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"Feather-brained" Winston Churchill's 28th April 1925 budget speech as Chancellor of the Exchequer to the House of Commons - that put England back on the Gold Standard

"The 1925 return to the gold standard was perhaps the most decisively damaging action involving money in modern time"

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[To Winston Churchill - Amritsar Massacre Speech - July 8th 1920, House of Commons]

Background and consequences of Winston Churchill's House of Commons "Gold Standard budget Speech", from "Money: Whence it came, where it went" by John Kenneth Galbraith (First Published 1975), Page 174 to 178

From Chapter 13: The Self-Inflicted Wounds

"The 1925 return to the gold standard was perhaps the most decisively damaging action involving money in modern time"

"As France chose the line of least resistance in the decade of great monetary dispersion, so Britain chose that of the greatest. The French experience was better, although this is not proof of superior wisdom. France, as we have seen, has a tendency to rise above all misfortune. Britain, with her heavy dependence on external trade, is a difficult country to manage. British economic policy, accordingly, needs to be better than that of most other countries, and what is often taken to be poor British performance reflects, in fact, the far greater difficulty of the British task. However, in the decade of the twenties, the British, after considerable thought and discussion, did what made things worse.

In Britain, as elsewhere, prices receded in 1920 and 1921 as the wartime shortages were overcome, the budget was brought back under control and the boom came to an end. Unemployment, which of course had been negligible in the preceding years, rose to 12.6 per cent of the labour force in 1921. It averaged above 10 per cent the following year. Thereafter it fell, prices firmed or rose, as did also wages. All seemed on the way back to normal or what, following President Harding's great solecism, Americans were then calling normalcy. (After President Nixon's departure in 1974, one lexicographer spoke of a return to normality.) In 1925, the decision was taken to return to the gold standard.

This was a less remarkable decision than much subsequent discussion has made it out to be. In the greatest days of Britain, sterling and gold were interchangeable, and the one was not thought inferior to the other. For a nation bent on retaining its past eminence, economic and otherwise, to re-establish this identity was a natural step. None was more open to the thought of these past glories than the then Chancellor of the Exchequer, Winston Churchill, for whom the past was part of life itself and also a rich source of family prestige and personal income. His address to Parliament on 28 April 1925 announcing the return to gold was a Churchillian occasion. The self-governing dominions, he observed, had moved or were moving to re-establish the gold standard, so over the whole of the British Empire there would be 'complete unity of action'. The success of the step was being ensured by American support - $200 million from the Federal Reserve Bank of New York, $100 million from J. P. Morgan. The consequence would be a great revival in international and intra-imperial trade. Hence-forth nations united by the gold standard would 'vary together, like ships in harbour whose gangways are joined and who rise and fall together with the tide'. As a minor defect, gold could be had only for export. There would be no more gold coins. The New York Times reported next day that, according to opinion expressed in the lobby', the Chancellor's speeech was one of the 'finest in a long line' and 'fully up to his own high reputation as a parliamentary orator'. Its headline said that Churchill's proposals had carried 'PARLIAMENT AND NATION TO HEIGHTS OF ENTHUSIASM'.(1) Sixteen years later Churchill would be well cast; no man was so well equipped to make the lion roar. In 1925, both he and oratory were, without doubt, a misfortune.

The error they defended was in restoring the pound to its pre-war gold content of 123.27 grains of fine gold, its old exchange rate of $4.87. In 1920, the pound had fallen to as low as $3.40 in gold-based dollars. Though it had since gained and was still gaining, the pre-war gold content and dollar exchange rates were far too high. That was because, for these rates, British prices were far too high. Because of this high British prices anyone possessed of gold or dollars could do better by exchanging them for the money of one of Britain's competitors and buying there. And Englishmen likewise could do better by exchanging pounds for dollars, gold or other currencies at the favourable Churchillian rate and buying abroad. In 1925, the price advantage in doing so was about 10 per cent. Exports, as always, were essential for Britain. So, other things equal, British coal, textiles and other manufactured toods could only become competitive at the new exchange rates if their prices were to come down by approximately 10 per cent. A very uncomfortable process.

The case of coal was especially disagreeable, for the pits, still in private hands, were poorly equipped, often indiferently managed and manned by an ill-used, angry and highly intelligent labour force. Lower prices for coal would require lower wages. Agreeing that there would be problems in the coal industry, Churchill attributed these difficulties to the poor condition of the business. In a bold substitution of metaphor for thought he averred that the exchange rate had no more to do with the troubles of coal than with the Gulf Stream. Keynes promptly described this assertion as of 'the feather-brained order'.(2)

Although others had doubts - including Reginald McKenna, the Chairman of the Midland Bank and former Chancellor of the exchequer, who was brought on board the gold policy only with difficulty - the case against Churchill was led by Keynes. It was a simple one.(3) By returning to gold at the old parity, Britain accepted the need for a painful depression of prices and wages with accompanying stagnation and unemployment, all of which would be a rich source of social stress. But Keynes made his case with compassion. He was anxious to discover why Churchill, a man of considerable reputation, was impelled to do 'such a silly thing'. And, after a fashion, he exculpated him. Churchill, Keynes explained, had 'no instinctive judgement to prevent him from making mistakes'. And 'lacking this instinctive judgement, he was deafened by the clamorous voices of conventional finance; and, most of all . . he was mislead by his experts'.(4) The quality of mercy can some-times be a trifle strained.

Keynes was not, in fact, forgiven for his compassion, and later events made him even less eligible for absolution, for men of reputation naturally see the person who has been right as a threat to their own eminence. In the next four years prices in Britain remained under pressure and unemployment remained high - from 7 to more than 9 per cent of the labour force. It was a British trademark. In these years Samuel Dodsworth, Sinclair Lewis's retired motor magnate, came to England. He wanted to see, along with Westminster Abbey, the Lancashire textile workers on the dole.

It is not easy, half a century later, to imagine a time when organized workers could be advised forthrightly of a wage reduction. It was not entirely possible in 1926. When the miners were advised that their wages would be reduced as the monetary policy required, they, not surprisingly, prepared to strike. The owners anticipated the action with a lockout. In support of the miners came the general strike. The general strike did not last very long and, in the manner of many British misfortunes, was enjoyed by much of the population. Among those taking a rewarding stand for law, order and constitutional government and against the tyranny of the mob was Winston Churchill. Still the Gulf Stream. But the miner's strike lasted through 1926 before it was finally defeated. All during the twenties exports remained sluggish, the gold position of the Bank of England remained perilous, and further support had to be solicited from the United States.

Keynes was still under a cloud for his defection on the Versailles Treaty, although by now it was also conceded that his position on this had much merit. Now for his foresight he was required to content himself with heading an insurance company, writing, cultivating the arts, teaching in a somewhat casual way and speculating ardently on his own behalf and that of King's College, Cambridge, of which he became the bursar. Not until the Second World War did matters become sufficiently serious to allow of his readmission to the Establishment. Churchill, on the other hand, fared better. The convention that makes monetary misjudgement merely interesting error operated even in his uniquely obvious case. That he had made a mistake all came to agree. But it had none of the adverse effects on his career of his earlier and possibly more defensible stand on behalf of the campaign at the Dardanelles.

By 1930, unemployment was falling, output increasing, though both still at a modest rate. The gold position of the Bank of England was still thin. Then came the American crash and slump. In consequence at least in part of the adversity that followed the 1925 decision, Britain now had a Labour government. It was not greatly more immune than its predecessors to the clamorous voices of orthodox finance. On 23 August 1931 Ramsay MacDonald was advised that hoped-for loan from an American bank consortium would most likely be possible, assuming that proposed budget cuts, including a cut to the dole, received Cabinet and public support. A Cabinet minority then proved recalcitrant. So MacDonald resigned and formed a coalition ministry with Liberals and Tories. In September the obligation to pay gold under the Gold Standard Act was suspended.

In a sense, Churchill had triumped. Aided by the inferiority complex of socialists in such matters, his 1925 action had destroyed all threat from the left for another fifteen years. The 1925 return to gold standard was perhaps the most decisively damaging action involving money in modern times."


(1) New York Times, 29 April 1925.

(2) John Maynard Keynes, Essays in Persuasion (New York: Harcourt Brace and Co., 1932), p. 246.

(3) Although not even Keynes made it with complete foresight. Before the return to gold, Keynes thought, for a time, such a return would cause American prices to rise with possible inflationary consequences. and his case was solely against returning to gold; neither he nor others urged the simple solution of reducing the gold and dollar value of the pound. That was rejected as one would reject the removal of Stonehenge. On the antecedent discussions see Charles P. Kindleberger, The World in Depression 1929-1939 (Berkeley and Los Angelos: University of California Press, 1973), p. 43 et seq.

(4) These quotations are from Keynes, pp. 246,248-9.


More Background and consequences of Winston Churchill's House of Commons "Gold Standard budget Speech", from "The Last Lion: Winston Spencer Churchill Visions of Glory 1874-1932" by William Manchester, Copyright William Manchester 1983, Sphere Books Ltd, 1984. pp 568-570. , Pages 645 to 649

"with the exception of the unilateral guarantee to Poland without Russian support, this [the return to the Gold Standard] was the most fatal step taken by the country."

Churchill was to oppose rearmament as late as 1929, when B.H. Liddell Hart wrote in the Daily Telegraph that "every important foreign Power has startling, indeed ominous, increases of expenditure on its army . . . Our Government, which has to keep watch for storm signals, would be false to its duty to this nation if it reduced our slender military strength more drastically until other nations imitate the lead which we have so repeatedly given.' In one instance Churchill was false to himself. He had inveighed against MacDonald for suggesting that the naval base at Singapore be abandoned. Now he argued that Singapore, like Iraq, could be defended by the RAF. He objected to "measure our naval strength" against a 'fancied' threat from Dai Nippon, commenting that the Admiralty was 'unduly stressing the Japanese danger.' Indeed, he had been in No 11 less than a month when he asked the Foreign Office to declare that war with Nippon would be impossible for the next twenty years. Austen Chamberlain hesitated, but the decision was made. Early in 1924 the Admiralty recommended the establishment of a submarine base at Hong Kong and the instailation 'as fast as possible' of new naval guns at Singapore. "For what?" asked Winston, who only a few months earlier had been Singapore's staunchest champion. "A war with Japan! But why should there be a war with Japan? I do not believe there is the slightest chance of it in our lifetime." He was convinced that 'war with japan is not a possibility any reasonable government need take into account.' Beatty thought otherwise. Later, with an eye on history, Winston claimed that he had been at a disadvantage because Beatty had not told him of secret telegrams bearing evidence of Japan's aggressive designs. Still, one feels that this was not Churchill's finest hour.

The most sensational moment in Churchill's first budget was his dramatic disclosure that Britain, which had left the gold standard during the war, was back on it. The Times reported that this announcement was greeted with "tremendous cheers." After the applause had died down he said: 'No resposible authority has advocated any other policy. It has always been a matter of that we should return to it.' This was simply untrue. Beaverbrook had been against it; on the evening of Budget Day he wrote to Bracken: 'My opinion of Winston has not altered. I knew from the beginning that he would give in to the bankers on the Gold Standard, which, I think, is the biggest sin in this budget.' Half a century later Boothby, looking back on a long public life, said of the return to gold that "with the exception of the unilateral guarantee to Poland without Russian support, this was the most fatal step taken by the country."

Beaverbrook'and Boothby were among the few Jeremiahs on the issue then; others, and they were almost the only others, were Winston's old colleague Reginald McKenna, a former chancellor; John Maynard Keynes; and Vincent Vickers, who protested the move by resigning from the board of the Bank of England. Churchill has been blamed for it, and rightly so, because as chencellor he made the decision. The step was not taken lighty, however, or without learned advice. Responsibility was collective and bipartisan. In 1918 the step had been recommended by a standing committee of experts appointed by Lloyd George; a majority of Conservatives, Liberals and Labourites had then endorsed it. Churchill regarded that endorsement as binding. According to Grigg, the new chancellor invited gold's advocates to dinner. Sir Otto Niemeyer of the Bank of England stated the case for gold. McKenna and Keynes argued against it. Winston thought some of the points made by McKenna and Keynes were valid. "But," he added, staying off gold "isn't entirely an economic matter; it [would be] a political decision, for it involves proclaiming that we cannot, for the time being at any rate, complete the undertaking which we all acclaimed was necessary in 1918, and introducing legislation accordingly."

