and, even as it was, he calculated the deficiency of receipts as compared with expenditure at over £4,000,000. To supply this want he continued the course, which Sir Robert Peel had begun, of avoiding loans and raising the required sum by direct taxation through the income-tax. The £4,000,000 required he proposed to obtain by raising the tax upon incomes over £150 per annum from 5d. to 9d. As he had previously recognised the inequality of a tax falling alike on precarious and realised incomes, and had spoken of the income-tax as a temporary measure, his propositions naturally laid him open to charges of inconsistency. But he was able to prove to the satisfaction of the House the necessity of his measures, and to secure the acceptance of his Budget.

Commercial
Treaty with
France.

The

With the exception of the determination which it showed to meet the charges of the year by the receipts of the year, there was nothing of a very striking nature in the Budget of 1859. It was not till the following year that Mr. Gladstone was enabled to give full effect to his principles. In the autumn of 1859 negotiations for a Commercial Treaty with France were set on foot. They were intrusted to the management of Mr. Cobden. Emperor of the French had himself accepted the doctrines of free-trade. But the opinion of his subjects was too strongly in favour of protection to allow him to act fully in accordance with his views. His object in negotiating the Commercial Treaty was to obtain as great an extension of free-trade principles as was compatible with this state of public opinion. In exchange for every relaxation made by the French, a corresponding advantage was to be obtained from England. For the full success of free-trade its universal adoption is necessary. But as the English financiers believed that every advance in that direction was a distinct advantage, they hailed with pleasure the opportunity of enforcing by treaty even its partial adoption. France engaged to reduce, partly in the current year, partly in the following year, the duties on nearly every article of English production, so that no duty upon any one of those articles should hereafter exceed thirty per cent. ad valorem. immense market was thus thrown open to England. On the other side, England engaged, in the words of Mr. Gladstone, "to abolish immediately and totally all duties upon all manufactured goods, with a limited power of exception which was to be exercised only with regard to two or three articles. There will be a sweep, summary, entire, and absolute, of the duty on what are known as manufactured goods, from the face of the British tariff." Further,

An

1860]

COMMERCIAL TREATY WITH FRANCE

387

the duty on brandy from foreign countries was to be equalised to the Colonial duties, a change from 15s. to 8s. 2d. a gallon; and a very large reduction was to be made on the duties on foreign wines. The Treaty had been made during the recess, and therefore still wanted Parliamentary ratification. But as the Budget Budget of was framed entirely with reference to it, Mr. Gladstone 1860. took a very early opportunity of producing his financial schemes along with the Treaty. On the 10th of February, in a speech of extraordinary effectiveness, he explained the Government propositions. Although the expenses of the Chinese war had reduced the surplus for the current year to the small sum of £65,000, an unusual diminution of the public charges caused by the termination of annuities and amounting to more than £2,000,000 seemed to afford a good opportunity for reducing taxation. But the object which the Chancellor of the Exchequer had in view was not the immediate reduction of taxation, but rather such alterations and reforms in the customs as should tend to increase the wealth of the nation, and render it more able to bear its burdens. The action of the French Treaty would at first cause a considerable loss, still further likely to be increased by the changes in the tariff which were in contemplation. Altogether, setting the losses caused by the decreased tariff against the advantages derived from lessened cost of collection, and a somewhat increased consumption, the diminution in the revenue arising from the proposed alterations could not be estimated at less than £2,108,000. In addition to this the very high duty on tea and sugar was a war tax, and must therefore naturally cease; while if the income-tax, also a temporary tax, was allowed to drop, the whole amount of deficit from changed tariff and lapsed duties would reach the formidable sum of £11,508,000. Instead therefore of allowing the temporary taxes to lapse, the Chancellor of the Exchequer proposed to continue for fifteen months at their present high rate the duties upon tea and sugar, and to renew the income-tax at 10d. in the pound. The effect of his proposed changes in simplifying the tariff, Mr. Gladstone stated as follows: "In 1845 the articles subject to customs duties were 1163. In 1853 the number had been reduced to 460, and in 1859 to 419. After the changes now proposed are adopted, the whole number of articles remaining on the tariff will be 48. There would be a relief from indirect taxation of about £4,000,000. And with a very limited exception there would be a final disappearance of all protective and differential duties, and the consumer would know that every shilling he paid would go to the revenue." In the course of

his speech, Mr. Gladstone said that he believed the effect of the tariff in 1861 and 1862 would be to enrich the revenue to a much greater extent than many anticipated. The prophecy was abundantly fulfilled. Though the Commercial Treaty was only in operation during a part of the year, the value of British goods exported to France had increased from £4,754,000 to £7,145,000, and the following year it had risen to no less than £9,210,000.

