Amendment of Law.

– in the House of Commons on 29th April 1925.

Alert me about debates like this

Question again proposed,

" That it is expedient to amend the Law relating to the National Debt, Customs, and Inland Revenue (including Excise) and to make further provision in connection with Finance."

Photo of Sir Alfred Mond Sir Alfred Mond , Carmarthen

Before my remarks were interrupted, I was attempting to place before the Committee some reasons why, in the minds of myself and many others, it may be doubtful whether a return to the free export of gold, which is a truer definition of what is being done than to call it a return to the gold standard, is advisable at the present juncture. There is one question in relation to that upon which we should like to have some information, either in this Debate or in the discussion of the Bill itself, that. is, how far the exchange condition between this country and America is an artificial one and how far the appreciation of the pound in relation to the dollar has been a real one, based on internal prices, which is the real basis of exchange? The Chancellor of the Exchequer told us yesterday that the Treasury had been discreetly buying a large amount of dollars to make provision for the interest payments which have to be made. By taking this step he has, of course, in a sense, himself been a party to inflating the exchange in a sense favourable to ourselves, and thereby creating the appearance, perhaps, of a better state of the exchange between the two currencies than otherwise would have appeared. There is another factor to which my attention has been drawn recently by financial authorities on the subject, and that is that one of the consequences of the flight of capital from France has been indirectly to improve the sterling exchange in regard to the dollar. How far this is affecting also the rise we have seen is, of course, difficult to estimate; but there are factors of this kind, in connection with the idea that the free export of gold was going to be introduced, which naturally would tend to bring the pound back to parity which may have obscured the issue to this extent, that when those factors disappear exchange relations may occur which may put us in an embarrassing position. I have no doubt that the right hon. Gentleman and his expert advisers have taken all these factors into consideration and balanced carefully their advantages and disadvantages. He is, perhaps, in possession of more information, is bound to be, than any private individual can be but in view of the great importance of the problem T think it right to raise these questions, to give voice to these doubts, which are widely spread, to enable him on a future occasion to allay them, if he is able to do so.

Let me pass from this rather special question to a further point in the interesting and brilliant speech, if I may say so, which the right hon. Gentleman made yesterday. The right hon. Gentleman foreshadowed economies in our expenditure, and I know there is no one more anxious than he is to effect them if it is possible to do so. He mentioned the progressive figure of S10,000,000 saving on Supply Services as a possible reduction of public expenditure. I would like to ask, because it does not appear quite clearly from his speech, which I carefully read this morning. whether or not he includes the diminution of £5,000,000 a year resulting from debt operations in this £10,000,000, or whether the £10,000,000 is additional to the £5,000,000, which is more or less automatic.

Photo of Mr Winston Churchill Mr Winston Churchill , Epping

I said we were hoping to effect. I said we should set it as an aim to effect progressive reductions of £10,000,000 a year on the Supply expenditure, and that excludes economies due to debt.

Photo of Sir Alfred Mond Sir Alfred Mond , Carmarthen

I am glad the right hon. Gentleman has explained that, because the OFFICIAL REPORT, as sometimes happens, is not absolutely clear. The amount, as the right hon. Gentleman agreed, is not very large, but even if he achieves that he will, at any rate, have achieved something, because in earlier Debates in this House—and this is a point which I must confess seems obscure—the First Lord of the Admiralty foreshadowed that at a later stage of the financial year he was going to produce Supplementary Estimates which were really going to tell us what the increased expenditure on our armaments was going to be. There is no provision in the Budget for Supplementary Estimates. As a matter of fact, the right hon. Gentleman has estimated to a very narrow margin of surplus. What we would like to know is, has he succeeded in quelling the ambitions of the First Lord of the Admiralty in regard to Supplementary Estimates, or, if not, how those Supplementary Estimates are to he met when the time comes?

On the whole the right hon. Gentleman seems to have taken an optimistic view of the revenue he is likely to obtain There, again, is a position where no one can compare with him in the information at his disposal. There is one thing which disturbs one a little in all estimates of revenue, and that is that, although in some mysterious way the totals agree fairly well with the anticipations, when it comes to individual items there is such a wide variation between the estimates and the actual results that it seems to be more by a miracle of good luck than by prescience that any Budget conies out balanced at all. Last year the deficiency in the Excess Profits Duty receipts was offset by unforeseen increases in other directions. I notice that the right hon. Gentleman puts the revenue from Excess Profits Duty payments this year again at £4,000,000, although last year the sum actually realised was only £700,000 Last year those who advised the Chancellor were optimistic enough to imagine they were going to obtain a very much larger sum than even the 4,000,000, and if the actual sum obtained is so very small, is he quite sure that similar circumstances will not recur this year, and that his Estimate of £4,000,000, instead of proving an asset, may not prove a liability? Then there is a large increase in the amount estimated from Special Receipts. We rather gathered from the Chancellor of the Exchequer last year that the Special Receipts had practically come to an end, that there was no more revenue to he derived from them. Like the widow's cruse, they seem now suddenly to have restarted their inexhaustible flow in aid of the Treasury. Is this likely to continue, or are we to consider that this is the last windfall which will come to the Treasury under this head?

The right hon. Gentleman laid down the general lines of his Budget in the following words: The security of the home of the wage-earner against exceptional misfortune, the encouragement of enterprise and the relief of the burden resting upon industry. When I heard those words I thought the right hon. Gentleman was really going to deal with the industrial and financial situation of the country as it is. Put in a few words, what is it we are suffering from to-day? There is a grave depression of industry. in some directions almost unparalleled for many generations; an enormous volume of unemployment, stationary, obstinately refusing to diminish to anywhere near normality; a large amount of Poor Law expenditure; and a general feeling of uneasiness as to the future. That is the position as it presents itself to all who occupy themselves with this very anxious problem. When the right hon. Gentleman was unfolding his Budget I was waiting from minute to minute, I might almost say from hour to hour, to hear how he proposed to deal with these grave problems. At the end of his great oration I found, to my amazement, that he had not begun, to my mind even had not endeavoured to visualise, the position we are in, not in 1956, but in 1925. We heard eloquent, passages about a great scheme, what was going to happen when we shall all he mouldering in our graves, and the burdens 50 years hence, which I have no doubt those generations will be able to deal with without our assistance in a world which will be very, very different from the world we see to-day, and with on order of society probably profoundly different from what we know. We heard nothing and saw no provision for dealing with the present question of unemployment. I do not see one penny of money allocated: in this Budget, with its large anticipated surplus and its new taxation, there is not any scheme or proposal to deal with the unemployment problem. I do not see, either, and I shall deal with that a little later on, that stimulus to industry and trade on which the right hon. Gentleman based his survey.

The general financial policy of this country since the War has been a policy resulting in depression of trade and increasing unemployment. Chancellors of the Exchequer can stand at that Box all the years they like and dilate upon our magnificent and grandiose reductions of debt and our superb ability to bear our burdens, but nothing will get away from the great fact that there is no country in the world which has industry so depressed and unemployment so rampant as the country in which we live. Not any of those grandiose statements about increasing the Sinking Fund can get away from the fact that this policy, and the continuance of this policy, is creating depression of trade, and creating the very unemployment which every party in the State is trying to solve. It is like a nation trying to empty the ocean with a bucket full of holes at the bottom, and wondering why it gets no water. The right hon. Gentleman, apparently, is mechanically going to follow other Chancellors. am sorry he has not had the courage to break away from the policy of a crushing debt reduction at the time of the nation's greatest industrial difficulties. All the little peddling things which he talked about in his long speech yesterday afternoon are not going to achieve much. The help he is giving to industry with one hand he is taking away with the other.

The right hon. Gentleman devoted a large amount of his speech to the launching of a great, and, if I may say so, an evidently carefully-studied 'scheme of pensions for widows and old people at 65. I think there is no section of the House which will. not say, which has not definitely said, that such a reform should be introduced, and if the right hon. Gentleman succeeds in placing such a scheme on the Statute Book he will be congratulated by those who wish to see such a measure of social amelioration carried out. On the other hand, I see no money provided for it. I take it no money will be necessary for the scheme in the present financial year. On a later occasion the right hon. Gentleman will perhaps tell us how exactly the finance of this scheme is to be worked. I do not understand when his first contribution of £5,500,000 is going to fall upon the Treasury, in which financial year it is to be paid. I notice that the benefit is to be given in January, 1926, but I would like to know if the first £5,500,000 will come in to the present financial year, and I presume when it comes in it will be dealt with in the Budget of that time.

There is one thing to which I must call the attention of the Chancellor of the Exchequer and which seems to me to be a defect in the scheme which requires serious consideration. We have been developing schemes of insurance in this country for some time and the burden of them has been placed mainly, and to a large extent, on the back of the industries of this country. We have had national insurance and unemployment insurance and these contributions are largely financed by industry. It is now proposed to add to these burdens under the new scheme put forward by the Chancellor of the Exchequer. I have been endeavouring to get some figures on this subject, because I do not think it is sufficiently realised, in fact, I do not think it is realised at all, how this growing burden on industry affects both employers and employed, and it is not realised how vitally such contributions as these are affecting the industrial position.

With the new charges these contributions amount to 3s. ld. per man on everybody engaged in industry. If you work that out in relation to a wage rate of 35s. or a week you will at once see what a heavy burden is entailed by these contributions. After all, these contributions have to come from somewhere, and they have to be paid by industries which in many cases are working without profit, and are having a very hard time in competition with other countries. Why is it now considered to be the function of industry to have to bear such a great proportion of what are recognised as common social services? I would like to ask in what way is industry responsible for widows or for old age. Why should the general body of taxpayers, such as landlords, stockbrokers, financiers, lawyers, and doctors who employ relatively very few people be always exempted, leaving the real burden on the people who have already a sufficiently hard struggle to continue in competition in the world's market? It is commonly assumed that industries play the role of the tax-collector by passing on burdens to the consumer, but surely it must be realised that it is impossible for industry to keep passing burdens of this kind on to the consumer. We must remember that we are still in competition with other countries, and the consumer is not a class of person who can afford to pay any price you like for the goods he requires.

In starting a new scheme of this kind, personally I want to see a very much larger proportion of the expenses put upon the common taxes of the country and borne by the general community for the common good. No doubt it is much more convenient for the Chancellor of the Exchequer, instead of having to put up the Income Tax, to let the people realise what their social needs are by adopting formula; of this kind. As one interested in the future of industry I know how even small increase of wages are frequently the subject of long discussion and much contention. It seems to me that those who frame such schemes as this pay insufficient regard to the increasing cumulative effect of their actions. The whole question of this scheme has been under discussion more than once, and great doubt has been expressed as to whether it is possible to add a new burden of this kind.

