CO882-(8-9) — Page 609

PUBLIC RECORD OFFICE

Reference :--

LLICO. 882

9PUBLIC RECORD OFFICE, LONDON

ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC- COPYRIGHT PHOTOGRAPH—NOT TO

60

defences, provided that charge does not absorb any

*** undue proportion of its revenue."

In reply, the War Office was informed that the Secretary Hot, let- of State considered that the question should be discussed ter of th

by the proposed Cominittee, and that he therefore pro- posed to defer consideration of their letter.

November

38G WIL

Shortly afterwards, a despatch was received from Sir F. Lugard, Governor of Hong Kong, forwarding a memo- randum which embolied his views on the subject of contribution. Briefly stated, his proposal was that half the difference between the ordinary revenue and the ordinary expenditure should be assigned to the military contribution, with the proviso that it should never be allowed to fall below one-quarter or exceed one-third of the actual Imperial expenditure on defence in the Colony. The memorandum, which is of considerable length, starts with a brief history of the question, and goes on to make Enclosure. various statements of a character damaging to the view taken by the unofficial members of the community, and I do not think it is necessary to the Colonial Office. summarise the document, which indeed could hardly he done without quoting large portions of it; but the point of chief interest is Sir F. Lugard's alternative method of He argued that financial assessing the contribution.

7307 10.

prosperity is more accurately represented by the margin which remains when the ordinary expenditure is deducted from the ordinary revenue: and that if the military Contribution is to bear a constant relation to the financial properity or decline (as was the intention when the system of percentages was adopted) it should be a fixed pro- The portion of the margin and not of the gross revenue. important point, viz., the definition of ordinary revenue and expenditure, was apparently to be left to the Secretary of State, though Sir F. Lugard suggested a rather com plex scheme for dealing with revenue raised for the service of loans. Sir F. Lugr.rd failed to notice that his proposal meant rigorous Treasury control of expenditure. On the 11th of March, 1910, the Treasury replied to the Treasury, Colonial Office proposals of the 26th of August, 1909; they stated that on receipt of further information they would be willing to consider an arrangement whereby the contribution should be assessed on the net receipts from opium and spirits; they enclosed a letter from the War Office with which they expressed their entire agreement; and they could find no ground for appointing a Committee; they particularly objected to releasing the grounds of new taxation from contribution until the amount exceeded the loss caused by the opium policy; and they observed with regret that "the Secretary of State "for the Colonies has seen fit to sanction an arrangement whereby some portion of the receipts of the Straits "Settlements Government which formed part of the น general revenue on which the defence contribution of the Colony is levied has been excluded from the "Colonial Estimates. As this is a matter which affects the provision to be made from Imperial funds for Army expenditure, my Lords consider that their assent was "required to such action, in which, for the reasons "indicated above, they are unable to concur."

•

"L

I do not believe that the Treasury fully (or even partially) recognised the enormity of the claim which they put forward in the words which I have italicised. The logical conclusion would be to give the Treasury as much control over the finances of the Straits Settlements as if

Ibid.,

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the Colony received a grant-in-aid; since it is obvious that any measure affecting the revenue of the Colony, whether advantageously or adversely, must have an effect on the contribution, and consequently on the provision to It is as well to draw be made from Imperial funds. attention to this point, because equally unfounded claims, based on similarly slipshod phraseology, might be put forward by the Treasury or War Office,

The War Office letter, which was dated the 8th of Enclosure. October, 1909, did not contain any arguments of import-

W.O., 15723 10. w.o.. 15724/10.

W.0..

15724.

Treasury,

7307/10.

Ibid.,

para. 10.

ance, but one phrase appeared which perhaps explains the anxiety of the Army Council to widen the sphere of the new Committee's labours. "The proposal to reconsider

+

the question generally, in a sense avowedly unfavourable "to Army funds, appears at a moment when the duty of the Colonies generally to contribute towards their own defence "is receiving increasing recognition."

Following on this the War Office addressed two letters to the Colonial Office on the 24th of May, in which they said that as the Treasury had negatived the appointment of a Committee, the question of the assessment of profits from Government buildings, and the exclusion of school fees and medical charges required settlement. They refused to admit that Government buildings were n remunerative undertaking within the meaning of the arrangement arrived at in the case of railways and telephones, and they presumed that as the Treasury had not concurred in the exclusion of school fees and inedical charges, instructions would be given to the Colony to include them in general revenue for the purposes of Further, the Army Council took exception to the view put forward by the Secretary of State that the War Office were not entitled to object to the removal from the estimates of a class of revenue which was included when the percentage was fixed, unless they were prepared to admit the converse proposition that no class of revenue which was not then included was subject to contribution. The Council argued that for the purpose of calculating the contribution it was immaterial whether an increase of revenue was produced by the development of existing, or by creation of new, classes of receipts.

assessment.

On the

On the other hand the exemption from assessment of a class of revenue would logically involve an increase in the percentage. The argument is plausible, but not sound, in my view, since it can be applied equally well to support the Colony's case: viz., it is immaterial whether a decrease in assessable revenue is produced by the falling off of revenue, or by removal of a class of revenue. other hand the creation of a new class of revenue which was not in existence at the time that the percentage was fixed would logically involve a diminution of the per- centage. After consideration of the Treasury's letter of the 11th of March, Lord Crewe decided reluctantly not to press at the moment for a comprehensive settlement of the contributions question The Treasury were so informed the further details gave in a letter of the 26th May, which required by the Treasury as to the opium and liquors But it also discussed other points. The Treasury had agreed in the case of Hong Kong that refunds of revenue should be deducted from the previously recorded receipts, and the net amount only shown as Lord Crewe asked that in the converse case, when the Colony paid out sums which were subsequently reimbursed they should not be liable to assessment.

revenue.

revenue.

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