The roster of men who supported it on economic grounds alone was formidable; they included Austen Chamberlain, another ex-chancellor, Montague Norman, the governor of the Bank of England; and Labour's Philip Snowden, Churchill's immediate predecessor at No. 11, who intended to put Britain back on gold himself had he remained chancellor. After yielding his seals of office Snowden had eloquently set forth the case for gold in the Observer. One Labour MP, Hugh Daiton, a Keynes disciple challenged Winston's decision.'We on these benches will hold the Chancellor of the Exchequer strictly to account, and strictly responsible, if, as we fear, there should be a further aggravation of unemployment and of the present trade depression as a result of his action, and should it work out that men who are employed lose their jobs as a result of this deflation. Should that be so we will explain who is to blame.' But Daiton was almost alone in his own party. Labour's leaders didn't even put the issue to a vote. Indeed, years passed before they grasped what had happened. In 1946 Ernest Bevin told the House that Churchill had acted impulsively and "like a bolt from the blue we were suddenly met with the complete upset of the wage structure in this country". Bevin neglected to mention that in 1929, four years after Winston had brought England back to the prewar parity of gold, Ramsay MacDonald became Labour's prime minister for the second time while vowing to 'save the pound - to keep the British economy belted in its twenty-four-carat straitjacket.'

Why did they do it, and what did it mean? British financiers, in the Treasury and in the City, were convinced that England's future prosperity could be assured only if London were reestablished as the financial centre of the globe. This, they held, would be impossible until 'the pound can look the dollar in the face.' Churchill told the House: 'We have entered a period on both sides of the Atlantic when political and economic stability seems to be more assured than it has for some years. If this opportunity were missed, it might not recur soon, and the whole finance of the country would be clouded over for an indefinite period by the fact of uncertainty. "Now is the appointed time"' NiemeYer asked doubters: 'How are we, a great exporting and importing country, to live with an exchange fluctuating with gold, when the United States of America, Germany, Austria, Sweden, Holland, Switzerland, the Dominions . . . and Japan have a stable gold exchange? To bankers, reestablishing the credit of the pound was worth any risk. In reality, any precious metal or even a flourishing economy can serve as well as gold, and many do today. The Niemeyers, Normans, and Snowdens were living in the past, when Britannia ruled the waves and the pound was regarded with respect and awe in all the world's money markets. They assumed that the restoration of the pound's parity with the American dollar would reestablish Britain's prewar prosperity. None seemed to realize that England had squandered its wealth between Sarajevo and Versailles, or that the country's shrunken export .trade could no longer provide the surplus needed to reestablish London's fiscal ascendancy over the rest of the world.

Keynes now emerged. In the Nation, the Evening Standard, and finally in a pamphlet, 'The Economic Consequences of Mr Churchill,' he went for Winston's jugular, declaring that the chancellor had acted 'partly, perhaps, because he has no instinctive judgement to prevent him from making mistakes; partly, because, lacking this instinctive judgement, he was defeated by the clamorous voice of conventional finance; and most of all, because he was gravely misled by the experts.' The return to gold, Keynes said, 'shackled' and 'enslaved' the country. 'The whole object is to link rigidly the City and ,Wall Street,' and this alarmed him because America, with its rapidly expanding economy, 'lives in a vast and unceasing crescendo. Wide fluctuations, which spell unemployment and misery for us, are swamped for them in the general upward movement'. The United States could afford "temporary maladjustments" because its productivity was growing "by several per cent per annum." Once, when Victoria reigned, that had been true of Britain. 'This, however, it not our state now. Our rate of progress is slow at best,' and flaws which could have been dismissed in the nineteenth century are now fatal. The slump of 1921 was even more violent in the United States than here, but by the end of 1922 recovery was practically complete. We still, in 1925, drag on with million unemployed.'

The effect of going back to gold, said Beaverbrook, was 'making yet more difficult the selling of British goods abroad and so aggravating unemployment at home.' Events soon proved Keynes and Beaverbrook right. English goods which had been priced at eighteen shillings in foreign markets now cost twenty - a full pound. This handicapped all British exporters; some became hopelessly crippled. The owners of British collieries could not compete with German and American coal if they charged higher rates. Their only alternative was to cut their miners' wages. That was ominous. Coal mining, Britain's basic industry, was also the most highly organized and politicized; Keir Hardie, the founder of the Labour party, had been a Scottish miner. The miners' union protested the drop in pay. The Trade Union Congress, or TUC, the English equivalent of America's AFL-CIO, promised to back the miners all the way, and Labour MPs declared their solidarity with them. In July 1925, two days before the cuts were to go into effect, Baldwin temporized. The Treasury, he said, would subsidize the mine owners while a commission headed by Sir Herbert Samuel investigated the situation. The prime minister bought nine months of labour peace, but the cost - first estimated at UKP 10,000,000 but ultimately UKP 23,000,000 - was exorbitant. Churchill had agreed to the stopgap, but he protested, with the rest of the cabinet, when the prime minister proposed to extend it. Keynes was in the thick of things. He asked: 'Why should coal miners suffer a lower standard of life than other classes labour? They may be lazy, good-for-nothing fellows who do not work so hard or so long as they ought to. But is there any evidence that they are more lazy or more good-for-nothing than other people?' They were, he said, 'victims of the economic juggernaut,' pawns being sacrificed to bridge the gap, required by the return to gold, between $4.40 and $4.86. 'The plight of coal miners,' he concluded, 'is the first - but not, unless we are very lucky, the, last - of the Economic Consequences of Mr Churchill'.

Winston retorted angrily: 'I have never heard of any argument more strange and so ill-founded, as that the Gold Standard is responsible for the condition of affairs in the coal industry. The Gold Standard is no more responsible than is the Gulf Stream.' But evidence to the contrary was accumulating; week by week the tension in the mines grew. On March 1, 1926, the Samuel Report was released. It was a thoughtful, practical document, the result of profound research, and its conclusions were an indictment of the coal owners. Over the years, Samuel and his colleagues found, the proprietors had reaped enormous profits while bleeding the industry, refusing to replace obsolete equipment. As a consequence, theirs had become a losing business. Unless the government continued its subsidy, or nationalized the collieries, the miners would have to accept lower wages now. Later, after modern equipment had been installed, their pay would rise. No one could tell when that would be. The report gave the owners and the union six weeks to reach an agreement.

At this point the prime minister should have taken a strong stand. That is what leaders are for. The owners, with their accumulated wealth, could have been pressed to a settlement. But Baldwin had recently compromised himself, declaring publicly: 'All the workers of this country have got to take reductions in wages in order to help put industry on its feet.' So he temporized again. The commission's findings, he said, were disappointing, but if both parties could live with them, the government would not object. This encouraged extremists on each side; they shredded the report with technical arguments and then rejected it outright. Up to this point, Churchill's sympathies had been with the miners. Labour didn't appreciate that; when the coal subsidy forced him to cut health and unemployment insurance appropriations, there were cries of 'Robber!' from the Opposition benches, to which he replied that for one who had frequently been called a 'murderer,' this was 'a sort of promotion.' Unknown to them, he had sent young Harold Macmillan to Newcastle, asking him to report on the situation there, and on April 10 Macmillan - who felt it 'a great honour to be taken into your confidence' - wrote describing 'the appalling conditions in this area.' He thought that 'the patience and the .endurance of the workers as a whole is really remarkable. Certainly adversity brings out greater virtues than prosperity in all classes, but peculiarly so among the working people.' Churchill was optimistic; he felt certain that a way to reward these virtues would be found. After all, those on both sides were Englishmen. Speaking to the Belfast Chamber of Commerce he said that he did not share the opinion, so widespread abroad, particularly in the United States, 'that Britain is down and out, that the foundations of our commerce and industrial greatness have been sapped; that the stamina of our people is impaired; that the workmen are lazy; that our employers are indolent; that our Empire is falling to pieces. I have never been able to take that view.' He assured his audience that the justifiable grievances of 'our much-abused coal miners' would be peacefully resolved.

They weren't. Strife was now inevitable, and before it ended the conflict would cost over UKP 800,000,000. The crisis began on May Day, 1926. That Saturday morning miners who had assembled for the day's first seven-hour shift were notified that their future pay envelopes would be thinner. They protested and the owners locked them out. At noon the TUC General Council, meeting in London, unanimously agreed that unless wage levels were restored at once, a nationwide general strike would begin on Monday at one minute before midnight. The general strike is labour's ultimate weapon. If prolonged, it can destroy society. English legal scholars then and since have agreed that to call one or even threaten one, is a violation of the British constitution.

Galbraith: Gold, Bank notes and Britain against Napoleon and the US

Extracts from "Money: Whence it came, where it went" by John Kenneth Galbraith (First Published 1975), Page 44 to 45

"Over the end of the century Britain was at war alternately on two fronts - first with the American colonies (with which, incidentally, differences of view over issuing money were an important cause of friction), then with Napoleon and then again with the new Republic. War had is usual consequences. Money was needed for sustaining the armies in the field, for the fleet and for the subsidies to allies that reflected the (for Britain) humane policy of contributing from more abundant wealth as allies contributing from more abundant manpower. Pitt was relentless and many thought ruthless in his demands on the Bank for loans. Though taxes were increased, and an income tax, also called a property tax, was levied against heavy resistance, the need continued. In the closing years of the century Bank reserves dwindled, and there were occasional runs. Finally, in 1797, under conditions of great tension which included the thought that the French might soon be landing, the Bank suspended the right of redemption of its notes and deposits in gold and silver. The principal immediate consequence was the prompt disapperance of gold and silver coins and a shortage of coins for modest transactions. People passed on the notes and kept the metal. Gresham again. The Bank hurriedly printed one- and two-pound notes, and it also redeemed froms its vaults a store of plundered Spanish pieces of eight. The head of George III was stamped over the head of the Spanish monarch, inspiring an anonymous but notable anti-Establishment poet to write:

The Bank, to make their Spanish dollars pass,
Stamped the head of a fool on the neck of an ass.
(6)

The needs of the government continues to press. Loans and the resulting note issues continued to increase. And now so did prices and the price of gold. Wheat, which was six shillings and ninepence a bushel at Michaelmas in 1797 and at the same level a year later, when to above eleven shillings in 1799 and to sixteen shillings the following year. Bread went up accordingly. The prince of uncoined gold bullion advanced substantially in the same period. In the next few years prices receded somewhat, only to rise sharply again. All this was a matter of concern, and, in reflection of the distribution of power in the British polity of the day, the concern was focused not on the price of food but on the price of gold. In consequence, in 1810, the House of Commons impanelled a committee to inquire into the matter - the Select Committee on the High Price of Gold Bullion. Its principal task, which many would think involved a different phrasing of the same question, was to acsertain whether Bank of England notes, the basic money, had falled or the price of gold has risen. The committee deliberated and duly found against the notes."

Galbraith: David Ricardo and the Gold Standard

Extracts from "Money: Whence it came, where it went" by John Kenneth Galbraith (First Published 1975), Page 47 to 48

"By far the most memorable participant in this debate was a London stockbroker of Jewish provenance who, unknown to himself or anyone else, was, by this discussion, launching one of the most famous careers in economic thought. Some would later count him the greatest of all economists. This was David Ricardo, and he was an uncompromising supporter of the Bullion Committee and of what soonw as to be known over the world as the gold standard. 'During the late discussions on the bullion question, it was most justly contended, that a currency, to be perfect, should be absolutely invariable in value.' After conceding that precious metals could not be counted upon to be quite so invariable and perfect ('they are themselves subject to greater variations than it is desirable a standard should be subject to. They are however, the best with which we are acquainted.'). Ricardo when on to hold that, without such a standard, money 'would be exposed to all the fluctuations to which the ignorance or the interests of the issuers might subject it'. He was not opposed to bank notes. He thought them economical and a great convenience. But let htem always be fully convertible into metal on demand.

Ricardo's was in a great tradition of economic counsel - one that is superb in willing the ends, weak in willing the means. Or, as a recent historian has gently suggested, he was 'as a theoretical economist, apt to be blind to what was happening under his nose - for example, the fact that the country was at war'. (13 - Guiseppi, p 79.) To this detail Pitt, however, would not be blind; whatever the effect on the price of bullion, he had the problem of Napoleon. He continued to come to the Bank for loans. Ricardo was triumphant in principle, failed only as a matter of practical necessity.