The unemployment contribution is necessarily placed at a high rate, and under the unemployment insurance scheme the charge has to be paid at the earliest possible moment. I hope the right hon. Gentleman will look into that matter, and see whether he cannot agree to spread the repayment of the loan for unemployment insurance over a longer period, and if he does this he will probably find that he can reduce the unemployment contributions by that means and thus ease very much the burden which the scheme in its present. form involves. I think that will be really a point of substance when the Bill dealing with this question comes before the House, and I hope it will receive a very careful scrutiny. Personally, I do not share the right hon. Gentleman's great enthusiasm about the present non-contributory pensions system becoming a contributory system. We have deliberately adopted a non-contributory system and we have succeeded In financing it out of our revenue. There seems to me to be no mandate for this new system, because, after all, the whole of the money comes out of the pockets of the people, only in a different form. Therefore, in adumbrating a scheme which foreshadows that all old age pensions will be placed on a contributory basis, the right hon. Gentleman is taking a reactionary step.

This subject will require a great deal more consideration, but, as far as I can gather from the short calculations I have been able to make of the total contributions of the employers and employed under the right hon. Gentleman's scheme, they will amount approximately to about £20,000,000 per annum, and he is going to begin the fund with £5,750,000. That seems to me to be a disproportionate amount, and I fail to follow in what way The liabilities are going to increase to such a large extent as is being provided for. I think we shall hear a great deaf more about that when we go further into the difficulties and the real points of this scheme. I would like to point out now that under the National Health Insurance scheme the industries contribute £28,000,000 and the Exchequer £6,000,000. Under Unemployment Insurance industries contribute £32,000,000 end the Exchequer £10,000,000. I think those figures emphasise my point in regard to the enormous burdens which these insurance schemes place on the industries of this country. In starting a new scheme of this kind, the functions of which have no real relation to industry, it is very much open to doubt that you should base such a scheme on this principle at all.

The Chancellor of the Exchequer may wonder why I question his claim that he is doing anything to stimulate industry. I am sure the right hon. Gentleman will not expect me to subscribe to the doctrine which he himself repudiates, that the reimposition of the McKenna Duties will be a stimulation to industry. This seems to me to be a kind of sop to the Protectionists in the party opposite. From what I can gather this proposal to reimpose the McKenna Duties has not met with a very warm reception. There is no necessity for the imposition of those duties, and the amount they will bring in is very trifling. I would also like to point out that the abolition of those duties has led to a more settled condition of trade. I agree with the Chancellor of the Exchequer that nothing can be worse for industry than to make such things as these the plaything of political controversy, by putting on a tax for 12 months and then taking it off. The right hon. Gentleman seems to think that the small light car is a luxury, but I would like to remind him that at the present moment the light motor car is an essential part of the industrial outfit of a large number of small manufacturers, and it is just this class of car which will be affected by the action which the right hon. Gentleman proposes to take.

Yesterday the right hon. Gentleman spoke about travelling in motor cars, but I would remind him that all motorists do not travel in a luxurious and costly limousine, but they use a light car, England to-day is producing a light car of such excellence and at such a low price that the manufacturers do not fear any foreign competition. As a matter of fact, since the duties have been removed British manufacturers have been producing a far superior light car which can defy all competition, and there is no necessity for the protection which is now being suggested. Then we have to consider musical instruments and the harmless gramophone which is the joy of so mary homes which have not yet got a listening-in set. What about the cottage piano which still ornaments the houses of many working-class people even if it is never played. I hope I shall once more have the pleasure which I had some years ago when those duties were under discussion of opposing them to the best of my ability.

Photo of Mr Winston Churchill Mr Winston Churchill , Epping

The right hon. Gentleman supported them five years ago.

Photo of Sir Alfred Mond Sir Alfred Mond , Carmarthen

I do not think the right hon. Gentleman ought to say I supported them. Perhaps he may say that I gave them a passive support, but I certainly objected to them, and I shall certainly oppose their re-establishment. I think the right hon. Gentleman is the last person in this House who ought to make any reference of that kind. He himself seems to have fallen among thieves on hops, and he makes the familiar excuse of the housemaid in regard to this duty—that it only a little one. There may be some justification for the imposition of duties of this kind during a war period, but after that the necessity disappears. The right hon. Gentleman does not seem to me to have done himself justice in regard to either of these subjects. He really is in a worse position when he gets to his silk duty. I do not know who advised him on the subject, but I cannot understand how a duty on the manufacture of artificial silk, which is becoming one of the most important textile industries of this country, is looked upon by him as likely to stimulate industry. I do not share the views of those who grudge a firm which has built up a great new industry in this country a legitimate profit if they can make it. Some hon. Members seem to think that it is only bankrupt concerns that are worthy of their support. To be successful is in their view the greatest crime any industry can commit. They are, however, making a great mistake, not in the interest merely of the capitalist, but in the interest of those engaged in the factories.

I am seriously afraid that this duty will be found to hamper and restrict a large and growing industry, which is not a luxury industry at all. [An HoN MEMBER: "Why did the shares go up?"] I think it was because they saw that there was going to be a duty. They saw an import duty, but they did not see an Excise duty. I should like to see what the shares stand at in a few days' time. I feel that there is a difficulty; I do not know whether the right hon. Gentleman's advisers kept it from him. Yesterday afternoon he announced that naturally, in the case of export business, there would be a rebate, cither on the import duty or on the Excise. But one of the difficulties that I foresee in that matter is that artificial silk is an article which is very largely used to-day in conjunction with all kinds of textiles, and woven in and out of many other kinds of goods. It is mixed with wool, it is sometimes mixed with cotton, it is sometimes interwoven. How is a rebate system going to be worked in connection with a complicated, composite subject of this kind? It is a very difficult problem, but it will have to be solved, because, otherwise, you are going to debar the textile trades of this country, which are already heavily hit, from a large amount of business, which will naturally pass to Italy—where the artificial silk industry is developing most rapidly—and to other countries. I am gravely apprehensive from that point of view. Again, it is going to raise the price of commodities which are not luxuries, but which are bought by very large classes of the women of this country. I understand that a pair of stockings, which to-day costs 3s., is going in future to cost 4s., and hon. Members will possibly have to answer questions put by female voters on this subject.

What is the object of the right hon. Gentleman in doing this? The amount of revenue which he expects to get from it is really not very large or very important, and I think there are plenty of other ways in which he could provide the money. He is departing in this matter from the great process of reduction and simplification of our tariffs and duties to which Mr. Gladstone devoted a great part of his life as Chancellor of the Exchequer. The right hon. Gentleman is deliberately going out of his way, with a large surplus in his hands and other sources of revenue which I have indicated, to introduce complicated new duties, every one of which means a further expenditure of public money in administration and in Government officials, and the hampering of industry. I must confess that I think it is a very grave blot on the Budget which the right hon. Gentleman has introduced, and I am wondering what kind of support it will receive in the future. The right hon. Gentleman juggled about with Death Duties and Super-tax rather like a conjurer throwing up balls and catching them with great ingenuity. Does he think it wise to raid relatively moderate fortunes, accumulated by years of saving, of £50,000 and upwards? I remember that a Labour leader, who was a Member of this House—Mr. Maden—left £35,000 and no one could say that a fortune of £50,000 is excessive in a country with the wealth of this country. It is an amount that may be saved by people of the middle class over a large number of years in order to provide for their wives and families.

Photo of Mr Henry Croft Mr Henry Croft , Bournemouth

It is enough to endow a motor-car!

Photo of Sir Alfred Mond Sir Alfred Mond , Carmarthen

It seems a very doubtful proposition to tax capital in order to relieve income. Certainly, it is opposed to the canons of finance that have formerly been looked upon as sound in this country. However, what the right hon. Gentleman gains on the roundabouts he loses on the swings, and, therefore, I do not know that any very fundamental question will arise upon it, but I cannot understand why he stops in the graduation of his Death Duties.It is muchsteeper in the lower parts of the scale than in the higher, but finally it comes to an end short of the largest fortunes. That seems to be a new departure, and it seems to me to be an unsound one. if Death Duties have any justification—and I think they have a very great justification—surely they ought to progress and to go on progressing. I do not see why the right hon. Gentleman suddenly comes to a standstill. Yesterday he made the cryptic remark that he thought the high rate of advance should be reduced in the case of estates of over £1,000,000 7J.£2,000,000, or there abouts.I fail to follow the logic of that. If I were devising a scheme of graduation, I should do so right through, and should be mere inclined to put the burden at the top than in the middle.

The right hon. Gentleman says, "What is my salvation in the world of sin?" His salvation, his contribution to our depressed industrial conditions, finally resolved itself into 6d. off the Income Tax. I do not agree with the right hon. Gentleman the Member for Colne Valley (Mr. Snowden) in the economic proposition which he laid down, that heavy taxation has no relation to industry. If that were so, there would be no reason why direct taxation should ever be limited or reduced. But, if there be one thing in connection with taxation which experience has proved, it is that over taxation reduces enterprise and light taxation stimulates it. The fact that, in spite of heavy taxation, there have been large increases of income, by no means proves that industry would not have been stimulated, that enterprise would not have been more marked, and that the stimulus to work would not have been greater if taxation had been lower than the high figure at which it stands to-day. From this point of view, the reductions which the right hon. Gentleman is proposing are some little step in the right direction, but they are insufficient to produce an actual effect. It has been argued with great force that a reduction of Income Tax does not. necessarily mean that the money will be returned to the industry from which it has been earned, but on the whole I think that, through devious channels, it probably will, though it cannot be always traced exactly.

I suggest to the right hon. Gentleman that one of the great difficulties and one of the great evils of our industrial position to-day is the existence to an undue extent of obsolete methods and obsolescent plant in our manufactures. Upon what principle is the Income Tax system of to-day devised? it is devised upon a principle which encourages the distribution of profits and discourages the retention of money in business in order to meet necessary changes entailed by our modern conditions. The depreciation scale of the Inland Revenue is entirely insufficient to meet the necessary expenditure of anyone who wishes to go on and develop his industry to-day. If I had had to deal with the matter, I would not have dealt with this 6d. by way of a general reduction, but should have preferred to concentrate upon that part of profits which is retained in industrial businesses and used in order to keep the business up to the mark and develop it. The problem has often been discussed in this House and out of it, and amendments have been moved to the Finance Bill in connection with it. I am well aware that technical questions arise which appear most important to the expert mind, but I am perfectly sure that the right hon. Gentleman, if he thinks the principle is right, will find the expert advice to show him how to carry it out, and that the technical difficulties will not be found to be insuperable, though the advantages, undoubtedly, will be very great.

Take the case of the mining industry. In that case, although we are dealing with a wasting capital asset which is being exhausted, we are not entitled to write depreciation off our assets for the purpose of Income Tax. What is happening to-day in South Africa There, if you sink a new shaft for a gold mine, you are entitled, under their Income Tax law, to charge depreciation against the income for the life of the mine, and not pay Income Tax on it at all. Surely, an industrial country like ours ought not to have to learn from South Africa what is the right and reasonable way of dealing with a proposition of this kind. It is really of vital importance to the industries of this country that that portion of the profits should be relieved which can be directly proved to be used for the benefit of the industry. I expect the right hon. Gentleman will enjoy the fruits of his office for a number of years, and I hope he will apply himself, not merely to these problems, but also to the problem of remodelling a tax which is nearly a century old, which is extremely antiquated in method, and of which a great reform is long overdue.

