tax. He urged on May 4 that it was not right that the ways and means should be entirely supplied by direct taxation. ' I will never consent/ he said, ' to raising the ways and means of the year ' (that is to say, the additional ways and means) ' entirely by direct taxation.' He has, however, consented, on the very first occasion of an increase of taxation. On May 4 he also said : ' We shall encounter hereafter a Nemesis if we give in our adhesion to a precedent so perilous as levying the whole of the ways and means of the year by direct taxation.' The Nemesis has been of his own creation. And in another debate he said that ' when a minister came forward and proposed a Budget which consisted solely of the Income Tax, it should be opposed from all sides of the House.' So much for his first objec- tion. As to the second, after explaining that he would not pledge himself to the entire obliteration of the 8 Income Tax from our ordinary finance, he said on May 18 : 'The Income Tax is unequal and unjust in its incidence, and there is no financial genius in the world ' (I presume this includes the present Chancellor of the Exchequer) ' that can remove that inequality and that injustice. It is a tax, therefore, that one can resort to only on a great emergency. When the country is in danger, when its fame and our dearest interests are concerned, the great body of the popula- tion does not trouble itself about the exact incidence of the tax. But a tax so unequal and so unjust should only be resorted to in cases of emergency it should not be an habitual part of our financial system.' And in enforcing the third objection, he said on April 24 : 'I think it unfortunate that the Income Tax should be used as a matter of course on slight oc- casions ; and that when a million or a million and a half is wanted ' (the present deficit, the House will notice, is much less), ' a disturbance should be caused throughout the country by an increase of the Income Tax.' Again, on May 1 : 4 The Income Tax ought not to be proposed to obtain a casual result ' ; and on May 4 : ' A Chancellor of the Exchequer must be no very great hand at his profession ' (I am afraid this is rather severe upon my right honourable friend) 4 if he cannot manage somehow or other to put his hand on 500,000/. or 600,000/.' without increasing taxation. I must say, considering these solemn denunciations, that I should have liked to see the face of the Prime Minister when the Chancellor of the Exchequer brought his present proposal before the Cabinet. If, however, in spite of the deliberate judgment of 9 the right honourable gentleman in 1871, we must now add to the Income Tax, let us consider what will be the effect of the peculiar manner in which the Govern- ment propose to effect this addition. The Chancellor of the Exchequer proposes to raise the minimum in- come to be taxed from 100/. to 150/. ; to increase from SQL to 120. the deduction from incomes above 150. ; and from 300/. to 400/. the minimum income subject to deduction. Now, it is quite true that alterations have been from time to time made in the scale of ex- emptions, whether whole or partial, from Income Tax. I doubt, however, whether any increase in the exemp- tions has ever been proposed except on the occasion of a reduction in the tax ; that is to say, when the effect of the increased exemption would be only to make the relief to each taxpayer greater or less. But the pecu- liarity of the present proposal is that, in a year in which an increased amount of taxation is demanded from the public, out of seven persons paying Income Tax five will be told that they are to pay less than they did last year, and the other two will have to make good, not only the additional requirements for the public expenditure, but also the burdens from which the five are relieved. The proof of this is easy. By the Chancellor of the Exchequer's scheme all in- comes of less than 200/. a year will gain in spite of the increased rate of tax ; incomes between 2QQL and 300/. will lose; those between 300J. and 36(M. will gain ; and those exceeding 360/. will lose. Now, ac- cording to a Eeturn printed in 1873, and which gives minute details as to the payments under Schedules I) and E, I find that there are about 440,000 incomes A 3 10 on which tax was paid of under 200/. a year and be- tween 300/. and 360/., and only 170,000 of between 20(M. and 300J. or above 360J. ; and I believe that the other schedules are estimated to give a similar result. If this be so, the proposal of the Government ap- pears to me to be open to the gravest objection, and to form a most dangerous precedent. The periodical from which we receive so much witty advice has called it a bait ; but I would rather call it a bribe. It deliberately takes from the taxpayer all interest in public economy. Let us suppose that in some future year a Chancellor of the Exchequer, perhaps belonging to a very different political party from that of my right honourable friend, wishes to make lavish expenditure popular. He has only to increase the Income Tax, on the model of 1876. The method would be simple enough. He might