But in the end he won also in practise. Reputable opinion continued to be strongly on his side. In 1821, with the war well over, full convertibility was restored at the old rate of exchange between notes and gold. Ricardo, on this as on other matters, had conquered England 'as completely as the Holy Inquisition conquered Spain'.(14)


(14) John Maynard Keynes, The General Theory of Employment Interest and Money (New York: Harcourt, Brace and Co., 1936), p. 32.

Galbraith: Dangers to the Gold Standard

Extracts from "Money: Whence it came, where it went" by John Kenneth Galbraith (First Published 1975), Page 53

"A greater danger to gold was war. The gold standard in the last century owed much to the intelligent management of the Bank of England - for a brief moment, central banking was an art. It owed much more to the British peace. In the next century warring governments would, as did that of Pitt, turn to their central banks for the money that they could not raise in taxes. And no bank, whatever its pretence to independence, would even think of resisting.

Most dangerous of all would be democracy. The Bank of England was the instrument of the ruling class. Among the powers the Bank derived from the ruling class was that of inflicting hardship. It could lower prices and wages, increase unemployment. These were the correctives when gold was being lost; euphoria was excessive. Few or none forsaw that farmers and workers would one day have the power that would make governments unwilling to impose these hardships even in so righteous a cause as defence of the currency.

However, it was early seen that the interests of the rich in these mattes could differ from those of others. Writing in 1810, Ricardo observed that:

The depreciation of the circulating medium has been more injurious to monied men. . . It may be laid down as a principle of universal application, that every man injured or benefited by the variation of the value of the circulating medium in proportion as his property consists of money, or as the fixed demands on him in money exceed those fixed demands which he may have on others.(19)

Farmers, by contrast, were helped:

He [the farmer], more than any other class of the community is benefited by the depreciation of money, and injured by the increase of its value.(20)

In England the triump of Ricardo's monied class was complete or nearly so. In the United States, however, it was subject to the sharpest of challenges. In one form or another, this challenge was to dominate American politics for the first century and a half of the Republic. Only the politics of slavery would divide men more angrily than the politics of money."


(19) Ricardo, vol. 3, Pamphlets and Papers, 1809-1811, p. 136.

(20) Ricardo, Pamphlets and Papers, pp. 136-7.


Churchill's Gold Standard budget Speech from Hansard

Page 49 and 50 [Scanned image of page 49 and 50]

Orders of the Day

WAYS AND MEANS

Considered in Committee

[Mr. James Hope is the Chair]

FINANCIAL STATEMENT

The Chanceller of the Exchequer (Mr. Churchill):

Those prophets who incautiously declared that the late Chancellor of the Exchequer had made an unwarrantable Budget and who predicted a heavy deficit at the end of the financial year have been rebuked by the event. The realised surplus of GBP 3,659,000 corresponds with remarkable accuracy to the Budget forecast, of GBP 4,024,000, and although within this total there are considerable variations which show that the right hon. Gentleman has been fortunate as well far sighted, the general result may justly be laid to the credit of the careful and scrupulous finance by which his administration of the Treasury was distinguished. The paper, which I believe is called the Blue Paper, although it is rather colourless document, which hon. Members have in their hands, gives the details of last year's finance. I cannot afford the time to dwell on them at any length. Everything is found within the limits of the Paper.

REVENUE, 1924-25.

Spirits and tobacco have each fallen GBP 2,000.000 below the Budget estimate. On the other hand, beer has advanced by GBP 1,000,000, and small surpluses; have accrued on wine, liquor licences and entertainments. The great remission of the Sugar Duty which the right hon. Gentleman made last year has fully reached the consumer, but the remission which he made on tea has been almost entirely extinguished by larger price movements in the world market. On the whole especially when consumption is studied quantitatively, it is right to say that the consuming power of the people is maintained. The yields of the Inland Revenue Duties are also satisfactory. Excess Profits Duty and Corporation Profits Tax show a deficit of GBP 9,200,000 on Budget estimate. These are moribund taxes, of which it is very difficult to estimate the yield, but their failure has been counteracted by the exertions of those stalwart and lively agents of taxation, Income Tax, Supertax, and Death Duties, and in a lesser degree the Stamp Duties. These Duties between them yielded GBP 16,000,000 more than the Budget estimate in the year. The actual net result of the Inland Revenue Duties of the year shows a surplus over the estimate of GBP 6,816,000.

EXPENDITURE, 1924-25.

Expenditure was GBP 5,750,000 above the Budget estimate, but here again there are variations. The service of the debt, for several reasons, chiefly the increased cost of the floating debt, cost GBP 7,000,000 more than was expected, but, on the other hand, Supply Services, in spite of the Sutton judgement, cost us GBP 3,000,000 less than was expected. In the, end. there emerged, to vindicate the prescience of the right hon Gentleman the late Chancellor of the Exchequer, a surplus of GBP 3,659,000, which surplus, I need hardly say, has, in accordance with the exemplary purity of our financial law and practice, already been devoted to the redemption of debt.

DEBT REDEMPTION.

Coming to the debt itself, the results of last year's operations have shown a substantial diminution of the nominal dead-weight charge. On the 31st March, 1924, it stood at GBP 7,680,000,000, while on the 31st March last it had been reduced to GBP 7.646,000,000. Floating debt has been reduced by GBP 32,250,000, and external debt by GBP 4,000,000. The successful work of the public thrift organisations, particularly the National Savings Committee, has continued. It has continued in spite of severe unemployment and obstinate trade depression. Saving certificates produced GBP 32,000,000 gross in the present year, and showed a net increase over repayments of just under GBP 3,000,000. Savings Bank Deposits also showed an increase of GBP 11,000,000, in spite of the serious adverse factors which I have mentioned.

Taking a wider view, no country has ever made the exertion which this country has made since the War to pay its debts and to meet its obligations with strictness and punctuality, and few countries have reaped a more tangible


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reward. Making allowance for the fact that the American debt interest was not paid for the first few years after the War, and comparing like with like, the interest on the National Debt has been reduced in the five years since 1920 by upwards of GBP 70,000,000 a year, and the rate of Government borrowing has fallen from 6 1/2 per cent to 4 1/2 per cent. This great fall in the rate of money for the Government has enabled a whole series of conversion operations of a highly profitable character to be undertaken or envisaged. Even in the last few months, the three minor operations for which I have been responsible have resulted in a permanent diminution of the annual debt charge of GBP 2,500,000.

Much larger conversion operations impend within the, lifetime of the present Parliament, and from these important savings may be realised by the taxpayer. But they will only be realised by strict adherence to the principles of sound financial policy, to the maintenance of which, I freely admit, the party opposite contributed during their period of power. If those principles are maintained and this process of debt redemption continues, a speedy and a substantial reward will be reaped by the taxpayer and the benefit will come to hand even before the present Parliament has separated.

It is most necessary that this policy of debt repayment should continue. My right hon. Friend the Prime Minister, when he was Chancellor of the Exchequer two years ago, prescribed a figure of GBP 50,000,000 a year as the ultimate total of the new Sinking Fund and he embodied in statiitory form his proposal that the new Sinking Fund should be fixed at GBP 40,000,000 in the first instance and then rise by yearly instalment of GBP 5,000,000 to this figure of GBP 50,000,000. It falls to me to provide the final GBP ,5,000,000 this year, as I shall do, to raise the new Sinking Fund to its statutory limit of GBP 50,000,000. But that is not all that we have done in the direction of discharging war liabilities. We have been paying off our war pensions liability on a gigantic scale. When the War stopped, the present capital value of the War pensions liability was estimated to have been at least GBP 1,000,000,000, and the maximum annual charge was GBP 110,000.000. We have now reduced that liability owing to the fact that we have met every obligation as it arose, and paid the expenses of every year from the revenue of that, year. We have now reduced that liability to a present capital value of GBP 760,000,000, and the annual charge has fallen to GBP 67,000,000 a year. Strict perseverance in this policy of paying for War pensions every year instead of funding them or spreading them, an has been suggested in various quarters - a policy in itself by no means indefensible will in relief to the taxpayer year by year of GBP 2,000,000 or GBP 3,000,000 until, finally, the whole liability is extinguished altogether or sinks to inappreciable proportions through the deaths of the pensioners. That is an important fact and a potent fact, which is often not noticed or not dwelt on when we describe the efforts which this country has made to free itself from the liabilities of debt in which it was involved during the course of the great War, and it is a fact which I shall ask the Committee to bear in mind in connection with some considerable proposals which I shall make to them at a later stage in my remarks. That is all that I have to say about the finance of 1924; that is the tale of the year that is done as far as I need supplement the Blue Paper.

RETURN TO GOLD STANDARD.

But before I come to the prospects of 1925 I have an important announcement to make to the Committee. It is something in the nature of a digression, and yet it is an essential part of our financial policy. Ever since the Spring of 1919, first under War powers and later under the Gold and Silver (Export Control) Act, 1920, the export of gold coin and bullion from this country, except under licence, has been prohibited. By the express decision of the Parliament of 1920 the Act which prohibits the export was of a temporary character. That Act expires on the 31st December of the present year, and Great Britain would automatically revert to the pre-War free market for gold at that date. Now His Majesty's Government have been obliged to decide whether to renew or prolong that Act on the one hand, or to let it lapse on the other. That is the issue which has presented itself to us. We


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have decided to allow it to lapse. I am ready to argue the important currency controversies which are naturally associated with a decision of kind, but not to-day - not in a Budget speech. To-day I can only Announce and explain to the committee it is that the Government have decided to do, and I will do that as briefly as I can

A return to an effective gold standard has long been the settled and declared policy of this country. Every Expert Conference since the War - Brussels, Genoa - every expert Committee in this country, has urged the principle of a return to the gold standard. No responsible authority has advocated any other policy. No British Government - and every party has held office - no political Party, no previous holder of the Office of Chancellor of the Exchequer has challenged, or so far as I am aware is now challenging, the principle of a reversion to the gold standard in international affairs at the earliest possible moment. It has always been taken as a matter of course that we should return to it, and the only questions open have been the difficult and the very delicate questions of how and when.

During the late Administration the late Chancellor of the Exchequer (Mr. Snowden) appointed a Committee of experts and high authorities to examine into the question of the amalgamation of the Treasury and the Bank of England Note Issues. The inquirey resolved itself mainly into an examination of whether and in what manner we should return to the gold standard. The Committee was presided over by my right hon. Friend who is now Secretary of State for Foreign Affairs (Mr. A. Chamberlain), and then a private Member, and its other members wore Lord Bradbury, Mr. Gaspard Farrer, Professor Pigou, and the Controller of Finance at the Treasury. This Committee heard evidence from a great number of witnesses representing every kind of interest: financial and trading interests, manufacturing interest, the Federation of British Industries and others were heard. It has presented a unanimous Report in which it expresses a decided opinion upon the question of the gold standard, and it sets forth its recommendations as to the manner in which a return to that standard should be effected.

I have had the Report of this Committee printed, and it will be available in the Vote Office as I finish my remarks this afternoon. It contains a reasoned marshalling of the arguments which have convinced His Majesty's Government, and it sets forth a series of recommendations, in which my right hon. Friend, though he ceased to he Chairman on becoming Foreign Secretary, has formally concurred, and which His Majesty's Government are intending to follow in every respect.

So much for the principle. There remain the questions of time and of method. There is a general agreement, even among those who have taken what I think I am entitled to call the heterodox view - at any rate, it is the view which we on this bench do not accept-that we ought not to prolong the uncertainty, that, whatever the policy of the Government, it should be declared, and that. if we are not going to renew the Act which prohibits the export of gold coin and bullion, now is the moment when we ought to say so. It is the moment for which the House of Commons has patiently waited at my request-and I express my obligation because I have not been pressed on this matter before - the moment at which it was, after long consideration, judged expedient that decisions should be made and actions taken. This is the moment most favourable for action. Our exchange with the United States has for some time been stable, and is at the moment buoyant. We have no immediate heavy commitments across the Atlantic. We have entered a period on both sides of the Atlantic when political and economic stability seems to be more assured than it has been for some years. If this opportunity were missed, it might not soon recur, and the whole finance of the country would be overclouded for a considerable interval by an important factor of uncertainty. Now is the appointed time.