I have dealt with a number of serious and salient subjects which the complexity of the right hon. Gentleman's proposals naturally compels one to deal with at some length. I must confess that, in spite of the glamour which he threw over his Budget, and the words of eloquence of which he is so great a- master, his Budget, ingenious as it seems to me to lack any foundation of constructive idea of finance. It is not a building with any architecture. A bathroom has been added here, a conservatory has been put on to the house, a drawing-room has been redecorated, a new spare bedroom has been put up, the servants' hall has been made into a billiard room—and the resources by which a stately edifice could have been erected have been frittered away in a chaotic and formless building. That is the impression which the right hon. Gentleman's financial proposals leave on my mind. There are little sops to this or that section; there is a little bit off here, and a little bit on there. The right hon. Gentleman tries to placate in turn all sections, but never gets down to what I call the fundamental position in which we are. With one exception, which is not part of this year's Budget at. all, we expected to find something of a greater and more heroic mould. The right hon. Gentleman has brought home a bag of small ground game, and not a royal tiger from a great game expedition.

6.0 P.m.

Photo of Sir Robert Horne Sir Robert Horne , Glasgow Hillhead

I should like, in the first place, to join with other speakers in congratulating my right hon. Friend on a remarkable achievement. He rose to the heights we all anticipated and I am certain he afforded the House demonstration of the fact that figures need not be dull and that a Budget need not be drab if it is only enlivened with a sufficiently picturesque fancy. The right hon. Gentleman who last addressed the- Committee, it seemed to me, was making a rather crabbing comment upon the Budget. It was only when he divagated into the realms of fancy and metaphor that he seemed to get anywhere near the truth because, as I listened to him describing the architecture which had been contrived by my right hon. Friend, it seemed to me that he was describing a very comfortable house in which one would much rather live than in the castellated structure which evidently the right hon. Gentleman would prefer. I thought also that his reference to the absence of any great scheme for dealing with unemployment was somewhat unfair. In fact, no one up to now has suggested a really practicable scheme, involving large expenditure, which has commended itself to the sense of the House of Commons. The scheme of the right hon. - Gentleman himself, which has many attractions and which I for one would be very anxious to try, in spite of its liability to many abuses, is recommended by him on the ground that it will not cost the country anything, and accordingly while it is being examined by the Cabinet, and as obviously no matter of extra expense arises in connection with it, it was not a subject which necessarily-fell within the purview of the Chancellor of the Exchequer's speech.

The right hon. Gentleman the Member for Colne Valley (Mr. Snowden), who was lately Chancellor of the Exchequer, was in a very amiable, agreeable mood yesterday, but he adopted a tone of acerbity to-day which had evidently been growing hotter as his reflections went on through the night. What he had discovered was that the Chancellor of the Exchequer had produced a great scheme of social insurance which made the prospects of the Labour party in the future comparatively negligible. They had talked about the abolition of the thrift restriction upon old age pensions, but had never done anything. They had talked about widows' pensions, but it had all ended in talk. They had proposed that old age pensions should begin at an earlier age, but they never did anything to bring it about. These proposals are now to become the law of the land, and that explains the hostility with which the Budget was viewed by the late Chancellor of the Exchequer. It also explains why it was necessary to invent, the comment that it is a "rich man's Budget." I should like, however, to felicitate the late Chancellor upon the near approximation which his estimates had to the actual results of the year's finance. It was a very remarkable feat of prophecy, and I hope he will not think I am detracting in any way from the compliment I have paid him when I say that the prognostications which I made as to its failure were very largely defeated by the fact that he never entered Upon the large schemes of expenditure with which he menaced us.


May I remind the right hon. Gentleman that the prophecies were with regard to the income of that Budget, not to expenditure

Photo of Sir Robert Horne Sir Robert Horne , Glasgow Hillhead

The point, of attack which I certainly made was that this expenditure would be very largely exceeded by what the right hon. Gentleman had proposed with regard to getting rid of the restrictions upon old age pensions, and with regard to the elaborate scheme of housing which he had adumbrated. Those were the broad lines upon which I based my attack upon his estimate.

What we have now to look at is the question of the future. I am very glad my right hon. Friend has not based his estimates for the year upon any rapid revival of trade. What has just been said by the right hon. Baronet the Member for Carmarthen (Sir A. Mond), who speaks with great knowledge on these matters, is entirely endorsed by my own experience. No one who is dealing closely with the trade and industry of the country at present can look upon the situation with any other than the gravest possible anxiety. Accordingly, I am glad that, small as it is, a certain relief should be given to the traders of the country and a certain encouragement to industry by even the meagre deduction which has been made from the amount of the Income Tax. The late Chancellor of the Exchequer made the complaint that nothing is done to relieve the indirect taxpayer, but when he was affording a very great relief to the indirect taxpayer last year he did nothing at all for the direct taxpayer, unless he chooses to mention Inhabited House Duty. [An HON. MEMBER: "Corporation Profits Tax."] The Corporation Profits Tax only affected a limited number of direct tax payers. I am talking of direct taxpayers as a whole. The only relief the right hon. Gentleman gave was the comparative bagatelle of remission which he granted in respect. of Inhabited House Duty. I do not know why he says the indirect taxpayer is entitled to special consideration upon the present occasion. What is the relative proportion in which the direct and indirect taxpayers contribute to the revenue at present? It was always regarded as the recogniised foundation upon which our revenue was to he built up that the proportion should be half and half. Now, by reason of the late Chancellor's Budget, we have reached the position in which the direct taxpayer is contributing 66 per cent. of revenue as against 34 per cent. contributed by the indirect taxpayer. It is almost paralyzing to the imagination to remember that during the last seven years there has been contributed to the revenue by the Income Tax and Supertax payer no less a sum than 22,500,000,000. That vast sum has been contributed almost entirely by 2½ million inhabitants of the country. Was it not time that something should be done to relieve the enormous burden of this tax on the direct taxpayer, because after all that vast sum has been taken away from the profitable uses of industry, and put to the non-productive service of the State.

It is for that reason, amongst others, that I welcome this reduction of 6d. in the Income Tax. In the end reductions of Income Tax get right down to the humblest cottage because they come from the fund that provides employment. I quite agree with what the right hon. Gentleman said with regard to the burden of this tax on industry. It not only affects each single individual whose savings are taken away to the extent to which he is taxed, but it is a direct. burden upon that fund which every industrial capitalist puts to reserve if he is carrying on his business properly. The fact that, of the fund that the employer devotes to developing and keeping up the equipment of his works, 20 per cent. being taken, actually leads in some cases to the excessive distribution of the profits, and consequent disaster to the business, or else to the fund being greatly depleted to which we look for the progress of industry. I join with the right hon. Gentleman in urging the Chancellor of the Exchequer to take this point into serious consideration. If something could be done, either wholly or partially, to remit the amount of burden that is put upon these reserves, which are the funds of development in our industries, it would do far more than any ordinary remission to help industry. Probably one of the surprises of the Budget was that my right hon. Friend decided to make some remissions in Super-tax, and I admire his courage in doing so. For those who wish to encourage industry, is it not plain upon reflection that this remission is one of great value? Who, after all, are the people who pay Super-tax? They are, in the main, the people who have shown that they know how to make money. They are the people in whose hands money fructifies, and it is madness, in the interest of the development of industry in any country, to take away more than you are compelled from the people who use their money to the best advantage. It is just as if you were to take away part of the equipment from a workman who had shown that he was particularly skilled in using that equipment. Accordingly, I think, amongst other things which the Chancellor of the Exchequer has done, this will have, at least., some appreciable effect in helping to develop industry in this country.

Now I turn to what the Chancellor of the Exchequer has done in the imposition of new duties. I am amazed at the amount of time taken up this afternoon in talking about the duty on silk, as if that is going to be a matter of serious importance to this country. The only question as far as we are concerned is how much revenue we can get out of it. Undoubtedly, there is an appreciable amount to be obtained. As to all the arguments about the discomforts that are to be caused by the high price of stockings, the Committee may safely pass them by. I come now to what is a much more important matter, namely, the reimposition of the McKenna Duties. I am very glad that the Chancellor of the Exchequer has taken this opportunity of reimposing the McKenna Duties. There never was the slightest reason for taking them off. They were doing no harm to any single living creature, and there had been no complaint received from anybody that they were paying too high prices for their cars because there was a duty upon them. No evidence of that kind can he adduced from any Debate which we have had. The only result as far as one can discover from the taking off of the duties was to give a comfortable glow to the breasts of some of the more pedantic economists in this House. We obtained that happy result at a considerable cost, because what the late Chancellor of the Exchequer did was to throw away £3,000,000 of revenue which he could safely have had in the Treasury.

Yesterday afternoon the late Chancellor of the Exchequer laid down a challenge. He represented that I had said in the Budget Debates of last year that hundreds of thousands of people would be thrown out of employment by taking off the McKenna, Duties, and he asked me to justify that statement in the light of subsequent events. The fact is that I never said anything the least like what the late Chancellor of the Exchequer represented. His representation was a grotesque account of my speech. I have brought the report of it, not with the intention of making it again, but only in order that everybody may know that I have here the ipsissima verba which I used. I pointed out, in the first place, that there had been a great addition to the number of people employed in the trade since the McKenna Duties had been imposed, and I said that there were something like 200,000 people engaged in the motor industry and its subsidiary industries. I went on to say that the employers stated that the abolition of the McKenna Duties would involve the discharge of many of their men. [HON. MEMBERS: "Has that happened? "] I am coming- to that. I said, "They may be wrong in this statement or they may be right." My adjuration to the late Chancellor of the Exchequer was that he had no right to take the risk of putting a single man out of employment- by reason of the taking off of these duties.


I think you said more than that.

Photo of Sir Robert Horne Sir Robert Horne , Glasgow Hillhead

The right hon. Gentleman can look up the speech, and he will see. It was made on the 30th April, 1924, and will he found in Col. 1692 of the OFFICIAL REPORT. I am certain that there was no deliberate misrepresentation of what I said. All I wish to state to the Committee to-day is That, even in the light of the experience of the past year, you had no right to take the risk by taking off these Duties. The late Chancellor of the Exchequer said yesterday that we are now proceeding to ruin these industries by putting the taxes on again, the repeal of which had been of great benefit to them. That is a somewhat startling statement. It reminds me of a tale that used to be told to me when I was a boy, for the good of my education. The story was that a certain commissioner was sent clown to investigate the silting up of the Goodwin Sands. lie addressed an ancient worthy in the district and asked him what lie regarded as the cause of the Goodwin Sands. The old worthy said, "I think it is Tenterden steeple." When he was asked, why he thought that, the old man replied, "Well, ever since I have been here there has always been the Goodwin Sands and there has always been Tenterden steeple, and I think, therefore, t hat Tenterden steeple must be the cause of the Goodwin Sands." That is the kind of fallacy which perverted the speech of the late Chancellor of the Exchequer yesterday.