raise the minimum from 150. to ISO/, or 200/. (and it would be easy to argue that 10s. or 12s. a day was the fair wage limit) ; increase the deduction from 120/. to 160/., and the maximum from 400/. to 500/. I know of no particular virtue at- taching to 40 O/. a year ; and by carrying the maximum to 500. you would satisfy many of those civil and military officers, clergymen, and widows, to whom my right honourable friend referred. Well, the result would be almost the same as the proposal in the present Budget. The majority of Income Tax payers would again pay less instead of more, and the dan- gerous hustings cry might be evoked, 4 More expendi- ture and less taxation ! ' I hope, therefore, that the House will pause before they adopt without modifica- tion the proposed exemptions. 11 I will now turn to the especial subject of my honourable friend's motion. It points to the progressive increase of expenditure recommended by the present Government as the cause of the additional taxation now rendered necessary, and it invites us to reconsider the Estimates. Now, I make no doubt that he will be met in limine by the reply that it is too late to discuss the Estimates ; that the House has virtually settled the expenditure of the year, and that it would be against all precedent to review what has already been decided. I might perhaps dispute the literal accuracy of such a reply, for we have not voted the increases in the Navy Estimates, nor in a great part of the Civil Estimates. But even if we had done so, I must refer again to those speeches of the First Minister from which I have already quoted, as conclusive upon this point. I will quote only from one. ' When I remind the House,' said he in 1871, * that the ways and means' (that is, the addi- tional ways and means), ' consist of a single tax, the Income Tax, the levying of which is viewed with the greatest jealousy and anxiety, is it wonderful that we should ask ourselves : What is the necessity for this proposal ? and how can we arrive at any conclusion unless we refer to the expenditure which the Ministry have called upon us to incur? ' That argument was addressed to Parliament in the month of May, when the Army and Navy Estimates, at any rate, had been voted to as great an extent as in this year. And the reason- ing of the right honourable gentleman was, in my opinion, unanswerable. What, in fact, is the real posi- tion of the House in dealing with the Estimates of expenditure ? They are laid upon the Table early in 12 February ; and perhaps, in passing, I may congratulate the Secretary of the Treasury on his promptitude this year, not only in placing the Civil Estimates before us, but in obtaining their discussion early in the Session. The Budget statement, on the other hand, is rarely made until early in the month of April, so that in point of form the expenditure is voted before the ways and means are known ; but, as I think I shall show con- clusively, the presumption in ordinary years is that the proposed expenditure involves no increase of taxation. The proof is simple. Since the imposition of the Income Tax thirty-four years ago, there has been no instance of an increase of taxation being authorised by Parlia- ment, except for the purposes of war, or of impending war, or under the circumstance of a great continental war. Since 1842, the only years in which taxation has been increased were 1854 and 1855, when addi- tional burdens to the extent of 11,000,000/. a year were imposed for the Crimean War; 1859, when we were supposed to be on the verge of a war with France, and new taxes w r ere raised amounting to above 4,000,000/. a year; 1867-68, when additional taxes to the extent of 2,500,000/. per annum were imposed for the Abyssinian War ; and 1871, when the Ger- mans were in occupation of Northern France, and the Income Tax was raised from 4.d. to 6d. Except on those four occasions, at no time since the Income Tax was imposed by Sir Eobert Peel, has Parliament sanc- tioned an increase of taxation. Can there, then, be any doubt that when, at the beginning of the Session, in a year of profound peace, we are asked to vote the Estimates, we are entitled to assume that we are spending money which we have got ? 13 But let us look at this question from another point of view. What do the Estimates comprise ? No doubt the greater part of what the Government annually asks the House to vote is expenditure which, in the opinion of Her Majesty's advisers, is essentially necessary for the well-being of the State. But some of the expendi- ture proposed in the Estimates is of a different character. I may describe it as ' optional' rather than 'necessary.' It may be beneficial, and even remunerative ; but should the ways and means be insufficient to defray it, we are clearly entitled to ask whether it cannot be postponed to another year. It is in this position that we find ourselves now, and it is, I conceive, our duty to review the proposed expenditure, and, while voting as much as is necessary for the public safety, to call upon the Government to withdraw what is only optional. Let me also remind the House of a rule of