expenditure, and on the year’s work the deficit was only £855,000 when the accounts were balanced. Mr. Gladstone’s estimates for the current year, however, after providing for this deficit, showed a surplus on the basis of existing taxation of about £2,000,000; so he was able to take a penny off the income-tax, and at last to repeal the Paper Duty, without incurring the reproach of rashly sacrificing revenue. But to do this he had to leave the duties on tea and sugar unaltered. To prevent the Peers from rejecting the repeal of the Paper Duty, he tacked his scheme on to the Bill containing all his financial proposals. The House of Lords shrank from rejecting the whole Budget: they passed it grudgingly, after a feeble and futile threat of opposition from the Duke of Rutland. In the Commons a majority of 15 in a House of 577 members carried the Budget of 1861, which is memorable as the one that abolished what was popularly called “the taxes on knowledge.” The financial debates in the House did not end till Mr. Gladstone had shown pretty clearly that he thought too much money was being spent on the Army and Navy. On the other hand, Lord John Russell took occasion, in a debate on Italian affairs, to declare that the state of Europe rendered this expenditure necessary. The assumption here was that events abroad might falsify Mr. Gladstone’s estimates, which showed a surplus. In that case, as the Paper Duty could not be re-imposed, any deficit must be met by an increased income-tax, and it was this fear that rendered the Whigs and the Tories alike anxious to retain the Paper Duty. But the Cabinet was too weak to dispense with Mr. Gladstone’s services. As the price of his allegiance to Palmerston was the repeal of the Paper Duty, and the consequent humiliation of the House of Lords, who had threatened to oppose its abolition, Palmerston had to submit to the Paper Duty being repealed. Still, the Premier was not without his consolations. The dispute with the Prussian Government over Captain Macdonald’s grievances had not terminated, and on the 26th of April Lord Palmerston seized the opportunity it afforded him of making a coarse and undignified attack on Prussia because her laws, which in Macdonald’s case he admitted had not been overstepped, were “harsh, unjust, arbitrary, and violent.” This provoked recriminations in the Berlin Chamber, where Baron Schleinitz foolishly mixed up Captain Macdonald’s arrest with high policy. To these recriminations the _Times_ delivered an insulting reply, and, greatly to the annoyance of the grief-stricken Queen, a rancorous quarrel was thus developed about a trivial affair between the two Governments, which, said the Prince Consort, made the “outlook most melancholy.” Mr. Disraeli told Count Vitzthum that Palmerston’s outburst against Prussia was delivered in order to annoy the Prince Consort rather than the Berlin Cabinet, and if that were the fact it must be allowed that his malignity was eminently successful.