He thinks that because there has been a comparatively good year in the motor car industry, that has been created by the taking off of the McKenna Duties. I ask him to survey the world and see whether in other countries where there are Duties, trade is being ruined. I have never been able to understand that insolent attitude of mind which suggests that every other country must be wrong and that we alone are right. It is reminiscent of the proud mother who, on surveying the march past of a regiment, discovered that of all the marchers everyone was out of step except her boy. That is the general attitude which the rigid Free Trader takes up towards this question. I beg the Committee to remember that this particular trade was steadily growing in this country during the time when these Duties were in force. I make the suggestion, fortified by experience later, that the strength of that trade was built up during the time that it had the shelter of these Duties. It was put into a position to meet the competition to which it was subjected last year. The year which has gone by was one in which there has been a greater demand for cars in the world than there has been of supply. We have been in the happy position of having a full demand for all the cars that we could make, but when the time of difficulty comes, as come it will, and as come it does in every trade, then you will really feel the benefit to be obtained from having these Duties in operation to protect you against the competition of cheaper labour from other countries.

I will now deal with a cognate topic, Imperial Preference. We are told that these Preferences are to be rigidly opposed by the party opposite when they come to discuss them in the House. I confess that it is very difficult to believe that this vendetta can be kept up against a preferential system which has been of such immense benefit to trade in this country. We can see from- events in South Africa what the result has been of our failing to give reciprocal terms to countries such as that. {Labour dissent.] Well, I can only read the newspapers, and I find that the Prime Minister of South Africa stated, in answer to a question the other day, that England could get the same terms as other countries if she would give them reciprocal terms. That statement was immediately met with the question, "Then is the situation going to be that other countries are going to be allowed to introduce their goods into South Africa at a cheaper rate than British goods are to come in?" He accepted that position as being correct. It is easy for people who are not trying to find markets to look with equanimity upon a position like that, but there is not a single man who is trying to sell goods in South Africa to-day against the competition of cheaper labour from the Continent who will not find that position very hard to maintain.

If you look at the figures of our trade of recent times, what do you see? As far as our foreign trade is concerned, our exports to foreign countries went down in 1924 by £4,000,000 as compared with 1923, and we were only saved by the fact that our exports to the Dominions and the British Empire went up in the same period by £32,000,000. How is it that we have succeeded in keeping our trade in the Empire? Is it simply upon our own merits? Anyone who studies the history of these Preferences will see that it is nothing of the kind. Time after time we have been defeated in competition in particular trades, and our position has only been restored by the imposition of a further Duty by one of our Dominions which has taken an interest in our trade. It is not merely upon any high Imperial sentiment that we should sanction these Imperial Preferences, and not merely for the consolidation of the interests of all our Dominions, but it is a vital necessity upon the mere grounds of sordid self-interest.

I am afraid that I have kept the Committee too long, and I will deal briefly with the boldest and the most courageous part of the speech of the Chancellor of the Exchequer yesterday. He unfolded a great scheme of social insurance which, if it achieves the objects which he has in view, will undoubtedly be a great panacea for many of the ills from which we suffer in this country at the present time, and will create not only a feeling of security among our wage-earning classes, but a feeling of greater contentment among all our people. It is impossible to speak on the scheme in the absence of any outline of its scope or of any of the details. We may have to comment critically upon their many arrangements when we see them; but I should like to say for myself that I entirely support the principle of this conception, and I would like to see something upon these lines carried into legislative effect in this country. I hope we shall be able to do that in the course of this Session.

I wish, however, that the Chancellor of the Exchequer had been able to introduce his plan under more auspicious circumstances. I view with great anxiety the prospect of any increased burden upon the industries of this country at the present time. Already industry in this country is bearing a charge of £36,000,000 a year for unemployment insurance. That is putting together the contributions of the men and of the employers, which together amount to £36,000,000 a year. As the right hon. Member for Carmarthen (Sir A. Mond) has stated, the contributions of the employer and the workman are really both burdens upon the industry. The employer must put the cost on to the price of his goods, and as far as the workman is concerned, his contribution, necessarily, has-an effect upon the wage which he is willing or able to take. Accordingly, the whole of that cost is a direct burden upon industry. In addition to the Unemployment Insurance Scheme, industry has to provide £26,000,000 a year for Health Insurance. Now, we are told that there will be imposed upon industry a new burden which is estimated variously by the late Chancellor of the Exchequer and by the right hon. Member for Carmarthen as likely to be £14,000,000 or £20,000,000. A mere contribution of 4d. a week does not look a very big thing, but we are now at a time of strain when even straws will break the camel's back.

You get many illustrations at the present time of the difficulty that there is in meeting competition with our present costs. Take, for example, the instance which all know, when ships were to be built for the Anglo-Egyptian Oil Company, and the contract ultimately went to Amsterdam in Holland, because they were able to tender at £10,000 less per ship than any British shipbuilder. That was a case in which it was specified that in building the ships British steel should be used, and this eliminated the greatest element of disparity in the cost. Nevertheless the estimates of the lowest British tender were £10,000 more than those of the foreign firms. To my knowledge the British estimates were cut down not only to cost price, but below cost Price—to a price which really only yielded them a portion of their overhead charges. Speaking roughly, I should say that building a ship of that kind would employ something like 4,000 men, and if you begin to add, say, another £3,000 to the costs for the year of building a ship like that when everything is cut to the bone you will destroy the possibility of any attempt being made to get such an order.

I hope, accordingly, that the Chancellor of the Exchequer, in the consideration of his scheme, will take into account the very great difficulties under which industry is suffering. I think that it would be a very great pity if anything should be done which would tend in any way to crush the incentive of our business people. I do not venture to suggest any method by which the Chancellor may alleviate the position. The object of the scheme is one which we all endorse, hut I could not let the occasion pass without making known what my very definite impression is, from my knowledge of the business world, at the present time, of the difficulties which will be imposed upon the commercial community of this country by any scheme which brings about new burdens for which there can be no other alleviation.

I will not say anything to-day upon the question of the gold standard, which was such a prominent feature in the speech of the Chancellor of the Exchequer, because, as I understand, we are to have an opportunity of debating that on Monday; but, before I sit down, I may say that a return to the gold standard emphasises at the present time the vital necessity of recovering our export markets. The stability of our exchange must, in the end, depend upon our ability to export. Otherwise, we shall have constant increases in the bank rate which would make business very difficult in deed. There is only one way of recovering our export market That is by being able to sell at prices in the export market which will compete with those of our rivals. In order to attain that end, all the elements of industry require to give their whole-hearted co-operation. In my belief, we are to-day in a situation which requires just as much energy and exertion upon the part of our people as was demanded from them in the War, and I am equally sure that, if the people of the country come to know and really understand the difficulties and dangers which beset us, we shall not fail to get an appropriate response.

Photo of Sir Albert Bennett Sir Albert Bennett , Nottingham Central

I regret that I cannot claim the indulgence which is always accorded to a Member which he is making a maiden speech, for unfortunately I spoke in the 1923 Parliament. The first thing which I would like to do is to add my congratulations to those which have already been offered to the Chancellor of the Exchequer on his great speech of yesterday. So many compliments have been showered upon him that it is difficult to find words in which to express what I feel. Perhaps the greatest compliment which I can pay to him—and it is a perfectly sincere one—is that he fulfilled great expectations in a manner worthy of his most distinguished predecessors in the great office which he fills. A humble backbencher like myself will not be expected by the Committee critically to analyse some of the greater features of the Budget, such, for instance, as that which deals with the All-In Insurance Scheme, but perhaps it may not be amiss if we bring our minds from the dizzy heights to which they were raised by the eloquence of the Chancellor and consider for a few moments some of the more humdrum aspects of the Budget.

I listened with great admiration to many features of the Budget speech, but I think that what I admired most was the manner in which the Chancellor by his eloquence hypnotised us all into thinking that each one of us was getting what he wanted most in the way of a remission of taxation. The Income Tax payer got 3d., the Super-tax payer got a remission, the Imperialist got Imperial Preference, the Protectionist got a sop and the Free Trader got something to talk about. But I reserved my greatest admiration for the fact that the Chancellor did not even 'forget the Death Duty payer. He can now congratulate himself more than ever that he is dead, and all the time the Chancellor was ingeniously taking from our left pocket what he was putting into our right. I think that in many ways one of the most important features of the Chancellor's speech was the announcement of the decision of the Government in regard to the gold standard. I mean to refer to that only in passing. In common with all business men, I realise that it involves certain risks. It is unfortunate that the law imposing the embargo on gold should happen to lapse at the end of the year, but that fact forced a decision, and I think that the one which the Government have taken is the only possible one. The return to a gold standard in this country so few years after the War marks an epoch in our financial history, and it is something of which we, as a nation, have every reason to be proud. Before passing from this subject, I would like to mention the tremendous debt of gratitude which this country owes to successive Chancellors of the Exchequer who, by holding to sound financial principles, have made it possible to take this step.

I would like to congratulate the Chancellor on showing a certain amount of optimism in estimating his revenue for the ensuing financial year. No doubt he anticipates criticism on this point, but he can console himself with the fact that similar criticism has usually been disproved by the actual facts. Personally, I should not criticise any Chancellor if, as a result of close budgeting, he ended his financial year with a comparatively small deficit. What I do object to are the huge surpluses which have been so common a feature of Budgets during the last few years. If my memory serves me aright, those surpluses since 1920 have amounted to close on £480,000,000. It is true that those surpluses were provided largely by the sale of surplus War stores. It is also true that the proceeds of those surpluses were mostly employed to reduce debt, but they were not necessary to maintain our national credit, because during the same years £200,000,000 of our National Debt was paid out of revenue.

I agree entirely with the sound dictum of the Chancellor of the Exchequer in the late Labour Government who declared that the State had no right to tax anyone,. unless it could show that the taxation was likely to be used more beneficially and more economically. In passing, may I say that I hope that the party for which he speaks will never forget that. It requires. no stressing on my part to prove that at a time when our industries have been struggling for their very existence to take £480,000,000 unnecessarily from the taxpayers of the country was not beneficial, and it was certainly not economical. If you provide too much money to Government Departments or to individuals, it usually leads to extravagance. Large surpluses also have a bad general effect. Nationally they give an entirely fictitious idea of prosperity, while internationally I am sure that it does not help to induce our debtors to pay their debts. I also congratulate the Chancellor on having relieved the burden on Super-tax and Income Tax payers, especially those on the lower scales. It is true that we are getting only 6d. off the Income Tax, but I look upon it as an earnest of better things to come.

