sometimes obvious, sometimes less so. It is obvious. for example, that the duties on drink and tobacco, to the extent that they are not balanced by reduced consumption, leave less money available for other commodities. It is less obvious, but it is probably the case, that the high duty on whisky has been a factor in stimulating the consumption of tea.

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662. The duties on drink and tobacco are a heavy burden on the drinker and smoker of small means, even where the drinking and smoking are less than the general average for consumers. Professor Cannan suggested as one of the points in favour of this taxation, seldom noticed, that as women drink and smoke less than men, and children scarcely drink and smoke at all, it differentiates in favour of maintaining a family" (E. in C., 13). (E. in C., 13). This statement, we think, goes too far. All that can be said is, that the drink and tobacco duties differentiate against the family man less than the duties on tea, sugar, etc., which women and children consume largely.

663. The weight of the Customs and Excise duties on small family incomes is illustrated in the tables in paragraph 255. Their actual effect on the standard of living is difficult to determine. If the alcohol duties were materially lower, it is probable from past history that lower prices would lead to more drinking and to some increase of excessive drinking; excessive drinking is clearly not conducive to economic well-being, and it would be difficult, in the interest of that well-being, to argue in favour of any increase over the present level of consumption.

On the other hand, it is also probable that lower alcohol duties would release more money for household expenditure. Too much stress should not be laid upon the fact that, while less drink is consumed, total drink expenditure is on a scale similar to that before the War, allowing for the change in price-levels. The smaller post-war consumption of beer and spirits is, we think, due in some degree to a change of habits independent of price considerations, like the larger consumption of tobacco; it is, however, not possible, from a few years of industrial depression and unemployment, to gauge the extent or the solidity of the change.

664. The effect of the Entertainments Duty is much less important, and we need not add to what we have already said under this head (paras. 655-8).

665.Our system of indirect taxation," Mr. Layton observed, "has certainly not reduced the standard of living below that of 1913" (E. in C., 10). This appears to be true; even so, however, we agree with the Trades Union Congress that the system does considerably lower the purchasing power of the poorest sections of the people and in this manner reduces the demand for such commodities as they would undoubtedly desire to purchase, were they free to do so" (Ev., p. 229; E. in C., V. 2-3). In this aspect its tendency must,

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in some directions, be adverse to physical efficiency; on the other side it would, we think, be generally agreed that some favourable effect must be allowed at least to the taxation levied on alcohol. Finally, account has always to be taken of the benefits of social expenditure; these are not provided out of any particular branch of revenue, but nevertheless, under the existing scheme of taxation, they are largely rendered possible by the high yield of the indirect taxes.

666. The higher incomes.-With regard to the standard of living of the more well-to-do little need be said. As indicated by the tables in paragraph 255, the burden of the food duties is soon negligible in comparison with that of the Income Tax, while the burden of indirect taxes, as a whole, quickly takes a secondary position and in the largest incomes is insignificant. The regressive nature of the duties is, of course, corrected by the progression of the Income Tax.

667. The duties on drink, tobacco and entertainments no doubt induce some extra economy among those enjoying moderate incomes, and some shifting of expenditure to nondutiable goods. In the larger incomes their effect is comparatively little.

II. THE EFFECT OF THE CUSTOMS AND EXCISE DUTIES ON

SAVING.

668. Much the greater part of the Customs and Excise revenue is contributed by persons who are not liable to Income Tax. It follows that, so far as the revenue is applied (on a proportional basis) in payment of interest to holders of National Debt, an important transfer is involved from a very great number of small incomes, with little margin for saving, to individuals and bodies whose facilities for saving are much more ample. Of the duties borne by small incomes, by far the larger part will be met out of money which would otherwise be expended on consumption goods of one kind or another; a much smaller part will be so expended by the debt-holders out of their interest receipts. In the case of debt repayment it is probable that nearly the whole of the sums received will be reinvested.

669. Similarly, of the smaller total of Customs and Excise duties borne by the Income Tax paying class a proportion* must be allocated to debt payments. Since there can be no doubt that, over the class as a whole, receipts of debt interest are much more steeply graduated according to wealth than payments of duty, a smaller proportion is likely to be absorbed

* Throughout we have regarded the revenue from each tax as proportionately applied to each head of expenditure. We reject the view which regards the service of the debt as a first charge on the Income Tax revenue (cf. footnote to para. 266).