The Budget, admirable though it was, and great as was the approOpposition to bation lavished upon the speech with which it was introthe Budget. duced, was destined not to pass into law, and its rejection involving a constitutional question of some importance excited a strong feeling against the Upper House. Among the duties to be removed was that upon paper. The repeal of this tax, which was regarded as a sop thrown to the more Radical party in the country, had encountered a determined opposition in the House of Commons, based upon the ground that under existing circumstances, when large reductions of the customs were suggested, and unusual expenditure on the military services seemed necessary, it was unwise to part with so large and steady a source of revenue. And this opinion appeared to gain ground, for whereas on the second reading of the Bill repealing the tax the Government had a majority of more than fifty, on the third reading the majority had dwindled to nine. This, no doubt, encouraged the Lords to oppose the Budget. It was however so well established a constitutional practice to leave the management of the finances in the hands of the Lower House, that it was thought necessary to vindicate the rights of the Lords on this occasion. Lord Lyndhurst in a weighty speech asserted (what was no doubt the constitutional law in the matter) that the initiation of financial legislation lay with the Commons, that the Lords had no right to alter or to reject a part of a Money Bill, but that they had the right to reject it as a whole; as the remission of the paper-tax came before them as a separate Bill, it was within their power to reject it while accepting the rest of the Budget. There was however this peculiarity in the present case, as was pointed out on behalf of Government by Lord Cranworth, that this was a Bill for relief, and not for increase of taxation. The Lords took Lord Lyndhurst's view as to their rights, and the view of the Opposition as to the policy of the Bill, and negatived it by a majority of eighty-nine. This result produced great excitement. By many it was thought that the

remission of the tax was so hazardous that the Lords had exercised a wise discretion in rejecting it; nor, though it was allowed that in

1860]

REPEAL OF THE PAPER-TAX

Dispute between the

389

Houses avoided by Lord

resolutions.

so doing they might have acted in opposition to the spirit of the Constitution, could they be said to have gone beyond their strict rights. But to the more advanced Liberals, supported by the cheap Press whose interest was largely involved, it seemed that a severe blow had been struck at the majesty of the Commons, and a loud clamour was raised which might easily have produced a formidable contest between the Houses. The Lords had in fact put themselves in the somewhat odious position of obstructing a remission of taxation which the Commons had thought desirable, and in which they alone were primarily interested. That the dispute produced no bad result was due to the tact of Lord Palmerston. While the public were expecting some violent assertion on the part of the Cabinet, whose financial Palmerston's projects had been wrecked, Lord Palmerston first suggested that a committee should be appointed to report on precedents, and immediately upon their report, which was produced the same evening, he gave notice of three resolutions, asserting-First, the right of the Commons alone to grant aids and supplies, and to limit them as to matter, manner, measure, and time; secondly, that although the Lords had sometimes exercised the power of rejecting such Bills by negativing the whole of them, such conduct was justly regarded by the Commons with peculiar jealousy; and, thirdly, that the House had in its own hands the power so to impose and remit taxes as to maintain its rights inviolate. These judicious resolutions— which vindicated the rights of the Commons, allowed the rights of the Lords, and pointed out a way by which they could be harmonised -were successfully passed through the House, and the storm was allayed. Some further effort was made to reawaken the question. But Mr. Gladstone, although protesting against the proceedings of the House of Lords, which he stigmatised as "a gigantic innovation," supported his chief in allowing the question to rest for the present, and contented himself with triumphantly carrying against the Opposition the rearrangement of the customs.

The interest attending the Budget of 1860 was but little diminished when Mr. Gladstone produced his financial proposals for Budget of the following year. It still remained to be seen whether 1861. he could press his system for the reduction of indirect taxation further, and whether he would take the opportunity to renew his contest with the Lords on the Paper Bill. He estimated for the coming year that there would be a surplus of nearly £2,000,000. This he proposed to employ in repealing the duty on paper, and in

taking off the penny which had been added to the income-tax in 1860. It was again the remission of the tax on paper which excited most attention. A successful agitation had been carried on during the autumn and winter, and, although it could be done only at the price of maintaining for a while the unpopular duty on tea, the people were on the whole determined that the remission should this year be carried. The more eager partisans of the rights of the Commons urged that the Bill should be sent up as before, and the quarrel renewed. But Mr. Gladstone wisely took advantage of the suggestion contained in the resolutions of the preceding year, and declared his intention of throwing all the propositions of the Budget into one Bill, which the Lords must either accept or reject in its entirety. The aristocratic portion of the House, and the Conservatives always inclined to support the Peers, strongly opposed this course. It was by a majority of only fifteen in a crowded House that it was accepted. But the majority though small was decisive, the Opposition yielded, and the Peers passed the Bill. The remarks with which Mr. Gladstone closed his speech are unusually interesting, as marking the divergence between his views and those of his political leader, and his dread of financial prodigality. While congratulating the House upon the general condition of the country, he thought it necessary to raise a note of warning against the danger which lay "in an increased susceptibility to excitement, and in proneness to constant and apparently boundless augmentations of expenditure." He was alarmed lest the very success of his measures should produce recklessness, and remove all obstacles to that increased outlay on warlike preparations, for which, under the name of "national defences,” a large part of the nation was calling. No less a sum than £9,000,000 was thought necessary for this purpose, a sum which it was determined to raise by gradually contracted loans. It was no wonder that a prudent financier looked askance at so grave an infraction of one of his fundamental principles, or that a statesman already leaning towards the Radicals disliked the attitude of military competition which this vast expenditure appeared to imply Unfortunately neither the financial schemes nor the pacific intentions of Mr. Gladstone were allowed free play. The outbreak of the American civil war rendered even increased expenditure upon our army necessary for our safety as a neutral. The despatch of troops to Canada after the affair of the Trent cost no less than a million, and the cotton famine dealt a blow at the most prosperous industry of the country. It was under grave disadvantages that the Budget of 1862 was