I would like to add a few figures to those which were quoted by the right hon. Member for Hillhead (Sir R. Horne) to show that a more equitable distribution between direct and indirect taxation is overdue. In 1913-14 the percentage was 47'9 direct and 521 indirect taxation. Last year the corresponding figures were 62'7 per cent. direct and 37'3 indirect. In other words, direct taxation increased by 14.8 per cent. The money figures are even more striking. Indirect taxation has increased by £172,000,000, and direct taxation bears a greater burden of £355,000,000. Last year my hon. Friend the Member for Ilford (Sir F. Wise) quoted from Gibbon to prove that the decline and fall of the Roman Empire was largely attributable to the abuse of direct taxation. Unfortunately, the then Chancellor of the Exchequer, true to his political principles, and no doubt with the desire of doing the more popular thing, proved adamant, despite that classical warning.

Whatever may be said with regard to the theory of taxation according to ability to pay, I am quite sure that it is out of the surplus income of that limited class which I might describe as the direct taxpayer that the money comes to provide for the development of just those industries that the country most requires at the present time—I mean new industries that involve a certain amount of speculative risk. It is quite true that the enormously larger class that is affected by indirect taxation save and their savings in the aggregate amount to a large sum, but most of those savings are invested, and rightly invested in my opinion, in gilt-edged securities. The point I want to emphasise is that when taxation reaches the figure it has reached in this country, far more permanent good can be done to the struggling masses of this country by not dipping too heavily into the surplus income of those who employ that income to develop industry than by reducing taxes even on necessary articles of consumption. In the one case you provide work. In the other you reduce, very slightly reduce, the cost of living and, as was illustrated by the reduction of the Tea Duty last year, even that is not always accomplished. It is of course far more popular to vote in this House for a reduction of indirect taxation than to take anything off the Income Tax, but, in view of the state of industry in this country, I am very glad indeed that the Chancellor of the Exchequer has taken the more courageous course.

While on the subject of revenue, and as I may not have another opportunity, may I very respectfully call the attention of the Chancellor of the Exchequer to two other points? They are of trivial consequence compared with some of the more important features of the Budget, but they are none the less important to business. The first is the question of double taxation. The Committee knows that this is a subject which bristles with difficulties, but those Members of the Committee who have studied it will agree with me that it is a matter of real importance to international trade. I -shall not repeat the arguments that I used in 1923 to prove my case, but I would quote to the House the answer which I received from the present Prime Minister, who was then Chancellor of the Exchequer. My right hon. Friend said: The hon. Member for Mansfield raised a point of great importance, and that was the question of double Income Tax, a question which has come very much to the front since the War, when an increase of Income Tax has been general in all countries where the Tax existed, and in a world in which seems likely that income Tax in every country will play a more and more important part. All I have to say at this moment is that the League of Nations appointed a Committee to investigate this very subject of double Income Tax, end that they recently published a very full and comprehensive Report on it. It is one of the most difficult and complicated questions that financial experts have to consider to-day, and there is a Committee of expert officials, including the Deputy-Chairman of our own Board of Inland Revenue, sitting at present at Geneva considering this Report. I doubt whether they will achieve any results until late in the winter, but we shall await with interest and eager anticipation the results of these investigations, and I have no doubt that before very long it may fall either to one lot of someone in my Government or someone in SOMC future Government to come face to face with this matter and to try and devise legislation to aid the taxpayers in industry in this country."—[OFFICIAL REPORT, 4th July, 1923; Cols. 572 and 573; Vol. 166.] Two winters have gone by since then and two Chancellors of the Exchequer have assumed the reins of office and nothing has materialised. As the present Prime Minister rightly said, this matter was brought into prominence by the War. It is, to a certain extent, a War Baby., I have tried to discover what has happened to it since 1923. So far as I can make out it has had two mothers in the shape of International Committees, and at present I believe it is reposing, or perhaps sleeping peacefully, in the bosom of yet another. I would urge the Chancellor of the Exchequer, who is so conspicuous for his energy, to use some of it in trying to expedite a decision. That a satisfactory settlement of the main question of double taxation can be arrived at appears probable from what has already been accomplished in regard to the double taxation of shipping. The other matter to which I want to refer is the question of the Stamp Duty. The duty on transfers was increased from one-half per cent. to one per cent. in 1920. It is, in my opinion, obvious that it has had a hampering influence- on Stock Exchange transactions. My contention is that any tax which tends to hamper the free exchange of securities is a bad one, and I think the time has come to seriously consider whether a reduction is not possible. With regard to the Stamp Duty on Bearer Bonds, the objections are still more serious, because it directly affects the ability of our bankers to compete with foreign rivals for international loans. When the tax was 1 per cent. it was a sufficiently serious factor. Since it was increased to 2 per cent. in 1920, and we have had to face the new competition of the United States, it has become still more onerous. In fact, it has made competition impossible when the bidding is close.

Let me give an illustration.A£1,000,000 loan in the United States pays nothing in the United States. Here it pays £20,000. There is another feature of the matter. It is generally agreed that trade follows loans, and in any case it is a growing habit in foreign countries, when lending money, to stipulate that part of the money shall be expended in the lender's country. Therefore, both from a trade and a financial point of view, it is a mistake to handicap our hankers as they are being handicapped by this duty. What makes the tax even more inadvisable is the well-known fact that a great many of these foreign obligations that are sold to, say, the United States, eventually find their permanent home in this country. In such cases the United States gets whatever immediate trade benefit there may be, our hankers lose their flotation profit, the British revenue does not benefit, and the British investor finds the money. Further, I very much doubt whether a reduction of the tax would very seriously affect the revenue. As the Committee knows, the effect of such taxes when they are too high is often to defeat their own object.

The main object of my speech, however, was not to talk so much about revenue as about expenditure, which, in my opinion, is the far more important part of the Budget. If we have to raise a certain sum of money there will always be differences of opinion as to how that money can best he produced, according to one's particular school of economic thought; but there can be only one opinion as to the necessity of keeping that sum to the smallest figure that is compatible with the maintenance of our national credit, the efficiency of our fighting Services for defence purposes, and the provision of proper Government for the people of this country. I would go even further, and say that under no circumstances should we as a nation budget in any one year for a larger sum than the figure at which we prudently estimate the taxable capacity of the community. To keep within that limit I would, if necessary, ruthlessly cut down even essential services. I am quite sure that during the last few years we have spent far more than the country can afford, and that it is largely due to this cause that our industries are languishing, that we have over a million unemployed, and that the cost of living is over 70 per cent. higher than it was If this is not so, then all our great bankers, the members of chambers of commerce, our merchants and business men of all descriptions, must be wrong, because one cannot pick up a newspaper without finding it full of their warnings. Those warnings are well justified.

In regard to expenditure I frankly confess that I was disappointed with the Budget. I admit, of course, that the present. Chancellor of the Exchequer is not to blame, for he has not been long enough in office. I listened with great relief to what he said on the question of economy. If I may say so without offence —I mean it really as a compliment—there is no better gamekeeper than the poacher turned gamekeeper, especially when he has proved himself such an artist at the game as the right hon. Gentleman did when he was in charge of some of our spending Departments. I, therefore, have the greatest hope for the future. But there have been other Chancellors of the Exchequer who have also started with good intentions. Economy has been preached ever since the War, and being rather of a practical nature, I should like to give some figures to show the result. Our expenditure from 1922 to 1925—I take expenditure, for the revenue was larger by over £150,000,000— averaged just under £1:900,000,000,. with the significant and ominous feature that last year, for the first time since the War, expenditure showed an actual increase over the preceding year. Add to this £160,000,000 spent by local authorities—a figure that has more than doubled since 1913—and we arrive at the conclusion that the privilege of being governed has for years cost the people of this country £960,000,000, equal to over £22 per head of the population. Pre-War the corresponding figures were £ 276,000,000 and £ 6⅓

7.0 P.M.

We are to-day, without exception, the most heavily taxed nation in the world, and, as I think the Chancellor rightly pointed out, it is not a mere coincidence that, with the exception of Russia where the whole economic structure has been destroyed by Socialism, our comparative volume of unemployment remains persistently higher than that of any other country. Nothing in this House strikes me as more remarkable than the time we devote and the eloquence which is displayed in trying to prove or disprove the principles and details of proposed legislation, and how comparatively little time is devoted to the very vital matter of the consequent expense. All the Bills which are brought forward by any Government at any rate can be fully justified on their merits. it is on those merits that they are discussed; it is on those merits that they are passed But how many could pass the equally necessary test of whether the good they will do the community as a whole justifies the extra drain they necessitate on the pockets of the taxpayer. Legislation involving enormous expense has been ground out of the Parliamentary machine year by year since the War. A financial statement of itemised comparative taxation per head of population in 1913-14 and 1923-24 recently issued by the Treasury has brought many of us up with a jolt. The right hon. Member for Spen Valley (Sir J. Simon), in a debate on unemployment, said a few weeks ago that it would be a calamity if the people of this country got into the habit of mind of considering 1,000,000 unemployed as a normal figure, or words to that effect. I think it would be a far greater tragedy for the people if this Committee continues in the habit of mind that we can afford to spend £960,000,000 a year in State and Local Government. I believe that every item in that statement merits the fullest debate.

It is sufficient, however, to my purpose to-day to point out a few salient facts. Excluding Old Age and War Pensions, our Civil Service cost 36£ millions in 1913-14, and nearly 136 millions in 1923-24, or 3½ times as much, and our Revenue Departments 29 millions, as compared with 59 millions, or double as much. The staff of the Civil Service has increased since 1914 from 248,000 to 299,000, and its cost is about 55 million as compared with 23 millions, an increase of 20 per cent. in the number and no less than 143 per cent. in the cost. These are arresting and truly alarming figures. In view of these figures, does any Member believe we are getting full value for our money, and that we have really reached the limit of economy? That, in fact, we could not by reducing expenditure instead of by encroaching on Revenue have found at any rate part of the money to defray the State's share of the Government's notable scheme of all-in insurance? He must be an optimist indeed who, taking the. Post Office as a typical example, believes that the services rendered or that the work it entails justifies an increase in expenditure between 1914 and 1924 from 241 millions to 46½ millions. That is something we can judge by. We all know more or less what the Post Office did and what it does. The service is no better, and there is certainly nothing to justify this enormous increase. notice that many critics of Government finance, in making comparisons, at once add 80 per cent., or whatever the precise figure may be, to pre-War figures on account of the cost of living and start off on that basis. I think that is wrong. As I have pointed out before, the increase in the cost of living is largely attributable to excessive Government expenditure. To produce the cause and then to refer to it as a justification for increased expenditure strikes me as unfair. It is merely a plausible way of deceiving ourselves as to the magnitude of the real increase in expenditure.