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in consumption expenditure than if the money were left in the taxpayers' pockets; again, as we have said, repaid debt will nearly all be reinvested.

670. On a general view it appears that, so long as internal debt expenditure bears as high a proportion to total expenditure as at present, the existing Customs and Excise duties can have no great effect on total national savings. Indeed, so far as the Income Tax paying classes are concerned, it seems that the effect of the duties is to some slight extent definitely favourable to saving. In this aspect the duties are very satisfactory from an industrial standpoint. At the same time, it has to be remembered that they react harmfully on trade, so far as they are damaging to physical efficiency, and so far as their effect on the cost of living increases wage difficulties and discontent. It is in their effect on the standard of living of the poorer classes-which has to be considered primarily in relation to the well-being of the individual and the family-that they may seem to provoke criticism; we have, therefore, devoted our main attention to this latter aspect.

SECTION V.

THE BURDEN OF THE DEBT AND EXISTING TAXATION, DIRECT AND INDIRECT. BROAD CONSIDERATIONS AND CONCLUSIONS.

671. We have discussed the standard of saving and the standard of living before and since the War (Section I); we have analysed the growth of the debt and commented on some of its main features (Section II); we have given figures showing the progress of the tax revenue from 1913-14 to 1925-26, and have expressed the various taxes in terms relating them to incomes of different sizes (Section III); finally, after glancing at the several heads of expenditure, we have examined the incidence and effects of each tax in turn (Section IV). We are now in a position to take a more general view of the whole burden of debt and taxation.

672. First, we may briefly notice two kinds of comparison which are frequently made, (i) between the position of this country and of other countries, and (ii) between the position of this country to-day and in the era following the Napoleonic Wars. This second comparison will give us a text for discussing the prospect of any future increase of productivity.

673. Comparative burden in different countries.-The question of comparative tax burdens and taxable capacity has been much discussed in connection with debt and other settlements between different countries and in conjunction with the problem of transferring resources from one country to another. We are not concerned with the question in this aspect, but we are interested in the comparative burdens, so far as the weight of taxation in Great Britain may prejudice our industry in competition with that of less heavily taxed countries, through impeding the growth of reserves, checking enterprise, and so forth.

674. That this factor has to some extent affected our industry we do not doubt, although we regard it as of minor importance compared with more general difficulties affecting our foreign trade (cf. paras. 402 and 445 et seq.). We have, however, reluctantly come to the conclusion that the available material is insufficient on which to found any reliable statistical conclusions. It is significant that the First Committee of Experts

appointed by the Reparation Commission, to whom the question of comparative taxation was vitally interesting, did not attempt to present figures. As they explained in their Report, the comparison of statistics of total taxation, national and local, in each country presents many technical difficulties. Moreover, statistics of total national income and income per head are at present either very defective or wholly lacking." (Cmd. 2105; p. 48).

675. In reference to the post-war period up to the end of the last completed tax year, we think it may be said definitely that the burden of taxation was heavier in Great Britain than in any other European country, and very much heavier than in the United States. But we are not prepared to make a measured comparison in figures. It is dangerous to draw facile inferences from partial statistics, such as have appeared from time to time, and we think it may be of service to point out some of the very difficult questions, an answer to which would be presupposed by any really scientific measurement :

What is the proportion which total taxation bears in each country to the total national wealth or income? What is the amount of tax per head in each ?

What is the comparative distribution of wealth or income?

What is the incidence of the taxes, and how are they adjusted to the distribution of wealth or income in each country?

What is the general character of each country's industry -does it make greater or less demands for capital equipment?

What are the objects of Government expenditure-to what extent are they economically productive?

What is the relation between national and local finance?

What policy is followed in carrying on municipal and national industries for profit or loss in remission of, or addition to, taxation?

What are the social conditions and standards of living? Even if it were possible to value all these factors precisely, there would remain the important element of comparative psychology. Thus, if it could be found, in answer to the above questions, that the burden in country A was 10 per cent. greater than in country B, country B might still compete at a disadvantage if the thrift and enterprise of its citizens were the more seriously affected.

676. The Napoleonic War parallel.-Mr. Layton gave us an interesting table, comparing for 1818, 1913 and 1923 the proportion of various kinds of Government expenditure (excluding