expenditure of the Post Office) to national income (E. in C.; 9 (vi)). We reproduce this here:

677. 1818 and 1923.-In some respects there is a striking similarity between the present position of the country and that after the Napoleonic Wars. The parallel, however, needs to be regarded with caution. In particular, we have to consider whether the remarkable manner in which the debt-burden of a hundred years ago was lightened in course of time through increase of wealth and population gives any ground for optimistic views to-day.

678. On the basis of the estimates of national income shown in the above table, taxation for the internal debt accounts for very much the same percentage each year. The ratio of total tax revenue to national income was 14:07 per cent. in 1818 and 18.89 per cent. in 1923, the higher ratio in 1923 being largely due to expenditure on pensions and social services. It is not necessarily implied that the burden in 1923 was the heavier; as in a comparison between different countries, so also in a comparison affecting the same country at different times, many points require attention. We suggest especially the following: :

(i) Population has increased greatly, but wealth much more greatly. Only rough comparisons are possible, but after allowance for differing price-levels, it appears that real income per

head was something like four times as much in 1923 as in 1818.
All classes shared in this increase, real wages and the standard
of living having made a big advance during the nineteenth
century.

(ii) While the mass of the people suffered acutely in the
depression of a hundred years ago, and had much less capacity
than now to bear taxation, the distribution of tax was far more
severe to small incomes.

Of a total tax revenue of £56 millions, £40 millions was raised by Customs and Excise duties, levied largely on necessaries, the Income Tax having been repealed as from April, 1815.

(iii) Taxation in 1923 provides for many social services either not represented at all, or barely represented, in the State expenditure of 1818.

(iv) The very numerous and vexatious indirect taxes in force in 1818 were a serious impediment to trade.

(v) As against these considerations we must note that in 1818 there was no external debt charge.

(vi) Again, taxation in 1818 hardly touched the saving power of the wealthy; in 1923 it imposed a distinct limitation upon it.

679. Reviewing these points, we think it clear that, for some years after the Napoleonic Wars, debt and taxation were far more burdensome to the nation as a whole than they are now. They were certainly far more oppressive to the poorer classes. Relief came in the Victorian era through the unprecedented advance in industry and transport and in the development of the credit system, accompanied by rapid growth of population. The burden of the debt was spread over a body of taxpayers growing in number and prosperity. It is true that the dominant changes in the price-level were large falls between 1818 and 1852 and again (almost without interruption) between 1873 and 1897, so that greater purchasing power had to be transferred to the debt-holder, at any rate until the reduction of interest under the Goschen conversion of 1889; none the less, the necessary taxes were provided with increasing ease. The following figures are significant :

680. Future productivity.—The question of future productivity in Great Britain is open to speculation. A large growth in population, if it were to take place without a corresponding expansion of trade, would not ease the position, but would rather increase anxiety as to employment. In point of fact, there is no evidence in present conditions to suggest a large growth; according to an estimate which we have prepared, the numbers of the occupied population, after allowance for emigration, may be expected to increase by about 125,000 per annum to 1931, about 46,000 per annum between 1931 and 1936, and about 20,000 per annum between 1936 and 1941 (see Appendix XXI). The numbers seeking employment after 1941 depend on the birth-rate from now onwards. Professor Bowley has pointed out that "the present number of births (and the present death-rates) would ultimately result in a stationary population in Great Britain not far off 50,000,000."* In evidencebefore us he said that, while considerations such as the connection between the birth-rate and good or bad trade, housing conditions, etc., made any forecast difficult, he thought that on the whole there would be a tendency for the present conditions to continue for quite a long while, and that the number of births. was not likely to change very much in the near future. (Q. 3787-9.)

681. It appears then that, apart from the maintenance of a low level of unemployment, such as would be facilitated by a steady foreign demand for our goods, any hopes must be centred mainly on an increase of productivity per head. This might come in various ways, from the discovery of new materials, new inventions, advance in chemical and other sciences, and improved organisation. To secure the full potential results, it might be necessary to lay out a considerably larger amount of capital than hitherto per unit of the employed population. Professor W. R. Scott expressed the view that "in spite of the existing depression, which tends to produce an unduly pessimistic estimate of future production, there seem to be grounds for a fairly confident expectation of a very considerable development in methods of production within a generation from now, particularly in the application of scientific discoveries to industry, with a consequent tendency to greater plentifulness of commodities." (E. in C. 2.) We think this expresses a reasonable attitude.

682. On the whole subject we conclude that the present burden, in spite of its weight, is less menacing to the welfare of the community than the old debt continued to be for some years after 1815 there is reason also to hope that it may be materially lightened through new developments in industry. On the other hand there is nothing to warrant a belief that history will repeat itself and productivity increase on a scale like that of the Victorian era.