It is very easy to criticise. After criticising, I think one should show sufficient courage to make a few constructive suggestions, and I will be bold enough to make one or two. I listened with great satisfaction to what the Chancellor said about the appointment of a Standing Committee of the Cabinet which I understand will annually review expenditure, presumably in relation to policy. After all, expenditure depends mainly upon policy, and only the Prime Minister and the Cabinet can settle that. I take it that it is by alterations in policy that the Chancellor hopes to save the £10,000,000 he referred to But, apart from policy, there remains in my opinion a very fruitful and vast field for economy in the administration of the various Civil Service and Revenue Departments. I am convinced that in certain grades of the Civil Service there is redundancy. I believe that members of the staff would themselves admit it. If this be so, then I think the excess of staff should be retired on some equitable basis. Many civil servants, I am told, would gladly retire before the pensionable period if equitable alterations were made in the Superannuation Act. I may say that I had some considerable experience of Government Offices during the War. I left them on the whole with a great admiration for the ability of the Civil Service, but I was absolutely amazed at the cumbrous and slow methods under which the work was carried out, methods that would not be tolerated a month in any competitive business. This is a matter that cannot possibly be looked into by the Cabinet—they have bigger things to attend to—and I do not believe that it is one of those things you can leave the Public Accounts Committee to deal with. My suggestion is that a small investigation committee of experts should be set up and that the terms of reference should be simply these: "To investigate Civil Service administration in all Departments, and to report to the Ministers on the best method of simplifying it without impairing its efficiency." If this Committee is set up, it should not include any member of the Civil Service. That, after all is asking too much of human nature. If this Committee is set up and does its work thoroughly, I think the Chancellor would he surprised at the economies that he could make without impairing the efficiency of the Service. I doubt whether the Government themselves appreciate the indignation, the almost passionate indignation, which exists in many parts of the country in regard to the swollen bureaucracy from which we are suffering.

There is one other suggestion I should like to make, and it is this: Even if a Committee, such as I have referred to, be appointed, it will fake time to report, and the matter of economy is urgent. I would like to ask the Chancellor of the Exchequer whether it would not be possible for him to order, not suggest but order, a pro rata percentage reduction for next year of, say, 5 per cent. or 10 per cent in the total administrative expense of every Government Department. It may seem a rough-and-ready way of tackling the matter, but it has this advantage, that by treating all Departments equally you eliminate causes of grievances in any particular one, or, at any rate, you provide an unanswerable reason for not listening to them. I think something has to be done to try and reduce expenditure. We cannot go on finding £960,000,000 when our trade is in the condition it is to-day. During the last few years through various circumstances our Governments have had very short terms of office. It is probably due to that fact that they have never seemed to have had a definite financial policy in relation to the welfare of our trade. If we look back on the last few years, we realise that what has preoccupied the minds of all thinking men is the regaining for our trade of that prosperity that has been so imperilled by a post-War competition such as was never even contemplated before. The way to do it., I think, really permits of only one answer, and that is to reduce the cost of production. How have these successive Governments helped to effect this? Usually by waiting for the emergency to arise and then treating it by means of palliatives, palliatives which in some cases I consider to have been demoralising and in others economically unsound. To relieve distress by giving uncovenanted benefit is demoralising, and to try to help our trade by such means as the Trade Facilities Act and the Export Credits Act, while it may be justifiable at the time, is unsound economically. In my view it is not right for the Government to try to help exports by using their credit when banks or merchants have probably refused the particular business because they considered that it entailed too much risk. There may be real danger in that, and if there is no danger it means that the whole basis of the scheme ceases to exist With regard to the Trade Facilities Act, I consider it economically unsound to allow big institutions to borrow money at a cheaper rate than they otherwise could, by putting them under the shelter of the Trade Facilities Act. I am always struck by the consideration that much of the misery we see in this country could have been avoided if, instead of these palliatives, previous Governments had taken what I should have considered to be the much wiser course of helping industry to reduce costs by reducing Government expenditure, thereby lifting from industry the greatest burden which rests on it today, namely, crippling taxation.

We have now a new 4overnment in office to which much has been given and from which much is expected. Personally, I have every confidence that those expectations will be realised. They have an advantage which their predecessors did not enjoy and which I do not think their successors will enjoy, and that is security of tenure for a number of years. The Chancellor of the Exchequer is therefore in a fortunate position. If he means, as I a sure he does mean, to carry out a policy of rigid and even drastic economy, he can do so regardless of any outcry, for he has the certainty of knowing that, he will he in office long enough to see that policy justified by results. If the right hon. Gentleman carries out such a policy and if the Government back him up, I have not the slightest doubt they will retain the confidence of the country in ever-increasing measure, and what is more important they will blaze a trail which will lead to the return of prosperity to our industries. In this way, and in this way only, can the taxable wealth of the country be increased to an extent which will enable us to consider such schemes as all-in insurance, with, the certainty that the financial position of the country is strong enough to permanently stand their burden. That, after all, is what we are in doubt about to-day.

Photo of Mr Hastings Lees-Smith Mr Hastings Lees-Smith , Keighley

I hope not to detain the Committee at great length, but I should like to do my best to answer the arguments used on behalf of this Budget by the hon. Member who has just resumed his seat and by the right hon. Gentleman the Member for Hillhead (Sir R. Home) and others. One fact has become evident already in this Debate, and it is that, although the Chancellor of the Exchequer occupied, it has been computed, about one-third of his speech in a discussion of social insurance, the Committee itself is not going to give anything like that pro portion of its attention to that particular topic. That fact in itself justifies the right hon. Gentleman the Member for Come Valley (Mr. Snowden) in his argument that this social insurance scheme is no part of the real finance of the year, and that if we are to discuss this Budget usefully we must confine ourselves to its purely financial provisions. Yet if the right hon. Gentleman the Chancellor of the Exchequer had not been able to weave into his Budget arguments with regard to the social insurance scheme I do not believe he would have ventured to introduce a Budget of this character. Take out the social insurance scheme, and what is the central fact left in the Budget? It is that in a full year it gives relief of taxation to the amount of about £40,000,000, and practically the whole of that deduction goes to the payers of Income Tax and Super-tax, while practically nothing has been left for the classes of the community who are too poor to come within the Income Tax scope. This is in fact the first Budget introduced since the close of the War which has devoted the whole of its relief to the more comfortable and wealthy classes and has left the workers and the poor outside its financial scope.

The right hon. Gentleman the Member for Hillhead defended this Budget, but he as a matter of fact did not follow the same course. He reduced the Income Tax by one shilling, but accompanied that concession by a reduction of four pence in the Tea Duty. The present Prime Minister when Chancellor of the Exchequer reduced the Income Tax by sixpence, but he also gave a reduction of one penny in the Beer Duty The right hon. Gentleman the Member for Hillhead referred to the Budget of the right hon. Gentleman the Member for Come Valley as having been one-sided in the opposite direction to this Budget, but that was not the case. The right hon. Gentleman the Member for Colne Valley reduced the sugar duties and the tea duties, but in addition he reduced direct taxation, through the abolition of the Corporation Profits Tax, by £12,500,000 in a full year. What is the explanation of a Budget which, on this point, I say, has no precedent since the close of the War? The explanation can be seen in what has been occurring during the last few weeks. For weeks interests representing finance and 'big business have been conducting an agitation for the reduction of the Income Tax. I have read accounts of the deputations which have visited the Chancellor of the Exchequer and I never found that any of those deputations spoke to the right hon. Gentleman with any sense of responsibility. I never read of any of these deputations attempting to put before him any facts or figures to show that the reductions they were demanding should be made. In spite of that fact the Chancellor of the Exchequer has given way to this rich man's ramp and has introduced what is the most one-sided and the most selfish Budget since the close of the War.

I should like to deal with some of the arguments urged by the right hon. Member for Hillhead in justification of this concentration of relief in the comfortable and wealthy classes of the community. Broadly, his argument was that by reducing Income Tax and Super-tax you indirectly increase the general production of the country, and so in the long run justify your action. Over and over again he explained that the reduction of Income Tax was a stimulus to enterprise and industry, and that men who otherwise would not work very hard or take great risks would do so more willingly if the Income Tax were reduced by, say, sixpence. I notice that is the argument which the deputations always used, yet I never could get. beyond generalisations on this point. I never could get a detailed statement—neither in this House nor in speeches outside—as to why these effects should follow. There are very good reasons which we can adduce to show that these effects will not follow, and that a reduction of sixpence in the Income Tax will not stimulate industry or enterprise in any appreciable degree. I will endeavour to explain some of the reasons. It is always assumed that if you reduce the Income Tax, practically all your assistance is going to men who will be stimulated thereby to greater exertions in business, but you find that is not the case if you examine the sources of the bulk of the income upon which the tax is paid.

For example, are those who derive income from rents going to be stimulated to exercise enterprise? Are those who derive income from mortgages going to he stimulated in this way? Are elderly ladies living in the suburbs on debentures going to be stimulated to industry and enterprise by such a reduction? To take another example, are the classes who derive their income from preference or ordinary shares in big limited liability companies going to be stimulated except to a minor extent? Are those who depend on fixed salaries from companies and corporations going to be stimulated?

The fact is, this argument only applies to that class of taxpayer who is in business for himself, the professional man or business man working for himself, who is in such a position that any increase in the profits of his business due to his enterprise will come directly back to his own pocket. That is the class to whom it applies, and properly applies, but, as a matter of fact, this whole calculation I may say it is not mine—has been worked out by Sir Josiah Stamp, the greatest Inland Revenue official, I venture to say, of the last generation, and he has pointed out that the class to whom what I may call the stimulus argument applies only represents about one-sixth of the taxpayers whose Income Tax is to be reduced. What the right hon. Gentleman has done, therefore, is to give a reduction of sixpence in order to produce a stimulus represented by about one penny. That is why I say it will not produce the effects on which he relies.

Now I come to the other main argument used by the right hon. Gentleman the Member for Hillhead, and also by the right hon. Gentleman the Member for Carmarthen (Sir A. Mond). It is that Income Tax and Super-tax represent a fund out of which business is developed; that the development of business in this country depends upon manufacturers and others having a certain fund to improve their plant, expand their businesses and keep-up with new requirements, and that if you increase Income 'fax and Super-tax you reduce the margin available for these purposes and therefore hinder industrial development and progress. I think that is quite a fair statement of the argument, and the argument is true to some extent, but it does not take into account the difference in the position today compared with what it was before the War. There is this distinction: If you take money from the Income Tax payer and spend it on the Army or the Navy or the Civil Services, it is true that for that extent it may to some degree diminish the amount of money available for savings and capital accumulation, but if you take money from the Income Tax paying classes and then give it directly back into the pockets of the same classes, it does not diminish by a halfpenny the margin for savings or capital accumulation. The essential feature of the financial situation now, as compared with that before the War, is that no less than 40 per cent. of the revenue raised each year is raised for the purpose of paying either interest or sinking fund on the National Debt, and, therefore, goes directly back, almost in its entirety, to the pockets of the very class on whom, it is argued, we depend for our safety. If you then take the 60 per cent. that is left, I say that, taking into account the increase of prices, that does not bear a strikingly greater proportion to our national income than it did before the War. Therefore, as a matter of fact, examination shows that the present rate of Income Tax and Super-tax cannot be having these devastating effects which the arguments in this Committee have assumed.