public finance which nobody has impressed on Parliament more clearly than did the Chancellor of the Exchequer in 1874. It is that, when increases of expenditure are proposed, Government and the departments are bound to seek for corresponding economies elsewhere. In some directions you will always have to increase the public charge. In ordinary years you may with almost equal certainty make other reductions. But, so far as I can judge from the Estimates of the present year, this most important rule has been entirely neglected. What, then, is the increase of expenditure to which the motion of my honourable friend points ? I will take first the common method of comparing the ex- penditure of successive years. So far as I could follow the figures given the other evening by my right honour- A 4 14 able friend, and we have as yet no corrected report of his speech, the expenditure of 1876-77 is estimated at 78,044,000/. This may be compared either with the Budget Estimates or with the actual expenditure of previous years. I find that the Budget Estimate of the last year (1873-74) of the late Government was 71,87l,000/.;oftheyearbefore(l872-73)71,313,000/.; of 1871-72, swollen by the Franco-German War, 72,308,000^ ; of 1870-71, besides the Vote of Credit, 67,113,000/.; and of 1869-70, 68,223,000/. ; and the actual expenditure of the same years, including that under the vote of credit on account of the Franco-Ger- man War, but not that for the Abyssinian or Ashantee expeditions or the Alabama indemnity, was in 1873-74, 72,466,000/. ; in 1872-73, 70,714,000/. ; in 1871-72, 71,490,000^ ; in 1870-71, including that under the Vote of Credit, 69,548,000/. ; and in 1869-70, 67,564,000/. Thus the increase in the present year's Estimates is about 6,200,000/. over the Estimates of the year 1873-74, and about 7,700.000/. over the average ordinary ex- penditure of those five years. But I do not think that this is a fair method of comparison. I objected to it in 1873 when similar comparisons were made here, and I submitted on that occasion a calculation which was generally approved by the House, and is now, I believe, accepted by the Treasury as the fair and scientific method of compari- son. According to that method you should deduct from the aggregate expenditure of the year all the revenue which is not levied by taxation, the difference, which will be of course the actual charge on the tax- payer, affording, on a. comparison of year and year, the 15 proper criterion, as I said, of the energy and success of Governments in dealing with the public expenditure. If we apply this method to the expenditure of 1873-74 and previous years, and to the Estimates of the current year, what is the result ? For this year the revenue, not in the nature of taxes, is estimated at 12,370,000/., assuming 600,000^. as the receipt for stamps in lieu of fees. If we deduct 12,370,000^. from 77,580,000/., the total expenditure of the year, exclu- sive of that required for the extinction of Army Purchase, the net ordinary charge on the taxpayer will be 65,21 0,000/. Now, according to the Keturn laid before Parliament last year, the net ordinary charge in 1873-74 was 59,773,000/., and the average charge of the five years, from 1869-70 to 1873-74, was 59,650,000/. The increase, therefore, in the proposed charge on the taxpayer during the current year is about 5,500,000/. over that in 1873-74. Analyzing this figure of 5,500,000/., I find the following result. The increased net charge for the Army and Navy will be about 2,300,000/. ; for the Civil Service about 2,400,000/. ; for other services about 250,000/. ; and for the Debt a little over 500,000/. At first sight, the latter figure may appear too small, for the gross increase in the charge for the Debt is much greater. It must be remembered, however, that from the gross increase must be deducted the interest on loans made by the Government, which, since 1874, forms part of the ordinary revenue. The extra receipts include half a million of interest on the old loans for Public Works, a considerable sum on account of new local loans, and the interest on the Suez Canal purchase 16 paid by the Khedive of Egypt. The net increase in the charge of the Debt is thus only about the amount of the New Sinking Fund created last year. I will take next the Army and Navy increase. As to the Army, I have not much to say. The whole of the increase, about 1,000,000/., is accounted for in the additional vote for the Commissariat ; and most of this, I conceive, is referable to the reduction of the soldiers' stoppage. The other Army votes show, some of them, an increase and others a decrease, fairly balancing each other. But in the Navy expenditure I find that, with one exception, every vote has been increased since 1873-74. Whether it be for pay, or supplies, or ship- building, or on whatever account, the expenditure all round has been allowed largely to increase. The one exception is the expenditure for works of a permanent character, and there a decrease of about 150,000/. has been enforced. Stated generally, the increase in naval expenditure is 1,500,000/. a year, less