We, have therefore decided, although the prohibition on the export of gold will continue in form on the Statute Book until the 31st December, that a general licence will be given to the Bank of England for the export of gold bullion from to-day. We thus resume our international position as a gold standard country, from the moment of the declaration that I have


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made to the committee. That is an important event, but I hasten to add a qualification. Returning to the international gold standard does not mean that we are going to issue gold coinage. That is quite unnecessary for the purpose of the gold standard, and it is out of the question in present circumstances. It would be an unwarrantable extravagance which our present financial stringency by no means allows us to indulge in. Indeed, I must appeal to all classes in the public interest to continue to use notes and to make no change in the habits and practices they have become used to for the last ten years. The practice of the last ten years protected the Bank of England and other banks against any appreciable demand for sovereigns or half-sovereigns. But now that we are returning publicly to the gold standard in international matters with a free export of gold, I feel that it will be better for its to regularise what has been our practice by legislation. I shall therefore propose to introduce a Bill which. among other things, wiill provide, the following:

First, That; until otherwise provided by Proclamation the Bank of England and Treasury Notes will be convertible into coin only at the option of the Bank of England ;

Secondly. That the right to tender bullion to the Mint to be coined shall be confined in the future by law, as it has long been confined in practice to the Bank of England.

Simultaneously with these two provisions, the Bank of England will be put under obligations to sell gold bullion in amounts of not less than 400 fine ounces in exchange for legal tender at the fixed price of GBP 3 17s. 10d. per standard ounce. If any considerable sum of legal tender is, presented to the Bank of England the bank will be under obligation to meet it by bullion at that price. The further steps which are recommended by the Currency Committee, such as the amalgamation of the Bank of England and Treasury Note issues, will be deferred, as the Committee suggest. until we have sufficient experience of working a free international gold market on a gold reserve of, approximately, GBP 150,000,000. It is only in the light of that experience that we shall be able to fix by permanent statute the ultimate limits of the, fiduciary issue. All that will be in the Bill.

The Bill also has another purpose. We are convinced that our financial position warrants a return to the gold standard under the conditions that I have described. We have accumulated a gold reserve of GBP 153,000,000. That is the amount considered necessary by the, Cunliffe Committee, and that gold reserve we shall use without hesitation, if necessary with the Bank Rate, in order to defend and sustain our new position. To concentrate our reserves of gold in the most effective form, I have arranged to transfer the GBP 27,000,000 of gold which the Treasury hold against the Treasury Note issue to the Bank of England in exchange for bank notes. The increase of the gold reserve of the Bank of England will, of course, figure in their accounts.

Further, the Treasury have succeeded in discreetly accumulating dollars, and we have already accumulated the whole of the 166 million dollars which are required not only for the June payment but also for the December payment of our American debt and for all our other American debt obligations this year. Therefore - and it is important - the Treasury will have no need to go on the market as a competitor for the purchase of dollars. Finally, although we believe that we are strong enough to achieve this important change from our own resources, as a further precaution and to make assurance doubly sure, I have made arrangements to obtain, if required, credits in the United States of not less than 300 million dollars, and of course there is the possibility of expansion if need be. These credits will only be used if, as, and when they are required. We do not expect to have to use them, and we shall freely use other measures in priority. These great credits across the Atlantic Ocean have been obtained and built up as a, solemn warning to speculators of every kind and of every hue and in every country of the resistance which they will encounter and of the reserves with which they will be confronted if thpy attempt to disturb the gold parity which Great Britain has now established. To confirm and regularise these credit arrangements, which I have had to make provisionally in the public interest, and to deal with the other points that I have mentioned, a short three-clause Bill will be required. The


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Text of it will be issued to-morrow, and we shall ask the House to dispose of it as a matter of urgency.

These matters are very technical, and, of course, I have to be very guarded in every word that I use in regard to them. I have only one observation to make on the merits. In our policy of returning to the gold standard we do not move alone. Indeed, I think we could not have afforded to remain stationary while so many others moved. The two manufacturing countries in the world on either side of us, the United states and Germany, are in different ways either on or related to an international gold exchange. Sweden is on the gold exchange. Austria and Hungary are ready based on gold, or on sterling, which is now the equivalent of gold. I reason to know that Hoiland and Dutch East Indies - very important factors in world finance - will act simultaneously with us to-day. As far as the British Empire is concerned - the self governing Dominions - there will be complete unity of action. The Dominion of Canada is already on the gold standard. The Dominion of South Africa has given of her intention to revert to the gold standard as from lst July. I am auth orised to inform the Committee that the Commonwealth of Australia, synchronising its actions with ours, proposes from to-day to abolish the existing restrictions on the free export of gold, and that the Dominion of New Zealand will from to-day adopt the same course as ourselves in freely licensing the export gold.

Sir FREDRIC WISE: India?

Mr. CHURCHILL: I am speaking of the self-governing Dominions of the Crown. I do not refer to India but in no way affects the argument.

[Interuption]

The CHAIRMAN: I would appeal to hon. Members not, to interrupt the right hon. Gentleman.

Mr. CHURCHILL: Thus over the wide area of the British Empire and over a wide and important area of the World there has been established at once uniform standard of value to which all international transactions are related and can be referred. That of course, vary in itself from time, but the the position of all the countries related to it will vary together, like ships in a harbour whose gangways .are joined and who rise and fall together with the tide. I believe that the estallishment of this great area of common arrangement will facilitate the revival of international trade and of inter-Imperial trade. Such a revival and such a foundation is important to all countries and to no country is it more important than to this island, whose population is larger than its agriculture or its industry can sustain -[HON. MEMBERS: "No!"] - which is the centre of a wide Empire, and which, in spite of all its burdens, has still retained, if not the primacy, at any rate the central position, in the financial systems of the world.

EXPENDITURE, 1925-26.

Having dealt with- I will not venture to say disposed of these large preliminaries, important preliminaries - the finance of 1924, the position of our debt and the return to the gold standard - I come directly to the Estimates for the current year. The Committee ham already before it the Estimates of the Supply Services amounting to GBP 407,471,000. I put the Consolidated Fund Charges at GBP 391,929,000. Of the Consolidated Fund Charges, the debt interest bearing in mind the savings on reduction of debt and on the conversions which been effected, is put at GBP 305,000,000, and the increased Sinking Fund at GBP 50,000,000. The total expenditure for 1925 thus becomes GBP 799,400,000. That is GBP 9,400,000 more than last year's Budget Estimate, and GBP 3,700,500 more than the actual expenditure of last year. I think this is a Disappointing result, and it requires a word of explanation. The rapid changes of Government which have disturbed our affairs during the last three years have not been conducive to public economy. Not only have each set of new Ministers naturally wished to distinguish themselves by making Departmental improvements at the public expense, but three autumn General Elections have robbed the Treasury and the Cabinet -

Lieut.-Colonel WATTS-MORGAN: And the candidates!

Mr. CHURCHILL: I am glad to know that those burdens, collective in character do not fall upon me. The successive Elections have robbed the Treasury and


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the Cabinet of the opportunity of making that searching and comprehensive scrutiny and that timely review of expenditure which are absolutely required every year, and which, under settled conditions, normally take place in November and December. I found it impossible, in the short time that there was between the receipt of the Estimates in January by the Exchequer and their presentation in Parliament in February, to make the examination I had desired to make of them. It is indispensable that Departmental demands should every year be thoroughly re-examined from end to end. I have been able, in the short time available - I have no doubt that the experience, of right hon. and hon Gentlemen opposite. was the same -to do no more than, by rowing against the stream, to keep equal, or even not quite equal, with the current. The tremendous flow of demands for expenditure of every kind comes from every quarter and in the short interval that was available, I could do no more than keep fairly level, and was utterly unable to effect any positive and net economy such as I would have liked to have presented to the House.

But if we may now come, and perhaps we may, to a period of settled government and continuity of policy - [Laughter] - it is all governed by the word "if," and I, am not begging the question - if we may now come to continuity of policy, then a strict and prompt reversion to normal procedure is indispensable. The Estimates of all the spending departments in an advanced state of preparation ought to be in the hands of the Treasury by the beginning of November, in order that the issues arising out of them may be fought out amicably but exhaustively before the Estimates have to be presented to the House. Further, I have obtained the assent of the Prime Minister and of my colleagues in the Cabinet, to the setting up of a Standing Committee of the Cabinet, not for the purpose of examining new expenditure - that runs a strict gauntlet - but for the purpose of overhauling blocks of recurring expenditure addition to the annual scrutiny made by the Treasury. I believe that we ought to aim at a net reduction in the Supply expenditure of not less than GBP 10,000,000 a year. That is not taking an extravagant figure. It would be easy for me to get a more favourable response by giving a more illusory figure, but I should he content if we could be sure that the net diminution of our expenditure was not less than GBP 10,000,000 a year -

Mr. SNOWDEN: Each year?

Mr. CHURCHILL: Each year, progressively on supply services. There should certainly be a saving of about GBP 5,000,000 on the debt operations of each year, and there will be, I trust and believe, a certain steady expansion of the Revenue. From all those sources, if we were able to achieve that position-there is no reason at all why a strong and resolute effort should not achieve it - there ought to be the means to present the taxpayer with a certain mitigation of the heavy burdens which press upon him now. But it must be clearly realised that increased expenditure beyond what I am providing for this year and next year means increased taxation, and that reduced taxation can be achieved after this year only by a continued reduction of Expenditure.

REVENUE, 1925-26.

The total expenditure in 1925 is, as I have said, GBP 799,400,000. What is the Revenue finish I have to set against that? I have, first of all, to encounter a progressive loss of revenue of upwards of GBP 14,000,000 on account of the remissions of taxation on which the right hon. Gentleman opposite was so much complimented last year GBP 14,000,000 is a very serious bag to have to face at the outset of the problem. But that is not all. I do not feel justified in budgeting for any substantial expansion of trade. I believe in a sure and steady improvement in trade. It is not possible, in this scientific age, for Great Britain, for Europe, for the world to remain at peace for any long series of years without the process of recuperation being continuous. This is borne out by all the tests which it is possible to apply to the internal economic and financial circumstances of our own country. But the improvement will be only gradual, and it may even be slow. We have a long pull before us. It would be improvident to count on any speedy or important relief. We may all hope, but the Treasury cannot build its Budgets on hopes. If, contrary to my calculations but in harmony with all our hopes, any large or marked expansion of trade or business


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should occur, that will be a windfall to the Exchequer. I am not counting on such windfill.

In any of the. figures and proposals I make to the Committee, I am not counting on any sudden or brilliant improvement in our affairs. I am not on, nor am I making provision for, any serious disaster such as would overwhelm our country if peace were broken by war abroad or by great industrial convulsions at home. Our destiny is in our own hands in these matters. We have our fortunes to make or to mar in these Islands. I am delighted to think that the realisation of that fact - that sombre and brutal fact - is becoming more and more common ground between all parties and all classes, apart from their other serious differences.

Proceeding in this sombre garb along the middle way, I estimate the Customs and Excise revenue in 1925 at GBP 235,000,000. That is against GBP 234,500,000, the actual receipts in the year which has just closed. It is really a bigger increase than it looks, because to make the comparison between the receipts of last year and the estimates of this year exact, to compare like with like, about GBP 2,500,000 should be deducted from the figures of last year for reasons into which I will not enter now. So I am .really budgeting for about 1 per cent. increase on Customs and Excise. The Motor Vehicle Duties rise by GBP 1,250,000 to GBP 17,500,000 - to such dimensions hits that modest child which my right hon. Friend the Member for Carnarvon Boroughs (Mr. Lloyd George) called into being 16 years ago, already grown. It is almost certain to grow larger in future.

Coming to direct taxation, under the three years average the Income Tax will benefit by the fact that the deplorable trading results of 1921 pass away and a better year takes its place. On these and favourable factors I feel entitled to estimate for a larger yield of the Income Tax. It his already, together with the Super-Tax and Death Duties, exceeded the right hon. Gentleman's Estimate by GBP 16,000,000 last year. I do not feel that there is any need to anticipate a diminution in the growing productivity of the Death Duties. The Super-tax will reflect the improving trade of 1924. It is very difficult to make estimates are other than speculative about the remanets of Excess Profits Duty and Corporation Profits Tax, but I am advised that some grain at any rate will be winnowed from the huge mass of chaff which is represented by the aftermath those duties.