May I take a point which relates our party to the arguments which have been very forcibly used, both by the right hon. Member for Carmarthen and by the right hon. Member for Hillhead? I think that one fact which is broadly true is that Income Tax does not enter into the price which manufacturers charge. If a tax is part of the cost of production, it must eventually enter into the price, because business men will not eventually produce unless they can cover the cost, but Income Tax is paid after the costs of production have been met out of any profit that is left, and if there is no profit, it is not paid at all. Therefore, I have found that, whenever I have asked accountants on this point, they have none of them been willing to say that in their experience manufacturers habitually include Income Tax in their costs. But the employers' contributions for unemployment benefit and for health benefit do directly enter into the costs which the manufacturers have to meet and are directly included in their calculations of cost and in their prices. Therefore, if you were discussing how to spend this sum of nearly £40,000,000, one fact which I think becomes obvious is that, if you were going to spend it in a manner which would most help industry, you should have chosen the method which would have kept down expenditure, and that method would have been not a reduction of Income Tax but by the putting of your social insurance scheme on a non-contributory basis.

So far as the contributions of employers are concerned, I think the arguments from other benches in this Committee this afternoon, have shown that is would have been better to meet them than to diminish the Income Tax, and, so far as the contributions of the workers are concerned, I remember the argument which war used when the National Health Insurance scheme was introduced, and I remember that the argument was that, by compelling the worker to contribute, you stimulated his sense of thrift. I do not believe that anybody can use that argument to-day. It is perfectly obvious that thrift is a voluntary institution. Compulsory thrift is no thrift, it is mere taxation, and, so far as the workers' contribution is concerned, therefore, it merely becomes a poll tax of the old, obsolete kind which throughout the whole of the rest of the realm of taxation we have abandoned in the finances of this country. It seems to me, therefore, that the Debate to-day has shown that, both from the point of view of the employers' contributions and the point of view of the workers' contributions, this money would have been better spent in relieving both these classes than in reducing the Income Tax.

There is one further subject with which I should like to deal, and that is the alleviation of small Income Taxpayers, which is, at first sight, one of the most attractive features of the Budget. Naturally, we on these benches do not object to that alleviation, but I think it necessary that the country should understand the proper figures on this subject, in order to view it in its right proportions and to view it in comparison with the alleviation to the wealthier classes of taxpayers. Shortly, this Budget distributes about £34,000,000 between the Income Taxpayers and Super-taxpayers of this country. As the Committee is aware, the Income Taxpayers are divided into two classes. There are about a quarter of them, the more comfortable class, who pay at the full rate, and there are the remaining three-quarters, the less well-off Income Taxpayers, who pay at the lower rate. This Budget, so far as the three-quarters of the Income Taxpayers are concerned, is not a reduction of 6d. in the Income Tax. In every speech in the Committee we have been hearing references to a reduction of 6d. in the tax, but, so far as three-quarters of the Income Taxpayers are concerned, it is a reduction of only 3d. The result is this, that in spite of what has been done for the small Income Taxpayer, the White Paper shows that of the £34,000,000 which is being distributed to Income Taxpayers, only £6,000,000 goes to the poorer section, who represent the three-quarters who are at the bottom of the scale, and £28,000,000 goes to the quarter, who are the most wealthy and the most comfortable, at the top of the scale.

The results which emerge from certain questions which we have been putting in the House in preparation for this Budget during some weeks show that there are 90,000 Super-taxpayers in this country, and they will, on an average, receive from this Budget a relief of £150 a year each. There are 25,000 taxpayers with an income of over £5,000 a year, and they will receive from this Budget £300 a year relief of Income Tax and £200 a year relief of Super-tax, or a relief of £500 a year all told. Then, when we come to the small man, who is said to be receiving such benefits from this Budget, I find, if you work it out from the White Paper, that a family man with £500 a year and a wife and two children will receive from this Budget between £2 and £3 as a result of the reduction from the standard rate, and another £2 or £3 as a result of the unearned income relief, with the result that that man, the small man, will receive, all told, somewhere between £4 and £6 a year from this Budget. I think it is necessary that those figures should be realised when we are viewing these great benefits to the Income Tax payers in their proper proportion.

Broadly, then, my criticism of the Budget is a simple one. From the point of view of production, the argument that it is going to help the industry of the country cannot, I maintain, be sustained From the point of view of distribution, the main result of the Budget simply is that the small minority of the wealthier people of this country are going to be better off as a consequence of it than they were before, and that is why my right hon. Friend the Member for Colne Valley was perfectly justified in saying that this is a Budget introduced by rich men for rich men, and the most selfish since the close of the War.

Photo of Sir Frank Nelson Sir Frank Nelson , Stroud

I propose to detain the Committee for only a very few minutes, because the subject to which I wish to confine my remarks is the very bold and courageous statement made by the Chancellor of the Exchequer yesterday that England was to go back to a partial restoration of the gold standard. I know that this is a subject that is going to be discussed again on Monday, but I may not on that day have the same good fortune which has attended me this afternoon in catching your eye at long last, Mr. Chairman, and there are certain things that I wish most urgently to place before the Chancellor for his consideration. I want to make it perfectly clear at the outset that I am a wholehearted supporter of returning to a free gold market, if only I could be perfectly sure that this could be done without any undue risk, but, on the principle that no major operation is ever performed upon a patient, however, desirable and however necessary it may be, unless that patient is in a reasonably good state of general health, so I am not entirely convinced that this country is in a sufficiently good economic state of convalescence to enable this operation to be performed with a negligible risk of untoward consequences.

I want to ask the right hon. Gentleman, if I may, seriously to consider the doubts and perplexities of many of his very loyal supporters in various connections on this subject., one of which only will I put before him to-day. Others, I shall hope to put before him on Monday, if I am fortunate enough to catch the Chairman's eye, but it seems to me that his proposal in the main at the moment is that we should change over, or that we have changed over, virtually, from a very competent control of the issue of paper currency, which is controlled without any reference to other nations, to a system of currency with, for its basis, gold, a metal that is privately produced, privately sold, and privately owned; in other words, that we are changing over from a very competent system of a managed paper currency to a system of controlled exchange, controlled by means, as the report of the Committee on the Currency and Bank of England Note Issues most courageously says, of putting the bank rate either up or down. May I ask the Chancellor of the Exchequer to consider this, that most of the arguments that he will have to contend with on Monday or Tuesday will be the results to this country from too little gold? I submit with all deference, and also with a great deal of certitude, that there is just as great a risk of ill-effects coming to this country in the next few years from too much gold as too little gold.

That, I think, is a point the right hon. Gentleman might possibly think it worth while to consider, but, after all, what we have to consider at the moment is that if the balance of trade, which, most unfortunately, shows not the slightest signs of being less adverse than it has been—for instance, in January, February and March of this year, the adverse balance is nearly £40,000,000 more than the figures covering a similar period in 1924—results in a flow of gold going out of this country, the natural question which presents itself to the man in the street, who, after all, is ultimately most concerned in this very difficult subject, is, where are we going to get this gold if, by any chance, we find it necessary to make heavy purchases? The Federal Reserve Bank of New York has, at the moment, no less than £305,000,000 over and above the necessary statutory minimum amount necessary under United States law. The world output of gold, at a very moderate estimate, taken at par, is about £80,000,000, and even in 1924, the country in which I have worked exchange for nearly 20 years, namely, India, imported £30,000,000 alone of gold, that is, more than one-third of the total world output.

Those are one or two minor points that might be considered when the subject comes to be debated in full on Monday. I freely admit the advantages in so far as the restoration of the gold standard means the free negotiability of bills of exchange drawn upon London, but the disadvantage of changing over from an excellently managed system of controlled currency to that of an exchange controlled by means of the bank rate and dollar credits can hardly be over-estimated. It is one which, I think, might very well be examined, and I hope the Chancellor on Monday will dispel some of the doubts and perplexities of his supporters as to what he proposes to do if things do not go quite as I understand the Government must, obviously, expect them to go. I have only one other remark to make in this connection, and it is that I hope when the Chancellor does consider this question, he will realise what a very big bearing it has on India. We are at the moment in India in a very awkward position as regards Indian exchange. The two positions, I think, are not altogether without analogy. We endeavoured in 1919, as a result of the recommendations of the Babington Smith Committee, to retain the fetish of convertibility. We were then placed upon a gold basis, which India has been totally unable to maintain, and now that we have here in England established a partial return to the gold standard, I think, as soon as it is reasonably possible, a Royal Commission should be appointed to investigate the whole question of Indian exchange.

In conclusion, perhaps I might ask the indulgence of the Committee to quote a text-book definition of the gold standard, because there seems to be a very considerable amount of confusion of thought on the part of the man-in-the-street as to what is exactly meant by a partial restoration of the gold standard. The gold standard, in a text-book definition, might be described as a standard of currency with gold for its basis, having as mediums of internal circulation silver and paper substitutes, both of them legal tender to an unlimited amount, and both of them interchangeable with gold at a fixed ratio. I apologise for being pedantic, but as I say it is a text-hook definition, and we are very considerably removed from a gold standard in terms of that fixed ratio, at any rate as visualised in the announcement of the Chancellor yesterday, that restoration of the gold standard took place from the time he made that announcement.


The hon. Member for Central Nottingham (Mr. Bennett) speaking recently, contrasted the stupendous degree of our national taxation and the tremendous burden of unemployment, and, if I understood him aright, he suggested that the burden of taxation was the greater of the two. I differ fundamentally from that opinion. I submit that, attached to the one and a quarter million unemployed, is the most serious problem we have to face, and, in view of that, I think it is unfortunate there is so little in the Budget which, apparently, will give relief to the unemployed, or will stimulate trade. The figures which the right hon. Gentleman has submitted show a decrease of £1,250,000 in the amount of provision he is making for the Ministry of Labour, unemployment benefit, and work for the unemployed. That at a time when unemployment is increasing in a somewhat significant and disastrous figure. Before the House separated for the Easter Adjournment, there was a discussion on the general question of our national staple trades, particularly with regard to shipbuilding and iron and steel, and appeals were made from all parts of the House that the Government should do something in order to relieve the terrible depression which was prevalent in these staple industries. At that time the shipbuilding question was largely to the front, on account of the unfortunate order lost to this country. But that is emphasised by the more recent shipbuilding returns, which show that there is a big fall in construction for this quarter, as compared with a year ago, and a much larger fall compared with 1913, and the tragic fact is that, whereas before the War we were builders of from 60 per cent. to 70 per cent. of the world's tonnage, we are to-day building less than one-half, and, as our ratio is falling, naturally the foreign ratio is increasing, and surely at the present time something more might be done of a more hopeful nature in this Budget to stimulate trade and help employment. I cannot see, as a result of the Budget and the magic sixpence he has given to the Income Tax payer or to the relief of the Super-tax payer, the shipyards reviving in activity, or the stagnant. coal mines being restarted.