this 150,000/., on account of Docks and other great works. I will now refer to the Civil expenditure, which exceeds that of 1873-74 by about 2,400,000/. I think we on this side of the House have some rea- son to complain of the taunt which the Chancellor of the Exchequer addressed to us in his Budget speech. He told us that we had been constantly charging the present Board of Treasury with insufficient control over the Civil Service expenditure, and he gave us some figures in refutation of this supposed charge. Now, I must say that this is a little ungrateful. I myself, and some honourable friends of mine, went out of our way last Session to praise the Secretary to the 17 Treasury for his exertions in keeping down the Civil expenditure ; and perhaps the Chancellor of the Ex- chequer's present taunt is a fair punishment for our political error in speaking well of an opponent. What he has said, however, has led me to scrutinise the Civil Service Estimates rather more narrowly, and I am bound to say that they show a very different result from what I had imagined. The Chancellor of the Exchequer gave us two comparisons. In the first in- stance, he said that the increase in the Civil Estimates of 1876-77 over those of 1873-74 was 2,242,OOOZ., and that the Education vote and the votes in aid of Local Taxation accounted for an increase of 2,310,000/. He forgot, in giving the former figure, that his Budget statement included an addition to the printed Civil Es- timates of 1 00,000/. for a building at Manchester. But this is a small matter. When, however, I analysed the votes, I was struck by the peculiarity to which I have already referred in connection with the Navy, namely, that the charge for permanent works, under Class I., is greatly reduced I may say starved in order to pro- vide a large increase in the votes for Establishments. The fact is that, while the late Government were strongly pressed by Parliament to undertake, and did undertake, very large public works, hardly any new building has been taken in hand during the last two years, while many of the former have disappeared from the votes. In this way Class I. has been kept down, while the Establishment votes have been increased by about 200,000/. a year. But there is a far more serious matter behind. The late Government kept within their Civil Estimates ; 18 their Civil Service expenditure, I mean, never, or if ever only to a trifling amount, exceeded that given in the Budget. But the Civil expenditure under the present Board of Treasury has in each year largely exceeded the Budget Estimate. In 1874-75 the Civil expenditure, excluding the subventions in aid of local taxation, was estimated at 11,287,000/. It actually reached 11,462,000/., showing an excess of nearly 200,000/. In 1875-76 the Civil Service expenditure was estimated in the Budget at 12,656,000/. It reached 13,119,000/., showing an excess of about 450,000. If these figures are correct, the claim of credit for economy in the Civil expenditure of the Government entirely breaks down. The Chancellor of the Exchequer also gave us the actual expenditure for all Civil purposes in 1857-58 and 1873-74 as compared with the past year. He stated the first (1857-8) to have been 8,167,000/., the second (1873-4) 10,304,000/., and the charge for the past year 13,095,000/. I had some difficulty in veri- fying the former figures, but at last I found them in the Return moved for by myself last year, to which I have already referred ; and they appear to be the sum of Columns 3 and 4 in the Appendix. But the figures of the past year show a considerable increase. The fact, Sir, really is, that, while we may admit the good service of the Secretary to the Treasury, yet, in consequence of the pressure put upon him by the responsible heads of department a pressure which beyond a certain point he of course is unable to resist the Civil expenditure of the last two years has in- creased, and is increasing, I fear by rapid strides. 19 But I will now refer to the Budgets of those years and the present Budget in a little detail. The sugges- tion which has been made, both by the Chancellor of the Exchequer and by others, is that, while in their first two years the Government had the good fortune to find a steadily increasing receipt at the Exchequer, this year my right honourable friend is met by a great contraction of trade, and consequent inelasticity of revenue ; so that although in 1874 and 1875 he has been able to keep his expenditure well within his in- come, this inelasticity now prevents him from doing so. I shall be able, I think, to show that this is an entire delusion, not unlike that which prevailed last year with regard to the foundation of the Kevenue Estimates as stated in the Budget. The truth is that there is a remarkable agreement between the increases of revenue which the Chan- cellor of the Exchequer anticipated in his three Budget speeches. I decline, Sir, to treat the Budgets of Chan- cellors of the Exchequer in the fashion in which, during the last year or two, they have been dealt with by certain critics. What we have to look at from year to year is