At the present rates I estimate the total yield of Inland Revenue at GBP 459,000,000, compared with last year's estimate of GBP 432,000,000, and with the actually realised yield of GBP 439,000,000. Perhaps the Committee would like to have the actual figures. They are:

                                     GBP 
Death Duties                    62,000,000
Stamps                          24,000,000
Land Tax, etc.                   1,000,000
Income Tax                     289,000,000
Super-tax                       70,000,000
Excess Profits Duty              4,000,000
Corporation Profits Tax          9,000,000
                               -----------
  Total Inland Revenue         459,000,000
                               -----------

That gives me a total tax revenue of GBP 711,500,000.

With regard to non-tax revenue, I estimate the

                                    GBP 
Post Office receipts at	        57,000,000
Crown Lands                        900,000
Interest on various Loans      	12,600,000
Miscellaneous ordinary,
  Revenue                       14,000,000
Special receipts                30,000,000

equal to last year's Estimate and this is due to various receipts from disposals, food and shipping not coming in so punctually as was expected. We are satisfied that this Estimate will be realised. Adding the non-tax revenue of GBP 114,000,000 to the tax revenue of GBP 711,500,000, we get a total of GBP 826,000,000, or a surplus, on the existing basis of taxation, over the expenditure of GBP 709,400,000, of GBP 26,600,000. Taking everything into consideration, I think, on the whole, we are justified in considering the result satisfactory. It is the more satisfactory because I am not taking into account a number of very important factors. For instance, I am not budgeting for any increase in the amount reserved by the Exchequer on account of German reparations. We received GBP 12,000.000 into the Exchequer last year


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on account of German reparations, but that sum represented, not the payment due in the year, but considerable arrears besides. I am budgeting only for GBP 9,500,000 for German payments next year. That represents a larger sum accruing but a smaller sum will be received by the Exchequer having regard to last year's receipt of the arrears of former years. I am not counting in any way on payment by our European Allies of the debts which they owe to us. I am not counting in this Budget in any way on their repayments. Negotiations with France are still proceeding-they have been interrupted by the change of Government - and negotiations with Italy will be begun. [Interuption.] I do not know whether the hon. Gentleman who interrupts is anxious that we should obtain these payments or that we should not obtain them. We have explained the principles by which we are governed in the correspondence which I have been authorised by the Cabinet to conduct with M. Clementel, the late Minister of Finance. They are principles which are in general accord with the Balfour Note, and which were laid down the Government of which my right hon. Friend the Member for Carnarvon Boroughs was the head. Of course we shall in no way relax our efforts to obtain repayment of what is due to us in accordance with principles which have been universally recognised far outside this country, not only as fair but as actually generous. I am not however counting on it as a foundation for this Budget or for the figures which will confront us during this year. Neither am I, as I have said, counting on an expansion of trade. If anything comes from reparations, if anything comes from inter-Allied debts; if anything comes from a revival of trade, that will be an additional relief which does not appear in the figures; I am submitting to the Committee. Neither am I counting on any payment in this year by the Irish Free State under Article 15 of the Treaty.

Sir WILLIAM DAVISON: Why not? Has not Ulster paid?

Mr. CHURCHILL: The Treaty must be observed in its integrity, and Article 5 is an essential part of it. I have not the slightest reason to assume that the Government of the Irish Free State have not the intention of taking up with us, at the proper time and in the proper way, a discussion of the important issues connected with Article 5, but I feel it necessary at this moment, when I am making a statement on the, general finances of the country, to record this fact as one of the facts which must by no means be allowed to pass out of consideration, although it forms no foundation for my actual Budget. Neither am I counting, in the last case, upon any diminution of expenditure such as I hope may be achieved by the exertions of the Cabinet and the Public Accounts Committee, aided I trust by the House of Commons as a whole. Having regard to all these very considerable factors, I think I am justified in saying that the surplus of GBP 26,600,000 in 1925 may without exaggeration merit the epithet "satisfactory."

A surplus of GBP 26,600,000 may be satisfactory in itself, but yet it may not he adequate for the needs of public policy. What are the twin supreme objectives of public policy at the present time? I can give them in a single sentence. Security of the home of the wage-earner against exceptional misfortune and encouragement of Enterprise through a relief of the burdens, resting upon industry. It is no use attempting to handle large matters of this kind in a partial and ineffective fashion. Action, if it is to be taken, must in its character and in its scale be such as to produce an appreciable effect upon the lives and experience of all classes in the community. If, therefore, we are to advance upon these formidable problems, it is imperative that I should fortify the revenue, and this I will now, with the permission of the Committee, proceed to do.

INCREASED ESTATE DUTY.

I would like first to say this. In the new taxation proposals which I am going to make I trust the Committee will remember that the scheme I am submitting must he judged as a whole. It contains features which will, I have no doubt, be obnoxious individually in different quarters of the House, but every part of it is related to every other part,, and I hope and trust that, when it is viewed in its entirety as an organic whole, the scheme will be found to be of help in the present general situation of our affairs.


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Proceeding on the well-known maxim of beginning at the most unpleasant part, and putting that first, I proceed immediately to the Death Duties. The increasing yield of the Death Duties is of the wealth of the country even than that growing yield of Income Tax and Super-tax which arises from the far-famed honesty of the British taxpayer stimulate by the equally well-known efficiency of the Inland Revenue. I propose certain additions to the rates of Estate Duty. They are not general throughout the scale. They do not affect estates of modest amount - the increases only being after GBP 12,500 - nor do they affect estates of the greatest magnitude, the Duties on which wore heavily increased in 1919 and leave no room for any alteration except in a downward direction. It is in the range of medium wealth that I propose the chief increases. The full details will be found in the White Paper which will be available when I sit down. I am only proposing to give a few specimen cases, and I hope the Committee will not press me for more, because the whole thing is better studied in print.

On estates between GBP 12,500 and GBP 18,000 where now the duty is 5 per cent, or 6 per cent. I propose an addition of 1 per cent. On estates of GBP 40,000, where now the duty is 9 percent, an addition of 3 percent., bringing it to 12 per cent. On estates of GBP 175,000, where now the duty is 17 percent, an addition of 6 per cent., bringing it up 23 per cent. On estates of GBP 400,000, where the duty is now 23 per cent. - as the duty rises the increase diminishes - an increase of 3 per cent., bringing it to 26 per cent. On estates of GBP 800,000, where duty is now 27 per cent., an addition of 2 per cent., bringing it to 29 per cent. Estates of GBP 1,000,000 and over remain at same extremely onerous rates as at present. The yield of this scale of Death Duties is not fixed in any way arbitrarily, but is fixed in relation to a curve line which rises harmoniously. The yield will be GBP 10,000,000 in a full year, and GBP 4,500,000 in the year of its initialisation. That is my proposal. I have confined myself to stating it for the moment, but I will unfold its exact, purposes as I proceed with my remarks.

SILK (REVENUE DUTY).

Now I come to a series of duties of different kinds and of various origins, but which have one feature in common. They all relate to subjects of luxury. They may all be called sumptuary duties or, if that be disputed, at any rate they are certainly optional duties. They are taxes which no man or woman - for women are going to pay their part - need pay unless he or she chooses. They fall on a class of expenditure from which everyone can easily refrain without any detrimental effect on health or morals,

In the forefront of these I place a new revenue duty upon silk. That secret, at any rate, has been well kept. Natural, artificial, raw, semi-manufactured, manufactured or made-up silk will be subject to a new revenue duty. For nearly a generation Chancellors of the Exchequer have probed the problem of the silk tax, and all have retired baffled. The ingenuity and increasing experience of the Board of Customs and Excise have at length led to what I trust is a satisfactory and permanent solution of this problem. Natural silk enters the country at various stages - as raw silk, as silk waste, as thread and as tissue. I propose a carefully calculated scale of duties on all these imports. It is not an ad valorem tax but a specific duty. No natural silk is produced in Great Britain, therefore, the whole yield, without any countervailing duty, of the duty on natural silk comes to the Exchequer. I propose that similar specific duties, related to the duties on natural silk, should be levied on all corresponding imports of artificial silk at different stages. In this case, however, if the efficiency of the tax is to be fully maintained, a countervailing duty will be necessary in connection with the very large volume of home production. I am told it will be quite an easy matter to arrange.

There remains only silk imported in the form of made-up goods, and here again proportionate duties will be levied on all imports wholly or partly consisting .of silk, but in this case the duties will have to he act valorem, as it would be impossible to deal with them on a specific basis. The basic rate of the duty is 4s. a lb. on raw silk, between a seventh and an eighth of the cost of the article; but the story is very complicated, and there are considerable variations in detail between the different grades. I will not weary the Committee with a complicated scale - they will find it in the Vote Office


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at the close of my speech. But I wish to be absolutely frank and candid with the Committee. These are very good revenue duties. But in calculating the terms as between the foreign importer and the home producer, I have deliberately given a certain advantage to the home producer. I have done that for this reason, because I am using this particular trade for the first time as a fiscal instrument to extract revenue from the consumer, and I expect - I am bound to expect - that the imposition of this duty will lead to a certain decline in consumption. You will not get any result without some disadvantages, wherever you turn, and I wish to make up to the trade by a certain advantage over the foreign importer for the disadvantage they will suffer in a certain restriction in the general volume of their trade. On this basis, I estimate the revenue from silk at GBP 4,000,000 in the year 1925, and at GBP 7,000,000 in the year 1926. That is a substantial addition to our revenue, and if the scheme which we have prepared should ultimately commend itself to the Committee and to the House of Commons, I have no doubt it will be a permanent one.

HOPS (IMPORT DUTY).

The Silk Duty finds at its side a small companion which has reached me from the Ministry of Agriculture in the shape of a duty on hops. It in very small, but very shocking; it is nakedly protective. The object of the duty is to protect the culture of hops, and there is a special element of depravity attaching to this duty. A certain school of thinkers contend that beer is food, and, if so, hops are certainly, I am advised, an ingredient of beer - [An Hon. MEMBER: "Not now!"] - but I am encouraged in the matter by the fact that those who hold that beer is a food are also, on the whole, very favourable to a protective duty on hops, and, on the other hand, those who disiike the duty on hops still more dislike the suggestion that beer is food, so I think my right hon. Friend's little monster may manage to make its way through the general network of electoral pledges which safeguards the main policy in fiscal matters as far as this Parliament is concerned. After all, hops have always been in a special position. I remember, many years ago, my right hon. Friend the Member for Carnarvon Boroughs sending for me to receive with him a deputation of hop growers in a Committee Room upstairs. We could give them nothing but sympathy, but we gave them a double dose of that.

For the last five years hops have been rigidly, rigorously controlled under an Act passed during the time of the late Coalition of blessed memory. That Act expires in August of the present year, and I have been confronted with the alternatives either of renewing the control or of agreeing to a protective duty. I have chosen the latter, and I am confessing to the Committee the reason why. Control would be utterly sterile, as far as I am concerned, but the duty will produce GBP 130,000 in the first year and GBP 250,000 in a subsequent year, as much, that is to say, or almost as much, as the additional grant which I have been able to give to the Universities of the country for higher education. I cannot afford to disdain any revenue, and even the most modest contributions are thankfully received. The spacious days are gone. We have entered a period of exact accounting and restricted scope; we have entered a period when any contribution, however small, when any diminution of expenditure, however petty, must be welcomed and eagerly grasped and sought for by the Chancellor of the Exchequer. The duty will be GBP 4 a cwt., and limited to four years. We do not want to encourage any overproduction in hops. It will carry with it a small additional duty on imported beer to countervail the tax on the home brewer, but after consultation in various quarters, I do not anticipate any alteration in the important area of the beer duty, and my estimate of the revenue from beer is not affected in any appreciable degree.

McKENNA DUTIES (RE-IMPOSITION).