I submit that it is disastrous and unfortunate that so little should be done for the direct relief of unemployment. It has been suggested—and the last hon. Member dealt with the question very ably—that the relief to the Income Tax payer will stimulate trade, but while it is possible to conceive that where profits are being made, a reduction of the tax on those profits may be of some encouragement. what possible help can it be to those industries where no profit is being made, but which are being carried on at a loss? It is no stimulus to them to think that when they make profits there. will be so much less taken away, when their standing charges are so heavy that they, cannot possibly carry on except at a loss. It is not a question of stimulating languishing trade on small profits, but of dealing with trade and industry carried on at an absolute loss. There is no shortage of capital. You have only to watch the Stock Exchange or public Press, and when any company requires a new flotation, provided it is sufficiently attractive, there is any amount of capital forthcoming. The difficulty is to find profitable returns in our own industries, and you find chairmen after chairmen of public companies, while deploring the increase of taxation, to a. greater extent deploring the increase of rates, which is crippling and burdening industry.

The point I want to put to the right hon. Gentleman is whether, with the millions he has to distribute, it would not have given greater releif if he could have managed in some way to give relief to the overburdening charge of rates? Whether Income Tax or rates, it is a public charge on industry, but whereas Income Tax is a levy on profits, rates are a burden on industry, whether there are profits or losses, and it is a first charge on industry which is crippling and throttling the revival of trade. May I, in support of this contention, quote a previous Chancellor of the Exchequer, who is now the Minister of Health? Speaking on the 1st August, 1923, on the question of the heavy burden of rates with regard to the throttling of industry, he used these words, and they are so significant that I venture to trouble the House with the quotation. He said: I think it is generally understood that in some of these areas the burden of rates upon local industries—a burden which is not, like Income Tax, dependent upon profits made, but which has to be borne by the industries, whether they make profits or not—at present is so heavy that it really forms a serious handicap to industries, and prevents them even from getting upon their legs and regaining the prosperity which would enable them in time even to bear the heavy burdens they do now."—[OFFICIAL REPORT, 1st August, 1923; Col. 1651, Vol. 167.] That, I submit, is a very definite pronouncement by the Minister of Health when he was Chancellor of the Exchequer, and I submit that it is a very sound distinction, that where as Income Tax is a grievous tax on profits made, rates are an infinitely more grievous tax on industry, because they are a standing charge to he faced whether there are profits or not, and before you can get industry going, you must do something to relieve it of this heavy burden. Income Tax bears some relation to ability to pay, but rates do not necessarily bear any such relation. The Income Tax falls equally on all the community, but rates fall most unequally, and, in fact, most heavily on those particular districts which are least able to bear them. Consequently, we find in the heavy iron and steel industries, where unemployment is so rife, and trade is so bad, the burden of these rates is infinitely greater than in the rest of the country. In the constituency which I have the honour to represent, Middlesbrough, our rates are 18s. 8d., and they are up to 24s. 4d. in Merthyr Tydvil, whereas in non-industrial areas, where they have not this unemployment, the rates vary from 8s. to 9s. in the pound.

8.0 P.M.

Therefore, I do appeal to the right hon. Gentleman, if he is really anxious, as we know he is, to stimulate trade and enable our industries to regain their activity, to spare some of the millions he has for more direct relief to industry, through some grant from the Treasury to these overburdened districts where the rates are crippling industry. May I quote from one or two leading business men who have recently addressed their various companies on this question? A shipbuilding chairman, speaking not long ago, compared the charges of the local rates, and pointed out that in 1914 what was 12s. 6d. per man employed, had risen in 1924 to 48s. per man. The chairman of a local company in the district which I represent, comparing the rates of 1913 and the present time, showed that in the one case they added one shilling per ton to the cost of steel, while to-day that addition was 6s. 3d. May I just weary the House with one other quotation—the figures are very significant? They relate to two North-country shipbuilding yards, and show how the shipbuilding industry in particular is being crippled and throttled, and prevented from competing successfully with our competitors abroad.

In one yard to which I refer the rates in 1913 amounted to £1,931. In 1923 they had risen to £8,215. In the other yard, in 1915, the rates amounted to £2,748. Six vessels were launched in that particular year and the burden per vessel was £458. Last year those rates had increased to £9,680. Only three vessels were launched, which meant a burden per vessel of £3,227. These are figures which show it is not a question of protecting the industry from foreign steel; it is rather a question of protecting the industry from the heavy burden of the rates, which practically kill it. Then we are told there is going to be this extra fourpence per man put on to the industry to secure the very desirable widows' and orphans' pensions, and pensions at 65. A preceding speaker has already stated that this is an added burden on industry, and that it is wrong at the present time to add to the burdens which are already so heavy. I submit that some of the money given to the Super-taxpayer would have been much more profitably devoted to meeting this charge for pensions rather than by putting it on to industry, which is already crippled and overburdened. In conclusion, I do hope that the Chancellor of the Exchequer will not completely turn down this appeal which is made by all parties and all sections of the community, by employers and employed, by the local authorities, that this question of the incidence of the burdens of rating, as compared with taxes, should be reconsidered to see whether some relief cannot be made and a stimulus given to industry by some grant to industry in view of these particular burdens.

Photo of Mr Frederick Pethick-Lawrence Mr Frederick Pethick-Lawrence , Leicester West

Like the hon. Member for the Stroud Division of Gloucestershire (Sir F. Nelson), I view with considerable concern the precipitate decision to reimpose the gold standard upon this country. I asked the Chancellor of the Exchequer yesterday a question with regard to the purchasing power of the sovereign in this country in comparison with the purchasing power of gold in the United States. I was quite prepared for the evasive answer which I received, an answer which not only failed to deal with the second part of my question, but failed to express any opinion upon the facts which I had asked in the first part. I had been so prepared for that that I had fortified myself by asking an innocuous question of the President of the Board of Trade immediately preceding the one to which I refer. From that answer I got the information which the Financial Secretary to the Treasury, speaking on behalf of the Chancellor of the Exchequer, did not propose to give me.

It is this question, this aspect of the question, that looks to me to be one of very great gravity for trade and employment in this country at the present time. According to the figures with which I was supplied by the President of the Board of Trade prices in this country at the present time are 71 per cent. above pre-War level. In the United States they are 62 per cent. above pre-War level. That means that, whereas before the War prices in the two countries, exchanging on a full gold basis, were on an equality, to-day prices in this country are 51- per cent. above exchange ratio. That was so before the Chancellor of the Exchequer decided to put on the finishing touch by restoring the gold standard. By doing that he brings the pound sterling up to its full nominal equivalent and stereotypes for the present this wide discrepancy between the purchasing power of gold in this country and its purchasing power in the United States. That means that the purchasing power of the pound sterling in this country is lower than its purchasing power abroad. I venture to illustrate the very serious effect that that has upon our trade.

In the first place, may I point out that this is exactly the reverse of the situation in Germany a few years ago when the internal purchasing power of the mark was very much greater than its external purchasing power. At that time, and in consequence of that fact, the German manufacturer had a very great advantage He was able to produce very much more cheaply in terms of world prices. He was able, very seriously, to undercut production in this country. Our position, as I have already said, is the exact reverse of the position in Germany at that time. In consequence there is exactly the reverse situation in regard to the condition of the British manufacturer. The British manufacturer, owing to the purchasing power of the sovereign at home being less than it is abroad, is placed at a disadvantage in comparison with our rivals in other countries. Let me put it in a perfectly concrete form Suppose the manufacturer in this country is able to turn out an article and sell it with a minimum margin profit at one pound sterling. The exchange price of that in America at the present time would be about 4 dollars 60 cents. If it had not been for the manipulation of the Bank of England that British manufacturer would be able to place that article on the American market at 4 dollars 60 cents. Owing to the manipulations which have been taking place in the last few months with a view to the restoration of the gold standard —I am taking the actual restoration which the Chancellor of the Exchequer announced yesterday—he is not able to take that course; instead of that his sovereign in this country is the equivalent of 4 dollars 87 cents, and that is the price which he has to charge to the American potential purchaser. In other words, he loses, through this raising artificially of the exchange, 27 cents. I put it to the Committee that that may very likely be sufficient to turn the scale against him and lose him the contract.

That has been going on during the last few months. When the Chancellor of the Exchequer came into office the purchasing power of the sovereign had a certain ratio on a gold basis to the United States dollar. To-day we have this discrepancy. It is noteworthy that, during the months while this discrepancy has been increasing, unemployment in this country has also been increasing. I think it is not unfair to say that it is a natural and, to some extent, a necessary consequence of what I have been describing. We had the announcement made yesterday that the pound sterling is definitely to come on the gold basis. That means that this tendency which has been going on is to continue. What is going to be the consequence of it? I think there is no doubt that it means that the bad trade and unemployment in this country will be continued, and will increase—unless one of two things takes place. Either there may be a rise in world prices, in the United States, and other countries. If that were to take place then, without any change of prices in this country, it will be possible for us to get back to parity between the rate of exchange, and the purchasing power, so that the British manufacturer will no longer be at the disadvantage he is under at the present time. But supposing, on the other hand, that prices in the United States and elsewhere do not rise to this extent, what then would be the result? The result will be that, in order to get ourselves back again on to a normal footing in trade, we shall have to make a further cut in British prices. If the figures which I have already given, largely based on the answer given to me by the President of the Board of Trade, are correct, that cut in prices cannot be less than 5½ per cent; this cut of 5 per cent. will mean a demand on the part of the employers of this country for a further reduction in wages, and that that demand will have disastrous effects, which will be a repetition of the disastrous effects which we have seen in this country in recent times.

I suggest that the restoration of the gold standard in this way is, to a large extent, a gamble. If world prices go up then the consequences will not be serious. If world prices do not go up then we shall be faced with a very serious continuation of our very serious bad trade. We shall also be faced with the necessity of making a further cut in prices in this country to the extent of 5 per cent. We shall be faced with, probably, a demand on the part of employers for a reduction in wages, which, again, will have disastrous consequences for the industrial situation in this country. I do feel, and I put it to the Chancellor of the Exchequer, that this is a very serious situation to have brought about. It seems to me the responsibility will rest with him for what takes place, and' that it will be up to him to try to devise means for meeting the situation. I do not suggest that it will not be possible for us to retain the gold standard, having imposed it, but I do suggest very seriously that the consequences in bad trade will be most noteworthy, and that the right hon. Gentleman will find that continuing unemployment and the increasing possibility of industrial unrest have, by the proposal, been seriously affected.

I turn now to some other considerations in the Budget, which touches upon many fields. The first, and foremost, and most important point in the Budget statement which we heard yesterday was the pronouncement in regard to the new pensions scheme. Now I should like to say It being a Quarter-past Eight of the Clock, further Proceeding was postponed, without Question put, pursuant to Standing Order No. 4.