the statement which the Chancellor of the Ex- chequer makes in April, and to compare it with the corresponding statement of the previous April. Now in 1874 the Chancellor of the Exchequer took the normal increase of the three great items of revenue Customs, Excise, and Stamps at 1,648,000/. over the past year's receipt. In 1875 he took the normal increase of the whole revenue over his Budget Estimate of 1874 at 1,650,000^. And in this year he has taken the normal increase of his whole revenue over the Budget Estimate 20 of 1875 at 1,645,OOOJ. He has thus calculated upon almost an even advance of revenue in each year ; and both in 1874-75 and in 1875-76, his expenditure, though greatly increased, kept within his ways and means. But the peculiarity of the present Budget is that, while the increase of Revenue over the Estimate of 1875-76 is the same as the corresponding increase last year over the Estimate of 1874-75, the increase of expenditure is nearly double that of last year's. m It amounts to no less than 2,656, OOO/. ; and it is from this enormous increase, not from an estimated failure of revenue, that the deficit arises. But assuming the deficit to be such as was stated by the Chancellor of the Exchequer, does it necessarily involve an increase of taxation ? I must again appeal to my right honourable friend to correct me if I do not state the figures accurately ; but from his speech, and from the papers on the Table, I collect that he looks forward to an expenditure (omitting for the moment the sum to be applied to the purchase of consols in the market, and the estimate for a building at Man- chester, which is not yet on the Table) of 77,364,000^. His revenue will be 77,270,000/., the deficit, accord- ing to this calculation, being only 94,000/. I must re- mind the House that this expenditure includes about 3,500,000/. applied to reduce the debt through the process of Terminable Annuities. Now, what I think the House is entitled to ask the Chancellor of the Ex- chequer is, Are we to increase taxation on account of this petty deficit of 94,000/. or 194,000/., or is it for the purpose of buying 600,000/. Consols in the market? It cannot be decently urged on the former 21 account ; is it not inconsistent with all the pledges, which have been given by him and others, that fresh taxation should be imposed to pay off debt ? To my mind, the only solution of the problem is that the Chancellor of the Exchequer, knowing from bitter ex- perience that his colleagues will exceed their estimates, that there are supplementary votes behind, and even then excesses to be voted next year, is now proposing to us an increase of taxation in order that the deficit thus occasioned may be provided for. I do not blame the Chancellor of the Exchequer for these anticipations. Just as last year he had in his breast an expectation of more revenue than was set down in his Budget, so this year he cannot help feeling that more expenditure should be provided for. His first object of course is a surplus, and the pressure on the Treasury, about which he knows so much, the hopes held out at the last elec tion, and the knowledge that these promises have not yet been fulfilled, are a quite sufficient warning. I do not therefore blame my right honourable friend in this respect ; I would rather strengthen his hands in resisting pressure. For what are the facts about the Supplementary Esti- mates proposed by the present Government ? Last year, not including the 500,000/. required to settle accounts between the War Office and India Departments, they amounted to 1,000,000/. I have already mentioned the excesses of the Civil Service expenditure over the Estimate ; but what have been the excesses on the aggregate Estimates ? In 1874-75 the total Budget Estimate of expenditure, excluding the local taxation subventions, was 72,948,000/. The actual expendi- 22 ture, also excluding those subventions, was 73,816,000/. ; showing an excess of above 850,000^. In 1875-76 the Budget Estimate of expenditure was 75,522,000/ ; the actual expenditure was 75,922,000^. ; showing an ex- cess of 400, OOO/. It is just the same as it was in 1867 and 1868. Then, as now, the constant tendency of the Government and of the right honourable gen- tleman, the First Minister, was to pile up Supple- mentary Estimates, to exceed the votes, and to close the year with a deficit. And this, Sir, brings me to what I think the House may not be unwilling to consider, namely, what lesson the experience of the last ten years should give us, as to the comparative economy and extravagance of the present Government and of their predecessors, who now sit on this side of the House. Sir, I think I shall be able to show that the history of Conservative finance, both before and since 1869, is the same. Of course I do not refer to the times of Sir Eobert Peel, when economy was as much in favour with the leaders of the Conservative party as with the party to which I belong ; but since the right honourable gentleman the member for Buckinghamshire has been the leader of the party opposite, there has been in operation that inbred sin, that Qpovyfta