Finally, still on the task of fortification, I come to that celebrated group of deities for ever associated with the name of the eminent free trade financier and Liberal Chancellorof the Exchequer, Mr. McKenna. When that right hon. Gentleman first proposed these duties, he used the following words. I see a great many Gentlemen on the opposite benches who were his colleagues at the time, and who supported him accordingly in the use of these words:

"The particular articles which we have chosen have been chosen, primarily, upon the ground that their consumption is not


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required in this country; secondly, upon the round for improving our fallen exchange; and, thirdly, on the ground that, in satisfying these two objects, we shall still obtain a certain degree of revenue."

Those were his reasons in 1915, and every one of those exists to-day. If those luxuries were luxuries then, they are luxuries now. If there was a need to diminish luxury importation from the United States of America then on account of the dollar exchange, has that need become any less urgent on the morrow of our return to the gold standard? If such comparatively small receipts of revenue counted in the great War Budgets of those times, surely they count much more in the meagre period to which I have succeeded. These duties will give pleasure, in almost every quarter of the House, for various reasons. Hon. and right hon. Gentlemen opposite below the Gangway will be able to point out how wise and far seeing they have been in warning the country of the hideous dangers of Protection which they were recklessly incurring; hon. Gentlemen below the Gangway on this side, and perhaps above the Gangway too, will be able to use all those arguments about stimulating British trade in particular industries with which we are all very familiar. I do not grudge anybody any reason which lead them to vote for the re-imposition of these duties. To some they a relish, to others a target, and to me a revenue. They will bring in a, GBP 1,600,000 a year in the first year and nearly GBP 3,000,000 in a full year. We cannot afford to throw away a revenue like that.

I said last year that the right hon. Gentleman the late Chancellor of the Exchequer, in deciding to single out these duties, which were lying quite quietly and not interfering with anybody, and to bring them into the forefront of affairs, was actuated much less by considerations of high finance than by considerations of high political strategy. His action was not endorsed by the electorate at the following election. I believe that a great majority of Members in this House won their seats on a clear view that those duties ought not to have been taken off. We cannot afford the lose of this revenue and the duties must be restored. They are capable of annual review, after all, And, there may come another Chancellor of the Exchequer, in times when revenue is more abundant and when expenditure is less exacting, who may be able, once again, to roll away this hideous cloud of oppression, and wealthy and patriotic persons will once again be able to recreate their exhausted strength in untaxed foreign motor cars no longer burdened by a 33 per cent. duty.

The total yield of all these optional taxes will he GBP 5,730,000 in the first year and GBP 10,000,000 in a full year. In order to obtain the maximum yield from the Silk and McKenna Duties, we shall endeavour to bring them into force on the 1st July, and for that purpose we shell have to ask the Committee and the House to press steadily on with the Budget in the intervening period.

I have now completed my fortification of the revenue. None of the new Duties falls on the mass of the people, none touches the necessaries or even moderate, common comforts of daily life. Together, they will yield GBP 10,230,000 in 1925, and, what is far more important to me in the policy which propose to outline, they give more than GBP 20,000,000 a year of permanent revenue in 1926 and in future years. The surplus therefore, of GBP 26,600,000 is now raised by these additions to GBP 36,830,000, and I also have a permanent addition to the Revenue worth another GBP 10,000,000 which will accrue in the following year. That is, over and above the extra GBP 10,000,000 added this year there will be another GBP 10,000,000 next year, and over and above the normal revenue of this year it represents an increase of GBP 20,000,000.

MINOR LEGISLATIVE PROPOSALS

An announcement of a prospective surplus is always a milestone in a Budget, and before we settle what to do with it, I will pause to mention some minor matters, on which I shall have to propose legislation. I shall propose legislation following the Resolution of the Imperial Economic Conference of 1923 concerning the liability of Empire Governments trading or owning property in Great Britain. I shall also propose legislation for Income Tax relief in favour of High Commissioners residing in this country, to which my right hon. Friend the Secretary of State for the Colonies has alaready publicly referred. Provisions will be included to continue the temporary


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exemption of Irish Free State charities, from British Income Tax, and 1 shall suggest, also, certain improvements in the machinery for Income Tax appeals by charities in Great Britain. A recent decision of the House of Lords has revealed defects in the law relating to Succession Duty, which necessitates the tabling of remedial proposals. All these points will be represented by Clauses in the Finance Bill.

WIDOWS AND OLD AGE PENSIONS

We are now in a position to resume our march upon the two main objectives I mentioned to the hlouse an hour ago - Security for the home.of the wage-earner and Encouragement of enterprise by the relief of taxation upon income. But now we can move forward with our wagons and our field-parks replenished. if not with an ample, at any rate with an adequate supply of shot and shell. Security for the home of the wage-earner against exceptional misfortune - that is the first need. I do not blame the right hon. Gentleman opposite for his remissions on tea and sugar, but I differ from him in thinking that this was the best use which could have been made of the enormous power represented by UKP 30,000,000 of Revenue in the hands of the State. The average British workman in good health, in full employment, at, standard rates of wages, does not regard himself and his family as objects of compassion. It is when exceptional misfortune descends upon the cottage home that the slender margin upon which it floated is, for the first time, revealed. A year of misfortune, a year of distress, a year of unemployment, above all the loss of the breadwinner, leaves this once happy family in the grip of the cruellest calamity. Their furniture and household effects, gathered together by thrift, through years of toil in the prime of life, are scattered and dispersed in a few months for a tithe of their value. Inconceivable waste, degenerating into havoc, takes place all over the country, and is taking place whenever a lamentable catastrophe of an exceptional character falls upon the otherwise happy, free, and prosperous workman's home. Most painful of all is the position of the widow with several young children, left absolutely upon her own resources with a few pounds, and a few belongings.

It is idle to say that the threat of adversity is a necessary factor in stimulating self-reliance. The threat of adversity has been active all these years, and, in the upshot, no effective provision has been made by the great mass of the labouring class, with all their efforts, for their wives and families in the event of their death. I am not reproaching them. The circumstances of their lives, the problems of existence, have not left them with the strength, or the means, or the foresight, or the habit of making such provision, and the fact remains, look at it how you will, that no such provision exists at the present time. That is the gravest evil and the gravest need at the present time.

To change to a military metaphor: It is not to the sturdy marching troops that extra rewards and indulgence are needed at the present time. It is to the stragglers, to the exhausted, to the weak, to the wounded, to the veterans, to the widow and the. orphans that the ambulances of the State and the aid of the State should, as far as possible, be directed. The old lairsez faire or laissez aller ideas of mid-Victorian Radicalism have been superseded, and no one has done more to supersede them than the right hon. Member for Carnarvon Boroughs. I am proud to have been associated with him from the, very beginning of those large insurance ideas. The old ideas have been superseded by modern conceptions of scientific State organisation. The conceptions of the party opposite, of course, we know, but they are conceptions which are held not less earnestly, and certainly more practically - [An Hon. MEMBER: "Quite recently!"] - on this side of the House. I am sure they commend themselves to the right hon. Gentleman the father of British State Insurance, which at this very moment, although by no means complete, holds an honourable pre-eminence amongst the insurance systems of every country in the world.

Two years ago my right hon. Friend the Prime Minister appointed a Committee of experts to examine into the possibility of Old Age Pensions at an earlier age than 70 and of widows' pensions. Governments came and went; elections wore won and lost, but the Committee continued to labour in the deepest recesses of Whitehall, and, in the end, all the


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actuarial and administrative possibilities were fully surveyed, and an immense mass of information and material was collected. The scheme of insurance we have now decided to inaugurate has been erected on that basis. Without that preliminary work, it would not have been practicable to deal with this is matter this year, and perhaps not next year. As I have said, the action of my right hon. Friend the Prime Minister two years ago made possible this announcement. These, conclusions were presented to the right hon. Gentlemen opposite the summer of last year. I do no know what course he and his friends would have adopted with regard to it. Perhaps he will tell us for himself. But this mass of material was made availble bothh to my right hon. Friend the Minister of Health, in whose Department this matter lies, and to the Chancellor of the Exchequer, and we have done our best to frame a scheme out of this material.

Any scheme to be of any use must be contributory [HON. MEMBERS: "Oh!"] I will give a word of caution to hon. Members at the outset. Before they deride this scheme, or commit themselves to an attitude of derision, let them make what quite sure what it is. Let them make how great are the masses affects in a favourable sense. Any scheme, I say, must be contributory, must be compulsory, and, above all, must cover, virtually, the whole area, of the wage-earning population. This area is broadly represented by 15,000,000 people who are at present insured under the Health Insurance Scheme of the right hon. Member for Carnarvon Boroughs. Those 15,000,000 contributors, with their dependants, represent over 30,000,000, or 70 per cent of the entire population. The first question we have to ask ourselves is this: What burden of additional contribution, in existing circumstances, can be borne and shared equally between employers and employed? We believe ..that 4d. for men and 2d. for women can be assumed by both parties, employers and employed, in the circumstances of our national life at the present time.

Mr. SEXTON: In addition to what they pay the present time ?

Mr. CHURCHILL: Yes, that, is what we believe

Mr. RAMSAY MacDONALD: Is it 4d. and 2d. each from the workers and employers?

Mr. CHURCHILL: Yes, 4d. from the workman and 4d. from the workman's employer, and 2d. from the workwoman and 2d. from the workwoman's employer. We bear in mind, in the case of the workman and workwoman, the very large remissions of taxation which were made by the late Chancellor of the Exchequer last year. He made these great remissions on tea and sugar, and the relief granted by him provides The fund out of which the contributions of the workers can be paid. That is the right hon. Gentleman's share, in the general architecture of the scheme, if he cares to claim it, but only if he cares to claim it. If he does not wish to claim it, there is no reason why he should.

The case of the employers is more difficult, because we know how heavy axe the burdens upon our productive industries at the present time. [HON. MEMBERS: "Oh!"] I am sure my hon. Friends opposite, however they may feel about these matters - we will have weeks to debate them - would not wish to show anything like an air of levity in dealing with questions which, after all, affect not millions but tens of millions. We may differ-[Interruption.]

The CHAIRMAN: I must ask hon. Members to allow the right hon. Gentleman to continue.

Mr. CHURCHILL: We may differ. The case of the employers is more difficult, because while unemployment is at its present height the burden is especially heavy on employers and also on the employed in the area of unemployment insurance. While the deficiency period lasts 10d. is required per week from the employer and 9d. from the man. That is an enormous burden. We believe this period is temporary. That is our basis. It will be a very great falsification of our view if it should turn out to be not temporary. Once unemployment has fallen from its present level to the neighbourhood of 800,000 then the deficiency period rapidly passes away, and the contributions of employers and of workmen in the unemployment area fall from 10d. to 6d. and from 9d. to 6d., respectively. It is a. temporary period, but it is one which, I frankly admit, has caused my colleagues and myself a great deal of anxiety in connection with these present proposals. Before I sit down I shall hope to provide the employer


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with certain resources which will enable him to meet, and to more than meet, this extra burden, which will be a proper counterpoise in direct taxation to the immense remissions of indirect taxation which the right hon. Gentleman opposite, the late Chancellor of the Exchequer, made this time. last year.

What are the benefits which can be paid by contributions on this scale. If everybody in the ambit of Health Insurance had from the age of 16 years onwards contributed 4d. a week, and had had 4d. a week contributed by the employer - the women at half rates - a self-supporting scheme would now be in operation and would have afforded 10s. per week to widows;, with an allowance for children and for orphans, and, secondly, 10s. a week to all insured persons and their wives from 65 years. Such a State scheme, on such a scale, would be self supporting if everybody had contributed from the age of 16 onwards. Such a scheme is not in existence. No one has contributed from the age of 16 onwards. Large numbers of people have never had the opportunity of contributing at all. The vast majority can never contribute on any scale sufficient to pay for benefits of this scope. The contributions of the employers and of the employed are 4d. Certain incidental savings on health and unemployment insurance will give relief to the extent of a penny each, which two pennies can be transferred to the new scheme. Such a basis could never have enabled us to overtake the immense liabilities for which no back payments have been made. Left to its own resources the scheme could not be brought into full operation for many years. A whole generation of men and women might toil their lives out before the distribution of benefits would be wide enough sensibly to raise the general level of comfort amongst the mass of the people. Here, then, is where the State - the capitalist State - with its long record of stable finance, with its carefully maintained credit, can march in to fill the immense gap. The contribution of the State will enable the whole scheme to be brought rapidly into operation, and we intend to bring it into operation in successive stages beginning from 4th January, 1926.

