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it to be understood that the Cabinet would not allow the injuries done to British subjects and the outrage on the British flag to go unredressed. Acting on this statement, the Government approached the American and Japanese Governments with a request to join it in presenting a Note to the Cantonese Government demanding reparation for the outrage at Nanking. The American and Japanese Governments, however, declined, preferring to present separate, though identic, Notes. Undeterred by this failure, the British Government persisted in its design of presenting to the Cantonese a demand for reparations, to be followed by the application of sanctions in case of refusal.

The policy of the Government at this juncture was not allowed to pass unchallenged by the Labour Party. At their instigation a debate on the subject took place on April 6, before the Government had yet sent its Note to the Cantonese Government. The debate again revealed the existence of sharp differences of opinion within the Labour Party. Mr. MacDonald exhorted the Government to adhere to the policy of the Christmas Note, but while warning them against the danger of being drawn into a war which they had not intended, did not suggest that the troops which had been sent to China should be brought back. Mr. Wheatley, on the other hand, speaking for the Left Wing of the party, gave it as his solution of the problem that all the British should leave Shanghai, asserting that they were there not to foster British trade but to exploit Chinese labour. On the Conservative side also there were two voices-one, uttered by Mr. Mitchell Banks, breathing contempt of the Chinese and readiness to resort to armed force; the other, of which the Foreign Secretary was the sponsor, expressing friendship for China, but withal a determination to defend British honour and rights. Sir Austen adduced further confirmation of his version of the Nanking outrages in the shape of a letter from the British Vice-Consul, which stated categorically that they were the work of Cantonese soldiers organised for the purpose, and he mentioned several incidents showing that in all parts of China anti-foreign outbreaks followed in the wake of the Cantonese advance. He declined on this ground to accede to the request of the Labour speakers for a joint inquiry into the Nanking affair. He said that his Christmas memorandum, with its policy of conciliation and adjustment to new conditions, was still the groundwork on which he hoped to build their future relations with China, but they were not prepared to hustle out of China, to withdraw their nationals from Shanghai, or to be treated as if they had no treaty rights or as if the lives of their people were of no account to them.

On March 30 Lord Birkenhead discussed, in the House of Lords, the position of affairs in India. He expressed satisfaction at the decline of Swaraj influence in the country, but anxiety at the continued antagonism between Hindus and Moslems. With

regard to the immediate outlook, he adopted, on the whole, an attitude of very cautious optimism, based on the result of the last elections and the fortunate outcome of the recent negotiations between representatives of the South African and Indian Governments. Indian politics, he said, were still largely an affair of personalities, but he thought that they would soon have from a wider area that responsive co-operation between British and Indian without which he could see no solid hope of progress. Commenting on the Minister's speech, the ex-Viceroy, Lord Reading, maintained that it was a complete answer to the view expressed earlier in the debate by Lord Olivier, that the Indian Constitution was a failure, and said that everything pointed to the peaceful development of constitutional government. In the field of finance, especially, he thought that the Constitution had worked remarkably well, and he commended the study of affairs in India to the advocates of economy in Great Britain.

On April 4 the Government issued to members of Parliament the text of its long-awaited Trade Disputes and Trade Unions Bill. As was expected, the Bill had for its first object the prevention of a general strike. It declared illegal any strike which fulfilled two conditions-that it had any object in addition to the furtherance of a trade dispute within the trade concerned, and that it was calculated to coerce the Government or to intimidate the community or any substantial portion of it. The last phrase of this clause, which seemed to be aimed at the sympathetic strike, caused general surprise, and in certain other respects also the Bill was drafted somewhat more stringently than had been expected. Regulations against intimidation were made stricter, and picketing at the home of a worker was made a criminal offence. "Contracting out" in respect of the political levy was replaced by "contracting in," that is to say, no member of a union could be required to contribute to its political fund unless he had signified his willingness to do so. Trade unions of civil servants were forbidden to belong to any outside federation of trade unions, or to be associated directly or indirectly with any political party. Finally, the Attorney-General, or any person interested, was given power to apply for an injunction to restrain any application of the funds of a trade union in contravention of the provisions of the Bill.

The Trade Union Council immediately made strenuous preparations for opposing the Bill. On April 6 it issued a manifesto in which it described the Bill as "a violent attack on the workers' rights," and as "striking at the living spirit of trade unionism," and declared that it would be fought line by line in Parliament and outside, and that every trade unionist and every adherent of the Labour movement must be made aware of its significance. The Labour Party gave its active co-operation, and besides arranging for a large number of Labour members of Parliament

to address meetings in the country against the Bill, organised a new plan for fighting it in the House, making various individuals responsible for conducting the opposition to each of the clauses. The Liberal Party also drew up an amendment deprecating the introduction of the Bill as being against the interests of industrial peace, but decided to make the best of it on the Committee stage by introducing carefully considered amendments drafted under the best legal advice.

CHAPTER II.

THE TRADE UNION BILL.

THE financial year 1926-27 closed on March 31 with a deficit of 36,693,7941. in place of the surplus of over 4,000,000l. originally anticipated. Revenue at 805,701,2331. was some 19,000,000l. less than was budgeted for, and expenditure, at 842,395,0271. nearly 22,000,000l. more. The deficiency in revenue was attributable chiefly to the fact that property and income tax receipts were some 20,000,000l. below expectation, and excise duties also fell considerably short of the estimate. The excess of expenditure was due chiefly to the heavier charge for debt, but in part also to the outlays necessitated by the coal stoppage. Thus the industrial troubles of 1926 did not fail to leave their mark on the national finances for the year, though less rudely than had been feared.