*Manchester Guardian, 9th November, 1925.

683. In looking to the future burden of the debt, we have also to remember the uncertainties of the general rate of interest and the general price-level. As regards the price-level, it may be surmised that any very marked increase of productivity per unit of capital and labour would tend to lower it, though not necessarily to a corresponding extent. While lower prices due to such a cause would increase the purchasing power to be transferred to the debt-holder, this would only be a slight set off against the general benefit enjoyed by the community. A fall in the price-level without any compensating increases in production would be quite another matter. We consider it in connection with the Capital Levy (para. 737 et seq.).

684. Post-war debt and expenditure.-In considering post-war years, it is frequently useful to take the pre-war position as a standard of reference, and the figures in Mr. Layton's table (para. 676) are of much interest. We have already discussed the weight of the several taxes before and since the War (cf. especially paras. 331, 464 and 593). It may be noted that debt service constituted 55 per cent. of the total expenditure in 1818; 14 per cent. in 1913; and 47 per cent. in 1923. In 1913 the total burden of taxation was then considered to be very heavy (cf. para. 433). During the War it was enormously increased-though with caution at first-and the country learnt that it could carry a great deal more taxation than it had supposed. Emphasis is often laid upon the effect of taxation for the debt in limiting the possibility of expenditure on social, etc., objects, but, whatever truth there may be in this view, the discovery of the possibility of expansion in taxable capacity during the War has in itself been conducive to social expenditure, which has actually grown to a large extent. The pre-war tendency was towards an expansion in social schemes, but it may possibly be doubted whether, but for the War, they would have developed as far as they have.

685. Taxation and the individual.-The table in paragraph 255, which relates the various taxes to specimen incomes, will serve to illustrate how remarkably the principle of progression has been developed since 1913-14 in direct taxation. Except in the small incomes which are liable to little or no Income Tax, the general character of the present tax system is highly progressive. The table also shows the regressive nature of indirect taxation. It may be noted that the taxation on the smallest incomes, while heavier, appears to be rather less regressive than before the War; this is due in some measure to the high prices of tobacco and alcohol restricting the consumption of the least well-to-do.

686. Progressive taxation, under which income, as it increases, bears tax at a higher rate per pound, is the fairest as between individual taxpayers, since it allows for the increased capacity

of each additional pound of income to bear taxation (cf. para. 330 et seq.). The principle of progression may, however, be carried to such a point as to lead, in turn, to unfairness against the wealthier taxpayer. Regressive taxation, under which income, as it increases, suffers at a lower rate per pound, is deficient in point of equity. It might be inferred that a good tax-system would give no place to indirect taxes, which cannot be fitted to the individual's ability to pay, and which are unavoidably regressive, if levied upon articles of general consumption. Such a conclusion would miss the mark for several reasons:

(i) Indirect taxation is the most effective way of levying a contribution to national expenditure from the mass of wage-earners. A universal Income Tax would be very unpopular and difficult to administer. On the other hand, to raise the whole revenue from direct taxes on two or three million citizens would be unduly to narrow the basis of taxation. There is great force in the argument which connects taxation with representation.

(ii) Progressive taxation, such as the present Income Tax and death duties, cannot be carried beyond a certain point without jeopardy to saving and enterprise. Harm may be done to trade, and, if so, there will be reactions on employment and on the standard of living of the poor. Thus the system may break down.

(iii) While indirect taxes, such as the Customs and Excise duties, are regressive, they may have special virtues. This is true of the tobacco and alcohol duties, which raise a large revenue out of the expenditure of individuals in all ranks of wealth, without undue reactions on personal efficiency. 687. Taxation and the citizen.-We consider it important on broad grounds of citizenship that taxation should not be confined to a comparatively small section of the population. It would be a bad state of affairs if a large majority of citizens were themselves to make no actual tax contribution, and were to enjoy benefits provided entirely by the taxation of the few. Under conditions approaching the ideal-which would imply, inter alia, a satisfactory standard of living for the lowest-paid workers-all would make some contribution, and would make it knowingly.

688. The actual position is that all classes make some contribution, and this in itself we regard as satisfactory; but the great majority contribute only in the form of indirect taxes, and these, being wrapped up in price, are so unobtrusive that they are probably not much realised, except when attention is specially drawn to them. It would be better, from the point of view we are considering,* if the great body of citizens were more conscious of the taxes which they bear. The question is

* From the point of view of ease of collection the unobtrusive character of indirect taxation is, of course, an important virtue.