The present capital value of the additional liability to be undertaken by the State under the scheme - the scope of which I have yet to explain - has been computed at nearly UKP 750,000,000. But before the Committee can be asked to bind upon themselves and upon future Parliaments this formidable load, we must look not only to the next few years, but we must let our minds roam forward into the remote periods of the future, which we shall not ourselves see, but for which we have a solemn responsibility.

Here I have to make a very unexpected and a very disagreeable digression. The liabilities of the new pension scheme - I am putting all the facts before the Committee, and before a people who have gone through the Great War, and who, in view of all these events cannot be afraid to look at the facts and realities as they are - the cost of the new pension scheme is not the only great impending charge which we have to meet. Quite apart from the new pension scheme, the actuaries who have examined the matter have discovered and predicted an enormous growth in the cost of the existing non-contributory scheme of old age pensions. This additional cost is not due to the recent improvements or relaxations made by the late Administration. It is due to the fact that we are now entering upon a period 70 years away from the very great expansions of the population which took place in Victorian times. Moreover, we are living in a period when the span of human life has been sensibly prolonged. I will give one impressive example. The Census of 1891 showed 5,600,000 persons between the ages of 40 and 60. The survivors of these persons are the old age pensioners of today. The Census of 1921 showed, not 5,600,000, but 9,700,000 persons between the ages of 40 and 60. These persons - that is the survivors of them -will be the old age pensioners of 20, 30 and 40 years hence. This tendency to a larger proportion of old people is steadily increasing. The actuaries assure me that the existing cost of old age pensions on the present basis in 50 years' time will be more than double what it now is. At present it is UKP 27,000,000. In 10 years it will he UKP 36,000,000. In 20 years it will be UKP 46,000,000. In 30 years it will be UKP 54,000,000. In .50 years it will be UKP 60,000,000, without any addition being made of any sort or kind by any Government. This


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island of 30 years will have more than double its present number of old and feeble people, and it will have to support them with an active population little larger than it is to-day - a population robbed - we must never forget - of much of its natural increase by the slaughter of the Great War. None of this was foreseen. Perhaps none of it could be foreseen at the time the non-contributory scheme of old age pensions was started in 1908. I think that the facts and figures which I have brought before the Committee are such as to raise disturbing and anxious reflections in the mind of every serious person.

I have to take these figures into account in framing the, finance of the new scheme. I am bound to secure for the Parliaments of the future the opportunity of controlling the growing burdens of the State. I will not put the Parliaments of the future in the position of being fettered by quasi-contractual obligations towards contributors even though their contributions are compulsory. I will not be are responsible for financial arrangements in 20, 30, or 40 years will lead mathematically to an overburdened Treasury, fettered Parliaments, and a dependent people. Therefore, it is provided in the finance of our scheme that the contributions, both of employer and employee should be raised one penny each per man, and a half-penny each per woman, after the, tenth, twentieth, and thirtieth year of the scheme to a maximum, in 1956, of 7d. on each side. I cannot think that is an unfair condition for us to impose. I cannot think that it is less than we are paying now while the present high rates of unemployment contributions are in force during the deficiency period. I am not seeking to fetter Parliaments. I am only seeking to make sure that whatever Parliaments :there are, whatever parties they may be ruled by, they shall be free to keep the finance in this matter under control, without what would otherwise look like a breach of faith to those humble people who all their lives will have been paying contributions. On this basis, however, the cost to the State of the new scheme will still be heavy. The capital value is what I have already stated, but it will be definite. It will be controllable by Parliament without any breach of faith. By the tenth year the cost to the State will be UKP 15,000,000. By the fifteenth year it will be, UKP 20,000,000. By the twentieth year it will be UKP 24,000,000. By the thirty-fifth year the burden will have declined to UKP 21,000,000 and, thereafter we slowly pass into periods too speculative for us to follow without the labours of the statistician. But that is not all. If the Parliaments of the future adhere to the three decennial increases suggested, and the conditions prevail which I have already explained, the whole system of old age pensions, not only the new scheme but the existing noncontributory scheme, will gradually come on to a self-supporting basis. That is to say, the new entrants at 16 years of age, after the year 1956, will, with the help of the employers' contribution, pay not only for all their own benefits under the new scheme but for their own old age pensions after 70 as well. In 80 years, therefore, when the great majority of the contributors have contributed from 16 onwards, the complete scheme, the new and the existing old age pensions schemes - will he on a wholly self-supporting basis, so far as the great mass of the population is concerned. The State will still be called upon to pay nearly UKP 90,000,000 a year in perpetuity. But that will not be on account of the cost of running the scheme; it will represent the interest on the cost of bringing these schemes into immediate operation without waiting for a whole generation until an adequate capital fund has been accumulated. That is the great division of burden which we make between the contributors and the State, and it is our guiding principle. According to this principle, the contributors will pay for benefits and the State will pay for making those benefits immediately available in our own time instead of after we have all passed from this sphere. This principle after 1956 will apply fully not only to the new scheme, but to the existing Old Age Pensions scheme as well. I apologise to the Committee for the length of my speech. I really have tried to economise every word so as to give a fair idea of the scheme and yet not waste the time of the committee.

Let us now see what are the charges upon the State both for the new scheme and for Old Age Pensions. At present we are paying UKP 27,000,000 a Year for Old Age Pensions. In the tenth year the new


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scheme will cost 15,000,000 and Old Age Pensions, UKP 36,000,000, total, UKP 5l,000,000. In the twentieth year the new scheme will cost UKP 24,000,000, and Old Age Pensions, UKP 46,000,000, total, UKP 70,000,000, In the thirty-fifth year the new scheme will cost UKP 21,000,000 and Old Age Pensions, UKP 56,000,000, total, UKP 77,000,000. The next question I have to ask is, are we justified in laying these charges upon posterity? Here I would remind the Committee of the descending scale of war pensions charges, to which I designedly referred what seems a very long time ago at the begining of my remarks. We are paying UKP 67,000,000 for war pensions this year. In 10 years they will have fallen to UKP 43,000,000, a saving of UKP 24,000,000 a year. In 20 years they will have fallen by UKP 35,000,000, in 30 years by UKP 45,000,000, and they will be virtually extinguished in .50 years. And so, when we compare the ever-rising expense of the new scheme and of old age pensions an the one hand with the ever-falling cost of war pensions, we find that the fall of war pensions in every yeax and at every stage largely exceeds the rise in the new pension scheme, and that at every stage it balances, or nearly balances, the cost of the new pension scheme and the old age pension scheme taken together. At the worst, therefore, we have no need on these matters to expect greater burdens than those we are supporting at the present time. By the time that the growing relief from the decline of the wear pensions has come to an end we shall have paid off our American debt, and a relief of UKP 35,000,000 to UKP 40,000,000 a year will inure to the benefit of our successors. Therefore, it seems to me, in nothing that we are now doing are we acting in an improper sense towards posterity. We are bearing great burdens every year, and we are putting upon them nothing of which it may be, said we have in any way endeavoured to shirk our share.

I turn, now, to the first decennial period of the new pension scheme, which is, after all, the one which concerns us in the meet practical manner. The new pension scheme will cost the Exchequer nothing in the first year. Surpluses will accrue in the next two years and will he carried to the credit of the scheme. It is only from the third full year that. a charge begins to operate. It begins at about UKP 4,000,000 a year and it rises in the tenth year to UKP 15,000,000. But I feel very strongly, and it is the view of the Government, that this Parliament should not be generous at the expense of other Parliaments, that we should not have the advantage or the honour of introducing a great, new scheme and departure of this kind and leave the bulk of the burden to he borne by the next Parliament, or the next after that. Therefore, we have decided to spread the payments evenly over the whole of the first decennial period, and I shall defray the charges of this scheme by 10 annual and approximately equal instalments. I will not now go into the reasons why they are not exactly equal; these will all appear in the documents which will in due course he brought to the attention of Parliament. They will be 10 approximately equal instalments of about UKP 5,750,000 a year, beginning from the year 1926. That is the new charge, and to meet it is one of the reasons that I have fortified the revenue.

I purposely refrain from giving details of the Bill. It will be presented to the House by my right hon. Friend the Minister for Health. The Bill is ready, it will be printed, and we await only the first convenient opportunity, the first convenient break in the Budget discussions, to place it before the House it will be sufficient to-night if I sum up the benefits in general terms, not in strict legal phraseology, for this I leave to the Bill and to the documents to be presented.

First, the widows of all men who are insured under the new scheme and who die after 4th January, 1926, will receive 10s. a week for life, and the eldest child will receive 5s. and the other children 3s. until they reach the age of 14. Every wife of an insured man and every child, over an area of 70 per cent. of the population, will have that security behind them from 4th January next.

Secondly, all existing widows of. men who ware insured under the National Health Insurance scheme who are now mothers of young children, will he pensioned. The widows of the those who have contributed have the pension for life as widows, but the widows of those who have not contributed, and in the nature of things never can contribute, are only pensioned when they are widowed mothers, that is,


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When they have children under 14. All existing widows of men who were within the ambit of the National Health Insurance, who are mothers, and on behalf of whom no conntribution has ever been can be made, will receive as a free gift from the State the same pention and the same allowance in respect of children as the new insured classes will get after 4th January. These pensions will begin from 4th January, 1926, and will continue not for life, but till the youngest child reaches the age 14 and for six months thereafter. This provision affects 200,000 widowed mothers and 350,000 children as from 4th January next. Existing and future orphan children will receive allowances of 7s. 6d. a week for the eldest and 6s. for the second orphan in the family of such children 30,000 will be affected from 4th January.

Thirdly, from 6th January, 1928, two years later, all contributors, male and female, who have been contributors to health insurance for five years, and who will have paid under the new scheme, two years' contributions - that is, less than UKP 1 a year in the case of men, and 10s in the case of women - whom are over 65 years of age, or who subsequently reach 65, will receive 10s. a week without any means test or other disabling conditions. The same benefits will be given at 65 to the wives of contributors who have upon their pensions, i.e., if a, man entered upon a, pension and his wife reaches 65, she will receive a pension of 10s. a week in consequence of his pensionable rights.

Fourthly, the introduction of pensions at 65 has decided us to sweep away altogether the restrictions, inquisitions and means tests upon persons now over 70 who have been insured under the Health Insurance Scheme until reaching that age. There are about 100,000 persons affected by this provision. They will receive as a free gift from the State the rights in respect of old age pensions from which they are now debarred. I am informed that there are 75,000 men over qualified in every other way for old age pensions, but who, because they are earning wages, are not allowed to receive pensions. That will all he swept away. After this Act is in operation it will be nobody's business what means they have, if they are in the insurable class, and it will be nobody's business how they employ their time. 1st July, 1926, is the date appointed for this reform, but my right hon. Friend informs me that it will be only with the utmost strain of effort by his Department that all the necessary administrative work can be carried through by that time.

Great as are the demands which I am making on the patience of the Committee I cannot pass from this subject on the first occasion of presenting it to Parliament without attempting an example of the scale of pensions which this new scheme affords. Talk of 9d. for 4d - [Interruption] - That was a boast which was fully made good. There is no need for overstatement. The facts and figurers which are supplied me by the Government Actuaries' Department are frankly incredible, but I am assured they are correct. A man of 20 will obtain under this scheme for 4d. a week benefits which are actuarially worth 1s. 0 d. a week. The same benefits would cost a man of 30, 1s. 8 d., a man of 40, 2s. 8 d., a man of 50, 4s. 11d., and a man of 60, 16s. 8d. Now all will receive it equally for the payment of 4d. An employed woman will pay half contributions, but in the nature of things the major part of the benefits of the scheme will accrue to women. I take as a supreme example the case of a man of 35 who dies after the 4th January next, in insurance, leaving a widow and three children all under five years of age. The benefits which this widow and children will receive, allowing for the fact that the pension ceases on remarriage, are worth in capital value UKP 600, that is to say, as much as the maximum sum awarded under the Workmen's Compensation Act to the widow of a man who is killed in a terrible accident. Such are the miracles, I can call them nothing less, of nationwide insurance.