Soon after the publication of the Civil Service Estimates (March 8) a deputation from the Association of British Chambers of Commerce had waited on the Chancellor of the Exchequer to express to him their disappointment that there was to be no reduction in the expenditure on the civil services, and to impress upon him the inability of trade and industry to endure the strain of any addition to direct taxation. A few days later the Federation of British Industries addressed to him a similar plea. Mr. Churchill made no promises at the moment, but he found means in preparing his Budget to meet the wishes of the deputations in the matter of direct taxation.

The Budget for 1927-28 was introduced on April 11, before the Easter recess, which this year fell very late. Mr. Churchill's speech, which lasted two and a half hours, was on his best oratorical level, and won general admiration for its lucidity, its comprehensiveness, and its illuminating asides. On its purely financial side also it was immediately allowed by Opposition critics to have at least the attractions of ingenuity and audacity. It was audacious, too, in its optimism; Mr. Churchill's review of the financial situation of the country was anything but the jeremiad which was generally

expected. His first step was to explain exactly how far his calculations of the previous year had been upset by the industrial troubles of 1926. He traced to this cause a fall of about 8,000,000l. in Customs and Excise Revenue, principally on beer and spirits, and a diminution of 1,500,000l. in receipts from stamp duties. In the field of income tax also the loss was very considerable. Apart from other miscalculations, 3,250,000l. was completely lost through the Government having to remit or repay income tax on account of trading losses, and the collection of 4,250,000l. was deferred for the same reason. Altogether the revenue receipts had fallen 17,500,000l. below the estimates. On the other hand, the disturbed state of the country had caused expenditure to be considerably higher than had been anticipated. More Treasury bills had had to be raised at a higher rate of interest, and this had meant a payment of nearly 6,000,000l. extra in interest. There had been also a larger encashment of War Savings Certificates owing to the diminution in the public's earnings, and this had cost the Exchequer 5,000,000l. Relief of unemployment and distress with the emergency Vote for dealing with the general strike had cost nearly 5,000,000l., so that altogether there had been an excess in expenditure over the estimate of 14,000,000l. Thus the deficit in the year's working on the Budget estimate was some 32,000,000l., which supplementary estimates brought up to a total of over 36,500,000l.; this quite apart from the serious effects which the trade depression of 1926 was bound to have on the finances of 1927, and also of 1928 and 1929.

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At this point the Chancellor paused in his Budget statement to point out, not without some show of pride, how little the strength and resources of the nation had been affected by the last year's shocking breakdown in our island's civilisation," as he called it. The revenue, though mauled and wounded, had in the main survived. The immense number of miscellaneous and secondary businesses established of recent years, mostly in the South of England, the profits of banking, broking, and insurance, and the interest on British investments abroad had enabled them almost to keep the even tenor of their way even when the basic industries were in a state of collapse. If the revenue had in the main survived, the exchange had stood as firm as a rock, so much so that they had never used the large precautionary credits which were brought into existence to safeguard the return to the gold standard, and they did not propose to renew them when they expired next month. The consuming power of the masses also, as far as could be judged from the Treasury standpoint, had suffered little from the troubles of last year. Tea only showed a trifling decrease during the coal stoppage, and the consumption of sugar and even tobacco actually increased, though not in the districts particularly affected. Only beer and spirits reflected to the Exchequer the social and industrial dislocation. Even trade

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had, except in the matter of coal exports, closely rivalled through many months that of the preceding year. The country had continued to augment its capital and was still the greatest creditor nation and the financial centre of the world. Its economic and financial vitality had been cruelly and needlessly strained, but was still intact.

Turning to the future, the Chancellor analysed the total of 397,900,000l. for the Consolidated Fund Services for the coming year as follows: Debt Interest, 305,000,000l.; Sinking Fund (for the moment), 50,000,000l.; Road Fund, 19,500,000l.; Local Taxation Account, 14,300,000l.; Northern Ireland Residuary Share, 5,400,000l.; other services, 3,700,000l. Along with the other services, this brought the total estimated expenditure for the year up to 818,390,000l. This was 28,000,000l. more than was estimated in Mr. Snowden's Budget of 1924, a fact which seemed to be in strong contradiction with the Government's pledges of economy. In anticipation of this criticism Mr. Churchill here pointed out that the increase could be wholly accounted for by the automatic effects of decisions of previous Parliaments and Governments-the increase of the Sinking Fund, of old age and other pensions, of unemployment benefit and health insurance, and so forth. The present Government had also been responsible for an addition of 17,000,000l., chiefly through widows' pensions and the beet-sugar subsidy, but they had effected counterbalancing economies. He was, he said, still aiming at the annual reduction of 10,000,000l. in expenditure which he had declared to be possible in his first Budget, but without any present prospect of achieving it. Surveying the field of expenditure he pointed out to his critics that there was no part of it in which a reduction of 40,000,000l. or 50,000,000l. could be made without causing a convulsion in the country and without the setting up of a financial dictatorship. However, he comforted his hearers with the information that the automatic increases in expenditure had practically come to an end, and that in 1928 an automatic decrease would set in, provided no new commitments were entered into. He further stated that the Government would attempt to effect some economy at once by abolishing the Ministry of Transport, the Department of Mines, and the Overseas Trade Department, three offices which could now be dispensed with. They also had a programme of economies which he hoped would save over 8,000,000l. in 1928; but, warned by experience, he would give no promises.

Coming to revenue, the Chancellor estimated the yield from Customs and Excise at 247,000,000l. and from the betting tax at his original figure of 6,000,000l. The income tax estimate he reduced from 254,750,000l. to 232,000,000l. This with 67,500,000l. death duties, 25,700,000l. stamps, and 62,000,000l. supertax, would, with other taxes, bring up the total of Inland Revenue duties

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