I have only one thing more to say on this subject, and that is I hope the Committee understand what it is we are doing with this declining charge for war pensions. We could quite easily, and high authorities could have been marshalled behind us, have spread it over the lifetime of the pensioners and secured a substantial reduction of expenditure in the interval, which could have been devoted to the relief of the direct taxpayers who,


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after all, pay two-thirds of the whole cost. We have deliberately decided not to do that, but to use this diminishing charge as a great instrument and lever to bring this new scheme into existence and thus turn it to another and I think an even better purpose. If I may stray for a moment from the dusty highroad of facts and figures on which we have been marching, and have still to march and turn aside into the path of fancy, I would say that I like the association of this new scheme of widows' pensions, and pensions at 65 with the dying out of the cost of the war pensions. I like to think that the sorrow and sacrifice and the suffering have, been the seed from which a strong tree will grow, under which perhaps many Generations of British people may find shelter against some of the storms of life. It is by far the finest war memorial you can set up to those who gave their lives, their limbs, their blood, and who lost their health or dear ones in their country's cause.

IMPERIAL PREFERENCE.

I have now reached the agreeable and comparatively easy task of distributing the surplus of nearly UKP 37,000,000. I have weighed all the different alternatives, and I have done my best to make the proposals and to submit to my colleagues in the Cabinet, the recommendations which I thought would be most effective and most helpful to the country at the present time. First of all there is the policy of Imperial preference. It is our policy to give effect to the proposals of the British Government at the Imperial Economic Conference of 1921 in so far as those recommendations do not involve any new or additional duties upon food of any sort or kind. Accordingly. I now submit to the Committee proposals for the removal of the existing duties on Empire dried fruits, and for an increase in the preference on Empire tobacco from one-sixth to one-fourth of the full duty. I may say that I have received assurances from some of the great tobacco firms that this preference will lead to the wholly Empire tobacco being placed on the market at d. an ounce less than at the present time. I propose an increase of the, preference on heavy wines from one-third, to two-thirds; an increase in the preference on the surtax on sparkling wines from 30 per cent. to 50 per cent. So far as sugar is concerned we propose to restore the preference to the level it was before the reduction of duty last year-namely, 4s. 3 1/3 d. per cwt., and also to provide that the preference shall remain at that level for 10 years or so long as the full duty does not fall below that level. This is the second time I have proposed a ten year's guarantee on sugar preference to Parliament. I announced such a guarantee in 1922. It was reprobated and repudiated - in my absence - by the right hon. Gentleman in 1924, but nothing has occurred to alter our view, as to the importance and need of giving a sense of security to the producers of empire sugar, so that it will enable them to make further plans with something definite to look forward to in the future. We propose to give the sugar producers that security and to invest the undertaking with statutory sanction.

July 1st, 1925, will be the date when these Imperial preferences come into operation. The loss to the Revenue will he UKP 1,470,000 in the first year, and UKP 1,720,000 in the full year. We have thus carried out in the fullest and most precise manner every pledge given at the Imperial Economic Conference subject, of course, to those other pledges given at the General Election in regard to the taxation of the necessary foods of the people.

DIRECT TAXATION.

Now I come to the second of the two main objectives which I set before the Committee some time ago. The burden of direct taxation falls with injurious effect upon the enterprise of the nation. It is a delusion to suppose that the evil is confined to the classes who actually pay. It rnanifests itself in all sorts of ways, obscure but none the less traceable ways. It manifests itself in a contraction and above all in a relaxation of effort, and in the loss of saving power. Thus it descends tier by tier in varying degrees upon every class of the population, and it reveals itself, I am confident, to some extent at least, in the present grave and exceptional unemployment from which this country is suffering. In factories, mines, blast furnaces and shipyards, we see this evil of unemployment, the preoccupation of every public man in every party. No doubt there are many causes for it. No doubt some of those causes are beyond our reach. Amongst


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those which are within our reach, the existing high rate of taxation must certainly be counted. It is an undoubted fact that the country with the highest reate of unemployment is also the country where the taxes on income are at the highest level, and where at the highest level they are collected in full. Are you sure it is only a coincidence? I am sure not. Of all the remedies we are to apply to our industrial malady, some wise and some not wise, none is so simple, so well tried, so effecacious and so safe as the diminution of taxation falling upon profits and production.

SUPER-TAX

I believe that the Super-tax at its present rate constitutes an excessive burden both on enterprise and on the saving power of the nation, and that it is an impediment to the creation of that new wealth without which our present load of debt and expenditure cannot be borne. The Royal Commission on Income Tax Contemplated that a certain relation should be preserved between the Income Tax and the Super-tax, but that relation has been altered by the reduction of the Income Tax without a corresponding reduction of the Super-tax. I therefore propose to reduce the Super-tax. The Committee will remember that at the beginning of my speech I proposed an increase in the scale of the Death Duties yield UKP 10,000,000 in a full year. My object was to transfer this burden of UKP 10,00,000 from income to capital, and I now propose to reduce the Super-tax by exactly the same amount as I propose to increase the Death Duties. From every point of view I believe that change will salutory. The difference between the highly-paid brain worker who depends entirely upon the exhaustible product of his brain and whose income depends entirely upon his health, and whose provision for his wife and family depends entirely upon power to build up insurance funds in his lifetime - the, difference between the position of that man and the possessor of an equal income derived from investments is too obvious to need any further discussion. It is recognised with enormous force in the present heavy scale of the Death Duties, and I believe that a moderate diminution of the burden upon wealth in the process of creation, even if that burden is to be transferred to accumulated capital passing at death, will tend to relieve the pressure upon the highly creative faculties of the community. Such a change is in accordance with modern conceptions, and I believe that within these limits and at this particular juncture, having regard to the special circumstances of our industrial situation and the lack of drive there seems to be in so many quarters, it will be attended by definitely recuperative symptoms. I therefore propose to reduce the Super-tax in as nearly as possible a corresponding proportion over as nearly as possible the same range of taxpayers and to approximately the same extent as I propose to increase the Death Duties, so that the new burden and the new relief will balance one another in each succeeding stage of the principal ranges of income. I am not reducing the burden on this class of wealthy taxpayers, but I am adjusting the load in a manner more conducive, as I contend, to the general interests of the country.

The scale of Super-tax reductions in considerable. Again I only give instances. The White Paper will reveal exactly what benefit every class of Super-tax payer will get. For instance it halves the existing rates of Super-tax up to UKP 3,000 a year; from this point the relief becomes smaller varying from in. in the UKP to 6d. in the UKP until in the region of income which denote a capital which will suffer no increase of Death Duty it dies away altogether except in so far as the richest taxpayer gains not a special rate of benefit for himself, but a benefit granted to the other classes on the lower ranges of the scale of taxation. The comparative scales of Estate Duty increases and of Super-tax reductions, together with other interesting figures on this subject will be found in the White Paper in the Vote Office. The cost of the Super-tax remission will be UKP 6,700,000 in the first year and UKP 10,000.000 in a full year. On the other hand, the new scale of Death Duties yields UKP 4,500,000 in the first year and UKP 10,000,000 thereafter. Therefore the net loss in the first year is UKP 2,200,000 and in the future the balance will be exact.

INCOME TAX.

Now I come to the Income Taxpayers. I propose to apply to the classes of smaller Income Taxpayers a similar principle of relief to that which I


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offered to the higher classes of Super-taxpayers by the relation of the Super-tax to the Death Duties. I propose to give a further advantage to earned income as against investment income in the lower ranges of the Income Tax scale. At the present moment the relief accorded to earned income as against invested income is one-tenth, with a maximum allowance of UKP 200. I propose to increase this relief to one-sixth from 10 per cent. to 16 2/3 per cent., with a maximum allowance of UKP 250. The measure of relief which this change gives to small incomes is very large. A married man with an earned income of UKP 300 a year will find his tax reduced by 44 per cent. that is to say, he will get as big reduction in from this change in the rate as between earned and investment income - from that cause alone-as he would have got if the standard rate of Income Tax had been reduced by 2s. in the UKP . A taxpayer with three children, who has an earned income of UKP 500 a year, will have his tax reduced by nearly one-fourth, or by the equivalent of 1s. 1 d. on the standard rate; with an income of UKP 750 a year he will get a relief, from this cause alone, of 10 d. in the UKP . Broadly speaking, over the whole mass of Income Tax-payers with incomes under UKP 1,000 a year - that is to say 90 per cent. of the Income Tax-payers - this relief to earned income as against investment income will give a benefit, on the average, equal to 6d. in the standard rate, and, of course, it is much more, in the smaller classes of income. The full advantage of the new percentage, will he obtained by incomes up to UKP 1,500 a year, and thereafter it decreases as the income mounts to UKP 2,000; and it is there that the Super-tax relief begins. On the whole, my curve will be found to be a continuous and harmonious progression, and will bear comparison with any of the existing curves of taxation. The cost of this particular relief to earned income, as against investment income, will be UKP 3,000,000 in 1925, and UKP 7,500,000 in a full year.

There are two subsidiary points to be mentioned in this connection. First of all, I consider that the savings of old people on a small scale are virtually earned income, and, therefore, a person over 65, whose total income from investments or any other source does not exceed UKP 500 a year will gain the advantage - we are fixing 65 as the new old age pension period - will gain the advantage of this relief to earned income, although the income may be completely derived from investments which are the savings of a lifetime. In the second place, the relief which we give to the class of the smallest Income Tax-payers, the wage-earners who pay Income Tax, is a considerable relief, and justifies me in asking them, as a small return, to accept an alteration in the system of quarterly assessments, which is designed to reduce by nearly UKP 100,000 a, year the disproportionate cost of collection of the tax in this particular field.

Lastly, but not least, and in addition, of course, to what I have said so far, I come to the standard rate of Income Tax. So far, the proposals which I have made affect a very large number of taxpayers. They affect very large, numbers of taxpayers in varying degrees, but they do not affect them all equally. They do not, for instance, affect at, all the reserves of public companies, on which the standard rate falls so heavily, diminishing the funds available for future development. I have every wish and every incentive, and I have received every exhortation, to reduce the standard rate of Income Tax; but my powers are severely circumscribed by the facts of the situation. The cost of a remission of the Income Tax rises with the increasing yield of that tax. A remission of 1d. in 1924 would have cost UKP 3,400,000 in the first year, and UKP 4,900,000 in a full year. In 1925, the same remission of even 1d. would cost UKP 4,000,000 in the first year, and nearly UKP 5,500,000 in a full year. Those are encouraging figures, but they are also large figures. We are approaching periods in which Chancellors of the Exchequer will be content and oven proud if they can announce, as I have heard them proud to announce, remissions of Income Tax of 4d., 3d., 2d. or even a single penny. I have to think for more years than one, and I could not produce this year a Budget which would leave me stultified and in the position of having misled the House and misled the taxpayers of the country. I cannot do that, and I have to consider the possibility that I may have to stand here next year faced, with the consequences of what I have done. In the circumstances, I have decided to


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reduce the standard rate of Income Tax by 6d., at a costof UKP 24,000,000 in the first year and UKP 32,000,000 in a full year.

I am now in a position to balance the Budget of 1925, and I do so on a revenue of UKP 801,000,000 and an expenditure of UKP 799,000,000. I reserve for contingencies a prospective surplus of UKP 1,660,000.

I have thus balanced the Budget in the public ledger in pounds, shillings and pence, and I have also tried, as I am sure hon. Members opposite will not deny, according to my lights - we all have our own point of view - to balance it fairly in the scales of social justice between one class and another in our varying community. Having limited resources to dispose of, and heavy burdens to carry, I have tried to present, on behalf of this new Parliament and the large Conservative majority, a scheme which has both unity and combination, which is national and not class or party in its conception or intention, which seeks to give to every class the assistance it most requires in the form most acceptable to the individual and most useful to the State - a scheme from which no class of men or women in the country, from the poorest the, richest, is excluded, and in which proportion of advantage or relief progressively increases as the ladder of wealth is descended. I cherish the hope that by liberating the production of new wealth from some, at least, of the shackles of taxation, the Budget may stimulate enterprise and accelerate industrial revival; and that, by giving a far greater measure of security to the mass of the wage-earners, their wives and children, it may promote contentment and stability, and make our island more truly a home for all its people.


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[To Winston Churchill - Amritsar Massacre Speech - July 8th 1920, House of Commons]

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